By Joel Khalili
Compiled by: BitpushNews an
On a cloudy March morning, a group of software developers made their way through the throngs of tourists and the muddy streets of central London. They walked in twos and threes into an office building on the edge of Soho, tucked away inconspicuously behind its striking Tudor and neoclassical facades. They were there to attend the first crypto bootcamp.
Five years ago, Silicon Valley venture capital firm Andreessen Horowitz (a16z) first launched a series of lectures for people who aspire to become crypto founders. They hope to encourage higher-quality startups to explore the limits of crypto technology. The course was later renamed Crypto Startup Accelerator (CSX), and CSX has now become a full-fledged course similar to Y Combinator: a16z provides participants with $500,000 in funding, 10 weeks of tuition, and the opportunity to use a16z resources in exchange for a certain amount of equity. The latest batch selected the founders of 25 startups.
The group was mostly male, ranging in age from about 20 to more than 50, but dressed similarly: Most wore hoodies or graphic T-shirts with jeans. Some projected an air of relaxed confidence, chatting freely over fresh fruit or croissants from a breakfast stand. Others sat in silence at the edges of the room.
As an outsider, I aroused some of their curiosity. When I introduced myself as a journalist, I noticed some people stiffened a little. "Should I be worried that you might report this?" one of the founders said, half-jokingly. But most seemed happy to have someone willing to listen to their work.
The founders are also sizing up one another, comparing their abilities in crypto. Some are new to the industry, but most have already deeply mastered the language, arcana, and traditions of crypto. One of the founders said he was the first person to use a Bitcoin ATM in London. Another started trading crypto futures at age 17. Some have begun discussing technical analysis of their projects with geeky enthusiasm. “I heard he’s a super-powered guy,” said another, referring to the a16z partner assigned to him as a mentor.
Soon, the group was led to a room in the back of the a16z offices that would serve as a classroom and lecture hall for the next 10 weeks. Rows of long tables and stools at tall tables faced a stage adorned with a sky-blue and black CSX logo. Jason Rosenthal, an operating partner at a16z and head of CSX, was the first to take the stage.
Nearly all of the largest integrated venture capital firms—from Sequoia and Accel to Greylock and Lightspeed—have invested in at least a few crypto startups. But a16z stands out in its belief and level of investment in the industry’s ability to produce a new generation of era-defining software businesses—and in the hopes that these founders will make it happen. “Each of us has the opportunity to build a once-in-a-lifetime technology franchise,” Rosenthal told the crowd. “We are very confident that there will be companies in the near future that will take that position in this new space. The seed for that will be planted today.”
a16z was founded in 2009 by Marc Andreessen, who helped develop early web browsers Mosaic and Netscape, and Ben Horowitz, who worked with him to sell a software company to HP. The investment firm is known for its investments in companies such as Facebook, Instagram, Airbnb and Slack.
In 2018, a16z turned its attention to the cryptocurrency space as it looked for its next big investment opportunity. While it still invests in multiple industries, the company has raised more than $7.5 billion through four specialized cryptocurrency funds and now needs to find returns on those funds. Sriram Krishnan, a16z partner, said: "We follow great founders. You don't want venture capitalists telling you what to build." He added: "We think the best founders are working in these areas."
However, the cryptocurrency industry has not been doing well recently. In 2022, the collapse of several large companies, including cryptocurrency exchange FTX, triggered a crisis of confidence in cryptocurrency prices and a market decline, which further led to more corporate bankruptcies, the collapse of crypto-friendly banks, and a strong response from regulators. Since then, cryptocurrency founders in the United States have been sentenced, some celebrities have been charged with illegally promoting cryptocurrencies by not disclosing compensation, and billions of dollars worth of cryptocurrency have been stolen in various scams and security breaches.
a16z has also experienced some failures in cryptocurrency investments over the past few years, such as investing in the now-defunct cryptocurrency Diem developed by Meta, and a similar closed project Basis. Although a16z's initial crypto fund reportedly fell 40% in value in the first half of 2022, investors are still expected to achieve a tenfold return.
In 2021 and 2022, generalist venture capital firms poured billions of dollars into crypto startups, but their attention was subsequently drawn elsewhere, suggesting limited confidence in the technology’s long-term potential. “A lot of investors fled crypto when the market crashed,” said Robert Le, a crypto analyst at market data firm PitchBook. Although crypto markets have since recovered, he said, “generalist investors haven’t really returned.”
