Polychain Capital eyes $400 million raise for fourth fund

Olaf Carlson-Wee’s Polychain Capital, one of the biggest investors in crypto, is in talks with potential investors about raising a fourth fund.

The San Francisco-based firm is seeking $400 million and has been pitching the fund for the past few months, according to three people with direct knowledge of the matter. The discussions with potential limited partners are at an early stage.

As a venture capital investor and active manager of tokens, Polychain is one of the crypto sector’s most prominent investors. The company was founded in 2016 by Carlson-Wee, the former head of risk at Coinbase. As of March 2022, it managed more than $6.6 billion in assets, according to a regulatory filing.

Polychain has participated in 158 crypto investments to date, according to The Block Pro’s deals dashboard, ranking it as the sector’s sixth most active investor. It has participated in five investments so far this year, mostly at seed stage. Among its historic bets are major Layer 1 developers Ava Labs and Solana Labs and stablecoin issuer MakerDAO.

“We believe society will restructure around blockchain-based incentive systems, and accelerate this future by allocating funds toward breakthrough technologies and technical teams building these ecosystems,” Polychain states on its website.

If successful, the $400 million fund would be Polychain’s fourth. The third was larger, at roughly $750 million, according to one of the people with knowledge of the latest raise.

Choppy waters

The fundraising effort comes at a tough time for crypto hedge funds and venture investors alike. Some of the sector’s biggest venture firms were hit by last year’s collapses, which began with the implosion of the Terra blockchain and ended with a meltdown of Sam Bankman-Fried’s crypto empire, at the center of which was the exchange FTX.

Sequoia Capital wrote off $210 million in investments in FTX; Canada’s second largest pension fund Caisse de dépôt et placement du Québec lost $150 million on Celsius; and numerous funds in the space had money parked with now-bankrupt businesses including FTX, BlockFi, Three Arrows Capital, Genesis Global Capital and Celsius. 

Polychain avoided backing FTX and several other firms that blew up last year, but it did back Terraform Labs, steward of the Terra blockchain, as part of its $32 million raise in 2018.

One of the people with knowledge of the matter said Polychain continues to see crypto as the most attractive sector for early-stage investors, despite volatility in the market. Its fourth fund will take a keen interest in on-chain infrastructure, as well as Decentralized Autonomous Organizations (DAOs) and other novel work systems, they added.

While AI is the hot new ticket among many venture capitalists, Carlson-Wee tweeted on Feb. 28 that startups in the sector must align themselves with legacy tech to be successful, while in crypto “100% of value accrues to startups and outsiders.”