Disclaimer: This is not financial advice. Anything stated in this article is for informational purposes only and should not be relied upon as a basis for investment decisions. Triton may maintain positions in any of the assets or projects discussed.
This is a multi-part series on Triton’s investment process for liquid crypto:
Liquid Crypto VC
As technology reshapes the finance sector, the emergence of Liquid Venture Capital (LVC) stands out as a novel paradigm shift. Situated at the intersection of conventional venture capital practices and public market dynamics, the emerging cryptocurrency asset class necessitates a nuanced approach. Cryptoassets offer unique investment and risk profiles that combine venture-style returns with a shorter investment time horizon and continuous liquidity. In this new asset class, LVC is primed to redefine investment methods, addressing many limitations of the traditional VC model and providing outsized returns with the benefit of full liquidity.
The Limitations of Traditional Venture Capital
Traditional VC operates on the principle of illiquidity. Investors pledge their capital to startups for prolonged periods, frequently years, before a liquidity event such as an IPO or an acquisition offers returns. The VC model, while valuable in its capacity to foster innovation, is fraught with inherent constraints:
FJ Labs’ Novel Approach to Traditional VC
Fabrice Grinda and Jose Marin recognized some of the shortcomings listed above when they founded FJ Labs and devised a novel investment approach. As Fabrice discusses here, FJ Labs takes a unique, high-velocity angel investment approach to early-stage VC:
As a result, the FJ Labs portfolio consists of over 1,100 companies that span multiple investment stages, geographies, and industries in marketplaces and network effect businesses. Because of this approach, FJ is a small enough investor to exit at certain rounds, which helps solve for the illiquid shortcoming listed above.
This approach has worked well. Some of FJ Labs portfolio companies include Alibaba, Betterment, Coupang, Delivery Hero, Fanduel, Flexport and Rappi with over 300 exits, a 3.8X realized multiple and 37% realized IRR. FJ recently closed on $290M from the founders of Linkedin, PayPal, Supercell, Wayfair and MongoDB, families who run Estee Lauder, Banco Itau, El Corte Ingles and Walgreens Boots Alliance, and organizations such as Sequoia Capital, Atomico, Tiger Global, and H&M.
FJ Labs - Liquid Crypto
Given the unique strategy FJ applies to traditional venture, it was the perfect place to apply a nuanced LVC model to the cryptocurrency arena. FJ Labs was already very active in the crypto space, with 47 crypto investments by June 2022. In July of 2022 we began incubating a new LVC crypto strategy for the fund. Over the next few posts, we will outline some of the methods we use to invest in and actively manage a diversified portfolio of liquid crypto assets.
FJ Labs allocated $30M to this strategy in the fall of 2022. Though we started building small positions then, we did not begin deploying capital in earnest until late 2023. Below shows the fund performance as of close March 11, 2024.
On roughly $28M of invested capital, our strategy has returned 106%. Since November 2023, we have increased our market exposure from 20% to 90%.
Triton Liquid
Given the success of the strategy, we have decided to spin this out of FJ Labs and launch a directional, long-only liquid crypto fund called Triton Liquid Fund.
Over the next few posts, we will outline some of the methods we use to invest in and actively manage a diversified portfolio of liquid crypto assets.
Why is now right for liquid crypto VC?
We believe now is the best time to pursue a liquid crypto strategy for several reasons:
There are also now several shifts starting to take place on a macro level that point to a softening of the headwinds crypto has faced:
Each of these are coming together over the next 18 months to spur a step-function change in the adoption of cryptoassets around the world. We believe that the above factors, combined with our proprietary evaluation process, provide a unique opportunity to realize venture returns in this emerging asset class.
MEV (Maximum Extractable Value) is the value captured by third parties on blockchain networks