“For generalist VCs, all their eyes are on generative AI. Crypto is already the last wave,” said Edith Yeung, a partner at venture capital firm Race Capital. As an investor in crypto network Solana, Edith Yeung is “cautiously optimistic” about the prospects for crypto startups in 2024 and appreciates a16z’s continued focus on crypto, but her firm will be more inclined to invest in artificial intelligence. “Many VCs don’t have the resources to capture both areas at the same time,” she said.
CSX’s goal is to inject “rocket fuel,” as Rosenthal puts it, into early-stage crypto startups that can prove the technology is not just for money laundering and financial speculation. “The crypto market downturn effectively pushed people who just wanted to make a quick buck — the speculators — into AI, thinking that’s where the next quick buck is,” Rosenthal said. “The people who stay are the hardcore technologists who are really committed to this. That’s reflected in our selection process.”
While Rosenthal is leading the CSX project, the team more closely reflects the views of Chris Dixon, a16z partner who leads the firm’s crypto practice. In his book, ReadWriteOwn, published in January, Dixon laid out his vision for crypto as the foundation for building a fairer internet. The web, his argument goes, is being strangled by greedy profit-seekers (some of whom a16z has invested in), and users are suffering as a result. But blockchains — the digital ledgers behind crypto networks that follow pre-coded rules that can only be changed by popular vote — could wrest control back from some of the world’s largest technology companies and return the internet to its egalitarian roots.
“I’m a big believer that the world is not taking crypto seriously enough right now,” Dixon said. “How does content get distributed across the internet? How do people get paid for it? What are the shapes and economics of internet communities? How are they governed? To me, these are the questions that crypto is going to answer.”
a16z’s London office, a sixth-floor loft with tall windows and exposed ductwork, was almost completely empty in the weeks before CSX began. Now, the bookshelves are stacked with energy bars and beef jerky, and the fridge is stocked with low-calorie soda. The bookshelves are filled with recommended reading: Peter Thiel’s “Zero to One,” Horowitz’s “The Hard Thing,” and, of course, Dickerson’s new book.
When I returned a few weeks later, the energy of the first day of school had been replaced by a learning atmosphere. The founders were in their offices, heads bent over their laptops, AirPods on, waiting for class to start. They were already rapt.
Throughout the course, lectures from Rosenthal and other a16z folks rotated, along with talks from other a16z founders, like Ben Rubin, creator of the chat app Houseparty. The speakers shared what they considered pearls of wisdom on topics like hiring (“Don’t over-dilute too soon”), layoffs (“Killers want to be around other killers”), and the difficulty of enduring (“When you chew enough glass, you learn to like the taste of your own blood”). But the course was structured around questions specific to cryptocurrency, like designing tokens, navigating a hostile regulatory environment, and experimenting with novel cryptographic techniques.
At times, the crypto class felt like a window into another world. People weren’t swiping their phones, they were furtively checking code logs. The language of Silicon Valley startup culture—“zero to one,” “product-market fit,” “hellraiser”—was superimposed on the more arcane crypto jargon: danksharding, delay functions, and zk-snarks. “If you really want to get cryptographers interested, ask them whether the lattice hypothesis survives,” one of the speakers joked. Everyone laughed. I didn’t.
While some of the founders are from Europe and elsewhere, a large portion are American. During an icebreaker session introducing himself, one founder from Texas told the crowd that he was concerned about the quality of tacos in London. Another, who had been in the city for some time, confirmed that his concerns were valid.
Whether out of deliberate posturing or genuine hunger, the panelists embodied the stereotype of the overworked and sleep-deprived founder. Over lunch one day, I asked one founder if he had left time for travel. He gave me a quizzical look in return; he explained that during his time at CSX, he had been staying up late at his desk.
The software developed by the startups in the accelerator program can be divided into three categories: consumer-facing applications, services for enterprises, and the technical infrastructure that other crypto software relies on. Relatively few companies highlight crypto in their descriptions—you wouldn’t necessarily know they were involved in crypto by looking at their websites—but each of them uses crypto behind the scenes.
One startup, AminoChain, offers a solution for patients to earn royalties by providing biopsy samples for medical research, while providing hospitals with a platform to distribute stored samples, which are often underutilized. Another startup, Roux, turns recipes into collectible NFTs to help chefs and food bloggers generate revenue without plastering recipe pages with ads and SEO content. Valyu Network converts the data used to train AI models into tokens, creating a system for licensing and tracking the source of information to address so-called copyright abuses.
