On a sunny April morning, Kathy Hawn drove a winding road around Stanford Plateau in the hills of Palo Alto. The three-and-a-half-mile course is a favorite haunt of a venture capitalist turned fiscal, but Hawn wasn't about to play. Instead, his small group of 11 they had to put on a high-stakes show to convince the wealthy backers of the $1.5 billion grant that, despite the declining crypto industry, everything is going according to plan.
After the tour, Haun, his team and the few limited partners accompanying them returned to Haun Ventures' sublease office in Menlo Park, where the team sat among the assembled 70 LPs and portfolio company founders. Hawn: Sales star Sam Rosenblum gave a presentation on the Gartner Hype Cycle, a long-used technology trend gauge, to ease attendees. Message: Loop waves are when the actual construction happens.
Cryptocurrency can fluctuate cyclically, but the decline was much greater than investors expected, exacerbated by the spectacular collapse of many major projects in the cryptocurrency industry. As for Hawn, who went from a Supreme Court practice to a powerful Justice Department position at the helm of the venture capital world, the crypto explosion threatened the first major setback to her meteoric rise and carefully cultivated reputation.
thread on a needle
The moment was terrible. Launching a new crypto fund in the spring of 2022 was like launching a new movie theater chain before the pandemic. Within a few months, the extraordinary bull market that saw bitcoin hit $69,000 turned sour. High profile projects like Terra collapsed. and the venture capital industry has been hurt by rising interest rates. Then came November, when industry leader FTX collapsed in the wake of the massive fraud and US regulators launched the sharpest crackdown in the industry's history.
As a result, Hawn raised $1.5 billion, a significant amount even for Silicon Valley venture capitalists, but many of the best options were sold. According to the fundraising application, while raising money divided among several funds, Haun outlined an implementation period of about two years. But this graph was now out the window.
Crypto venture funding fell to $2.3 billion in the second quarter of 2023, down more than 70% from the same period in 2022, as many investors focused on the more active AI sector. .
Some crypto companies are still dusting themselves off. Polychain Capital, for example, has already invested most of its third fund, which it raised in 2022 and 2023. While it has so far managed to raise $200 million for its fourth fund, other VCs have not been so lucky. Capital raised by cryptocurrency venture capitalists is only $2 billion in 2023, compared to over $22 billion in 2022.
Haun Ventures has been more cautious and now plans to spend about three years with the money. As of mid-June, the company has invested about 30% of its capital in nearly two dozen positions, including publicly traded liquid token assets. These can include popular cryptocurrencies such as Bitcoin and Ethereum, as well as small project-related tokens that are included as part of venture capital investments alongside traditional capital. Haun Ventures does not want to say who owns it.
During that time, the firm's holdings have been split roughly equally between digital tokens and traditional stocks, though the focus is on seed investments through 2023, according to Rosenblum's partner.
Haun Ventures has invested in Zora, an NFT creation platform, and Thirdweb, a Web3 infrastructure platform. It also invested $32 million in a Series B round for Aleo, a privacy-focused blockchain network, and backed Artemis, a crypto-data analytics platform first reported by Fortune.time . The company plans to announce additional deals in the near future.
Like other venture capital firms, Haun Ventures will use its leverage to support startups in its portfolio. When Aleo nearly lost access to banking services after the collapse of Silicon Valley Bank and First Republic, Haun spoke behind the scenes, arranging presentations at other banks and sending his staff to help answer policy questions.
Among the US regulatory lands, Haun is also looking for opportunities abroad. He recently returned from a trip to Japan where he met with a member of parliament who called for the adoption of Web3.
Now any assessment of the profitability of Haun Ventures is premature, because, as the company's partners themselves admit, it is too early to assess the effectiveness of new ventures. In addition, many LPs are huge investors, including Saudi Arabia's Sovereign Wealth Fund, which is making the leap into crypto. "If it goes down to zero, it's not going to blow up our portfolio," says investor Haun.
While some may appreciate the company's relative caution, there will still be pressure on Haun Ventures to do something with its capital because the company, like other venture capital funds, charges management fees. The industry average is around 2%. Haun Ventures declined to comment on its fees.
Rosenblum acknowledged that the company is moving at its own pace in a changing market. "There are two ways to go wrong. you have to go too fast," he told Fortune magazine . "And then the other goes very slowly."
It's not an ordinary VK
Hawn faces the same problems as other venture capitalists in trying to perfect their investment strategy in the event of a black swan. But she's also facing increased and perhaps unfair scrutiny as the woman who first attracted the most funding from a founding partner in a male-dominated industry.
The background to these was discussed at a venture capital dinner this spring. At a dinner, it was argued that Hawn may be competent in regulation, but lacks deep technology and negotiation experience. However, Haun's supporters believe that this is irrelevant.
"He's not an engineer or a restorer or a builder," Fred Wilson, co-founder of Union Square Ventures, which was involved in the deal, told Fortune . Instead, Wilson said, Haun offered a wealth of experience in government and his Rolodex.
"He's one of the best operators I've ever worked with," Wilson said. He can talk to anyone."
