Introduction
Silicon Valley venture capital firm a16z has raised over $7.6 billion to invest in cryptocurrency and Web3. In this exclusive interview with The Block's "The Scoop," a16z Partner Chris Dixon shares the firm's guiding principles for crypto investments and explains why decentralized networks are poised to replace centralized corporate networks. Below is an edited transcript of their conversation.
Key Discussion Points
- How venture capital firms manage risk in their portfolios
- The relationship between the internet and "networks"
- Why a16z never invested in FTX
- The transformative potential of decentralized social networks
The Dual Nature of Technological Trends
Frank Chaparro: Welcome to The Scoop. Today, we're speaking with Chris Dixon, founder and partner at a16z. Chris, given the current volatility in crypto markets, how do you view this environment as a venture capitalist?
Chris Dixon: For VCs, the time horizon is inherently different. Hedge funds might focus on predicting what happens in 3 or 12 months, but we think much longer-term. In my career, I've observed that two layers coexist:
- The technological/entrepreneurial layer
- The capital markets layer
These layers aren’t perfectly correlated. For example, I started my entrepreneurial journey in 2003 during the dot-com bust—Amazon traded at $6 per share. Yet, retrospectively, that was among the best times to build internet companies.
Similarly, during the 2008 financial crisis, we began investing in mobile apps. The iPhone debuted in 2007, and the App Store launched in 2008. Most top apps today were built between 2008–2011. This pattern repeats throughout tech history.
Today, I see three major trends:
- Blockchain/crypto
- AI
- Virtual reality
Every 10–15 years, a major new technological wave emerges. We’re on the cusp of these shifts—a thrilling moment despite the market downturn. High-growth tech companies universally face these cycles, not just crypto.
Why Crypto Stands Out
Frank Chaparro: Why single out crypto companies during market turbulence?
Chris Dixon: New technologies are double-edged swords. Crypto attracts attention for being innovative and controversial—similar to AI today. Novelty breeds scrutiny: the bigger the idea, the more polarized the reactions.
For instance, the internet was once accused of killing print media. Yet, it created far more jobs (e.g., web designers, social media managers). AI and crypto will follow this pattern—augmenting, not replacing, human creativity. However, transitions can be politically charged, especially for those needing to adapt.
VC Accountability and the FTX Debacle
Frank Chaparro: Critics argue crypto VCs failed due diligence around FTX. How does a16z approach this?
Chris Dixon: First, VC oversight is crucial. We advocate for strong governance: boards, audits, and compliance teams. Coinbase, which we invested in, exemplifies this—70% of its board focuses on security/compliance.
Our investment framework is binary:
- Fully on-chain (e.g., Uniswap)
- Fully regulated (e.g., Coinbase)
Offshore entities like FTX occupied a dangerous middle ground—avoiding both chain transparency and regulatory scrutiny. Not investing in FTX wasn’t luck; it resulted from a decade of disciplined filtering for genuine innovation.
Investment Focus Areas
Frank Chaparro: What sectors are you prioritizing now?
Chris Dixon: We invest across two layers:
1. Infrastructure
- Layer 1/Layer 2 blockchains
- Cross-chain bridges, wallets
This is the first time crypto infrastructure can support hundreds of millions of users.
2. Applications
- DeFi/payments: Lightspark (Bitcoin Lightning Network)
- Web3 gaming: ~15 upcoming games from ex-Blizzard/Riot teams
- NFTs: Bridging crypto from finance to media—a path to mass adoption
- Decentralized social networks: Farcaster (user-owned protocols)
The Promise of Decentralized Social Networks
Frank Chaparro: What advantages do decentralized social networks offer?
Chris Dixon: It’s about economics and power:
- Take rates: YouTube keeps 45% of creator revenue; Twitter/Facebook take 100%. Decentralized networks reduce this extraction.
- Ownership: Early Uber drivers helped build its network but got no equity. Crypto enables ownership via tokens—a potent incentive (e.g., Dogecoin’s community).
Historically, email succeeded as a community-owned protocol. Blockchain networks like Ethereum combine this openness with tokenized governance—still evolving but more inclusive than walled gardens.
Market Outlook and Fund Deployment
Frank Chaparro: How much of Crypto Fund 4 is deployed?
Chris Dixon: Less than 50% of the $4.5 billion fund is deployed. Venture capital follows a J-curve—returns accrue later. Selling early is the worst mistake. We still hold 95% of our investments.
Frank Chaparro: Can you buy more tokens post-investment (e.g., Uniswap)?
Chris Dixon: Yes, we’ve done this repeatedly. Our data science team models valuations based on protocol growth/cash flow—not short-term momentum.
VC is a talent business. We bet on founders with unique visions, then help them scale. Like truffle hunting, it’s about spotting exceptional builders.
FAQs
1. Why didn’t a16z invest in FTX?
We avoid hybrid models—entities must choose between on-chain transparency or full regulatory compliance. FTX’s offshore structure lacked both.
2. What’s next for crypto infrastructure?
Scalability improvements are unlocking apps for hundreds of millions of users—a tipping point for adoption.
3. How do decentralized networks redistribute power?
By reducing platform take rates (e.g., YouTube’s 45% cut) and enabling user ownership via tokens.
4. What’s a16z’s risk management strategy?
Long-term holds aligned with technological bets, not short-term trading. Our models evaluate protocol fundamentals.
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Editor’s Note: This interview has been condensed for clarity. Always conduct independent research before investing.