The startups’ founders say they came to a16z partly for its in-house crypto engineering expertise and partly for its resources and connections. Like any accelerator program, they want help designing elements of their products, as well as legal or regulatory advice. But they also hope to leverage a16z’s relationships in the crypto industry for introductions to potential employees, policymakers, and other investors. At the start of the program, startups are divided into small groups and assigned an a16z partner as a mentor, leading them through what some founders call “group therapy sessions.” “One aspect of self-selecting in an accelerator is admitting that you need help — and want help from someone who has experience,” says Elizabeth Harkavy, a partner at a16z who mentored one of the groups. “It’s very difficult to work with founders who can’t ask for help.”
a16z’s continued commitment to investing in the crypto industry as other conglomerates exit has in itself attracted crypto founders. In the past year, in addition to the CSX project, a16z has added nine new crypto startups to its roster, which already includes crypto exchange Coinbase and NFT marketplace OpenSea. “Roux is both consumer-facing and crypto-related,” said Lisa Grimm, Roux co-founder and serial restaurant entrepreneur. “It was important for us to find partners who understood the balance between the two. a16z has clearly done that.”
Even though millions of people now own cryptocurrency in some form, crypto-based applications have failed to gain traction outside of trading. But Dixon claims the technology is approaching an inflection point. He says infrastructure advances are making crypto networks faster and transaction fees lower, allowing for cheap experimentation that will lead to applications with demonstrable utility and broad appeal. “Imagine if in 2006 you had to pay a dollar every time you clicked on someone’s Facebook profile. It just wouldn’t work,” Dixon says. “There’s that magic moment where [crypto transaction fees] get so low that you can subsidize it to the point where it’s effectively free for the user.”
While the latest batch of founders to participate in CSX may be among the first to benefit from the “magic moment,” they are entering the market at a time when the technology is skeptical and its potential is unproven. One startup said it has been met with skepticism when talking to potential customers about the technology behind its product. “There’s a chicken and egg problem here — this group has to deal with that,” Dixon said. But the hope is that these founders can help remove the stigma of cryptocurrency.
Dixon said he didn’t know how long the process would take. “But at least now it feels like we’re in the right mental maze,” he said, “because you can do things that you couldn’t do before.”
On the last day of CSX in June — Pitch Day — founders will make brief pitches to a room full of investors. a16z chose a shiny underground venue on the edge of Soho, usually used for live music and club events. A mezzanine balcony overlooks a ground-level space surrounded by floor-to-ceiling neon lights. Up front, a theater-size screen and sound system frame a stage where the founders will make their pitches.
When I arrived, techno music blared. In the back, a founder was pitching his project to a cloakroom attendant, who smiled politely in return. Those who left presentations to partners gathered at the bar, while some sought out investors to chat.
An announcement over the loudspeaker signaled that it was time to take a seat. “The seating was arranged like a talk show club,” one investor joked. After two opening remarks from Dixon and Rosenthal, the presentation began.
Each founder was given a few minutes. As one presented, the next donned a microphone at the side of the stage and took a deep breath. The waiting was the worst part, one founder said. Several of the youngest founders repeated themselves too expertly, but most were confident in their presentations. They had apparently been instructed to speak succinctly about technical jargon because that was more likely to stick in the memory of potential investors. “Join us, and let’s work together to bring trust to science and healthcare,” Caspar Barnes, co-founder of AminoChain, pleaded at the end of his speech.
As the founders pitched, investors took notes. Some nodded in approval or whispered behind their hands. During breaks, they joked about snapping up stakes in the most promising projects. In all, about 40 investors showed up in person, from firms including Accel, Foundation Capital, and Amex Ventures.
Many of the founders are looking to raise money after Demo Day. As with past CSX projects, a16z expects to invest further in some of these companies, but the rest will need to find other options, Rosenthal said.
The real “wooing” opportunity came after the presentation, in a rooftop cocktail lounge decorated to look like a traditional Chinese courtyard. By the time I arrived, the place was packed. The most confident founders were already shaking hands and introducing themselves under the blooming cherry trees; the others didn’t seem to quite know what to do, either going in pairs or wandering around the room with glasses of wine. I didn’t envy them.
This scene reminded me of something Rosenthal said at the beginning of the project: “Most people shouldn’t start a business because it’s hard — it’s painful. God, if only there was a way around this, but I haven’t found it yet.”