His network of contacts has propelled him to the top of the venture capital world, as has his ability to sell his story. Although he is now recognized as one of the first federal prosecutors to deal with cryptocurrencies, he was not involved in the first cases, including the historic operation to take down the Silk Road internet dark market. Instead, he made a follow-up case to expose fraudulent government agents who stole cryptocurrencies from Silk Road, and later worked for crypto giant Ripple and former crypto resource Mt. Gox in a massive investigation into the Mt.Gox hack.
Haun used this experience to serve on Coinbase's board of directors and later as general partner of the Andreessen Horowitz Business Center, which he led for four years, investing in leading companies such as NFT marketplace OpenSea.
"Many traditional investors have moved from law firms to venture capital firms," said Haun Ventures spokeswoman Rachel Horwitz. "We strongly consider Kathy to be one of the most accomplished leaders and marketers in the crypto space."
Some law enforcement officials complain that his brief involvement in the pursuit of digital assets helped make Hawn rich and famous, even if other pioneers in the field did not enjoy the same benefits. Particularly disappointing was an article declaring Hawn "DC's best crypto detective," a title she never held or claimed.
"It's not like he worked as a slave for ten or two decades, he was in government for three decades, he was in cryptocurrency," said someone in the know. "I give him credit for making the game smarter, not harder."
The former law enforcement official recalls an episode in which a former Justice Department prosecutor took to LinkedIn to denounce media coverage that he believed misrepresented Haun's role in government. The agent, who spoke on the condition of anonymity, told Fortune that drama ensued, and Haun's friends apparently asked that the post be taken down. After a while it disappeared.
Whether the reports exaggerated Haun's achievements or not, the former agent said Haun benefited from his stardom. "He began in his best position [and] where he is in the best light in terms of his public career," they said.
Law enforcement is a world of selfishness and veiled narratives, where officers can only speak under certain circumstances, so professional conflicts must be resolved. Other officers defended Hawn, saying she never falsified her records.
"There are definitely haters," said Grant Raben, a former Justice Department prosecutor and head of financial crimes at Coinbase, who said 99 percent of Honey's critics "didn't have or didn't have his point of view." it was just luck."
The venture capital world has a very close relationship with the media. While many VCs see themselves as icons, some are suspicious and critical of negative coverage.
But like her former partner at Andreessen Horowitz, Mark Andreessen, who loves to fight reporters on social media, or Chris Dixon, her partner in the firm's cryptocurrency fund, who prefers to stay behind the scenes, Hawn prefers big press meetings. . He debated with Paul Krugman, spoke with Ezra Klein, and was on the cover of Fortune magazine, arguing that cryptography and compliance can go hand in hand. In May 2022, two months after Hon's funds went public, he appeared alongside Sam Bankman-Freed and Michael Lewis at the now-disgraced FTX founder's infamous conference in the Bahamas.
However, since the FTX crash in November, Hawn has avoided the media she once loved, except for a March 2023 Wall Street Journal article and a brief December interview with Bloomberg List, a decision her team blames. IN focus on negotiations and work with regulators. And when interviewed for the cover of Fortune last year, Haun declined several interview requests for the story.
Horwitz told Fortune that the best use of a company's time is to prioritize investment in the company.
"They're going to want a really heavy story."
When venture capital firms host investors for LP Days, it's a lavish affair. Given the sour cryptocurrency situation, Haun Ventures' April meeting showed modest savings; Drink coffee from the large dispensers and a picnic lunch at La Fromagerie. For this LP, the creators and staff gathered in the courtyard.
Brian Armstrong, co-founder of Coinbase, where Haun began his career in the crypto industry after joining the board in 2017, gave his standard speech that he wants his company to remain American despite the difficulties. with US regulators
LP Day results so far seem to have reassured investors, as no one has publicly complained or called for a pullback. Part of this may be due to an investment they didn't want to make . FTX, the popular stock exchange run by Sam Bankman-Fried, whose parents taught Hawn at Stanford Law School. Other funds, including well-known names and crypto specialists, decided to support the fraudsters, causing huge losses; Sequoia Capital evaporated $200 million of its investment capital, while Paradigm wiped out its $100.29 billion in FTX last year. .
With the media that once supported this closed, cryptographic protection is now almost entirely behind closed doors. He courts lawmakers, hosts fundraisers and educational sessions for high-profile politicians, including Sen. Kirsten Gillibrand of New York, a Democrat, and invites founders like Thirdweb's Furkan Ridhan to extol the benefits of blockchain.
Because deals are few and far between (as one LP put it, Haun Ventures "doesn't race"), much of the firm appears to be focused on political advocacy. Chris Lehane, who once led Airbnb's political battles and is tied to Democratic politics, says he spends about a third of his time advocating for cryptocurrency policy, including Coinbase's new Global Advisory Council, which has no clear mandate. : "strengthen efforts with agents". "." and "set crypto responsibly."
These are the early days of his entrepreneurial journey and the life cycle of his first fund. However, preferring to stay mostly behind the scenes, the former prosecutor has relinquished his title as public defender at a time when cryptocurrencies are struggling to survive. And even if his company has weathered the crisis, it's unclear whether investors will be willing to continue betting on the volatile sector.
"When they come back to raise a second fund, they want to have a very specific story about what they did and how they responded to a changing market," Union Square Ventures' Wilson told Fortune . "Hopefully they too will have successes to report."