Crypto-native asset management firm BlockTower is launching a dedicated venture arm as well as a new $150 million fund.
BlockTower general partner Thomas Klocanas — who previously managed a $50 million digital asset fund at White Star Capital — is in charge of the new venture side of the firm.
The fund has been operating in the shadows since December of last year. The firm locked in most of the capital within the space of two to three weeks, Klocanas said.
Recent BlockTower investments in startups such as Aptos, Lighthouse Labs and Maple Finance all fall within this new fund. The rate at which capital is being deployed is very methodical, Klocanas added.
“We are currently on pace to deploy in something like three years — whereas as you’ve seen funds go as fast as a couple of months in this space — and that’s because we found the market to be overheated."
The investing thesis for the fund skews towards decentralized finance (DeFi) and crypto infrastructure companies.
Around 90% of the fund will be deployed to a core portfolio of between 20 to 25 positions. Checks can run anywhere from $500,000 to $6 million with the firm targeting ownership of between 5% to 10% on the equity side or between 2% to 5% on the token side.
“Why these numbers?” Klocanas said. “They're numbers that scale from a portfolio math perspective for your winners to be able to return your losers in a venture portfolio, so to speak. But they're also numbers that scale on a web3 cap table.”
A token advantage
A huge competitive advantage for the fund is that it leverages a Registered Investment Advisor (RIA) structure. This means the fund can invest in liquid tokens, illiquid tokens and secondary shares.
A lot of venture funds rely on the “venture capital exemption” from investment advisor registration. This means that only 20% of their capital can be in non-qualifying investments, which applies to cryptocurrencies and tokens. An RIA structure avoids this challenge.
“We can back the best deals because they are the best deals, not because of the instrument they are constrained to raising capital with,” Klocanas said.
Crystallizing returns for LPs
BlockTower operates three other strategies including a long-biased flagship fund, a market-neutral fund that focuses on arbitrage and basis trades, and credit strategies with the likes of MakerDAO and Centrifuge.
The firm’s history as a hedge fund provides limited partners with an advantage when it comes to exiting those token positions.
“I think we definitely have some of the better execution capacity out there on the street to be able to crystallize returns as close to the price on the screen as is achievable,” Klocanas said.
Limited partners in the fund include Mass Mutual, VanEck Equities, BPI France, Circle and the Teacher Retirement System of Texas.