Kraken Ventures eyes Europe’s crypto startups

Kraken Ventures has never wanted to operate like the other venture offshoots of crypto exchanges. It doesn’t source all of its capital from the balance sheet of its parent exchange, nor does it confine itself solely to crypto bets.

Now, the unit wants to differentiate itself further; setting its sights on Europe, a region that sees significantly fewer deals in the crypto space than the U.S., according to its first European venture partner Laurens De Poorter.

Last year, there were 425 crypto-related deals in Europe, while North America saw double that at 950, according to The Block Research’s end-of-year report. 

Yet De Poorter, in an interview with The Block, said the continent’s crypto scene is flourishing of late, crediting the European roots of key crypto players such as Ledger and Aave, as well as a burgeoning software developer scene. Investors aren't taking advantage, De Poorter added. 

While Europe's startups nabbed over $4 billion in funding last year, it remains the case that much of the capital that goes towards crypto is raised by American investment firms. Last year, U.S. investors raised $72 billion for crypto projects while Europe’s largest crypto investor, the UK, raised just $4.6 billion — still good enough for second place in the global rankings. 

That discrepancy is something that De Poorter sees as an opportunity for crypto VCs like Kraken to have “boots on the ground here in Europe.”

Kraken Ventures previously closed a $70 million fund in 2021, from which there is still “ample dry powder” left over, De Poorter said. The firm, which invests tickets ranging from $500,000 to the $2 million range, is also eying raising another fund this year.

A different path

Crypto exchange venture programs are usually backed by the balance sheets of their parent exchange.

While Kraken is an anchor LP, crypto market makers, trading shops and family offices are also backers, which is why the fund brands itself as “independent” from the exchange. 

“It allows us to make completely independent investment decisions that are focused on return for our investors rather than more strategic decisions that are oftentimes tied to internal roadmaps and maybe even bureaucracy and politics,” explained De Poorter.

De Poorter claims that’s resulted in a more concentrated fund that can take the time to actively help out and advise a small but refined selection of portfolio companies, compared with other corporate venture arms that “spread their tentacles across a lot of other companies.” Notably, the venture arm of rival exchange Coinbase is crypto’s most active investor, with 348 deals to its name.  

De Poorter claimed that while the firm has closed deals in as little as two weeks, it’s passed on speedy 48-hour deals where it couldn’t conduct enough due diligence.

“Last year, there were numerous times where entrepreneurs would go ‘Look, Laurens, we really like you. We would love to have Kraken Ventures on board, but you need to decide by tomorrow,'” he said.

Crypto as infrastructure

Ultimately, Kraken is driven by a belief that crypto is “a better tech stack.” That belief in crypto as infrastructure is what has compelled it to take stakes in crypto infrastructure firms Kiln and Hyperlane.

It also means Kraken isn’t constrained to the confines of pure crypto. The venture firm is also needling its way onto the cap tables of fintech firms such as Dutch B2B checkout platform Sprinque to encourage further crypto adoption.

“It's actually super useful for any fintech company to have someone on the cap table that is crypto native and can at least be part of the conversation to tell them, ‘Hey, have you thought about maybe using crypto for that?’” De Poorter said. 

For now, De Poorter seems optimistic about the crypto funding market. He rubbished the idea that the quality of founders has dropped recently, with the best entrepreneurs still waiting in the wings before fundraising.

While there are noticeably fewer founders, he admitted, the entrepreneurs raising right now are focused on building fundamental tech to help steer the industry into the next bull market, rather than being preoccupied with quick money grabs in the form of token launches.

“In my opinion, there’s a much higher average quality of entrepreneur that I see starting a business right now,” he said.