Defecting Web3: Paradigm's Difficulties and Situations
Original Author: Nian Qing, Gu Yu
Today, The Block issued an article stating that Paradigm, a cryptocurrency venture capital firm, has changed its website description since the beginning of this month, and the relevant description has changed from "Paradigm supports disruptive encryption/Web3 with as little as $1 million and as much as $100 million or more." Company and Agreement" was changed to "Paradigm is a research-driven technology investment firm".
Additionally, Paradigm is shifting its focus solely on cryptocurrencies to also include “frontier” technologies such as artificial intelligence, people familiar with the matter said. Of course, Paradigm has not fundamentally changed its mission, and will continue to focus on cryptocurrencies and Web3. The updated website copy just wants to emphasize "technical research". Paradigm has long begun to explore some companies that develop new technologies, such as AI Arena .
Even with a more reasonable explanation, Paradigm's "rebranding" still has a big impact on crypto users. Some people accused Paradigm, which focuses on the encryption field, of investing billions in the Web3/encryption field to other technology fields, and questioned whether Paradigm's move has been approved by other LPs. Some people also criticized that the staunch encryption believers who have been advocating "we believe that cryptocurrency will define the next few decades" suddenly erased the positioning of Web3, which is tantamount to "betraying the encryption revolution".
More than a month ago, Meituan co-founder Wang Huiwen's immediate signature changed from "learning Crypto" to "learning artificial intelligence" which also triggered a wave of discussions. The group of people who once chanted All in Crypto turned to AI one after another, and it was hard not to be criticized for their enthusiasm and attention. However, the negativity brought about by small things like changing the signature and changing the official website description also reflects from the side that the encryption market is currently facing a serious lack of confidence.
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1. Starting from the reality level
For a fast-growing fund, it is a classic and sustainable strategy for venture capital institutions to focus on a specific field in the initial stage to obtain high returns, and to expand the scope of investment and diversify risks after maturity. In addition, Paradigm's revised positioning does not mean announcing its withdrawal from investment in the encryption field. Earlier today, its co-founder Matt Huang said on his personal Twitter account: "Never been more excited about cypto (never has anything excited me more than Crypto)", trying to respond to Paradigm's "paradigm shift" doubts.
This is the reality of the primary investment market, and the new narrative at the forefront is to gain more market attention. We can compare the recent funding situation in the AI field and the encryption field:
Two days ago, Anthropic, founded by former OpenAI executives, recently received another US$450 million in financing; at the end of April, OpenAI completed US$10.3 billion in financing, with a valuation of US$27 billion to US$29 billion; and it was reported in March that it was co-founded by DeepMind Inflection AI, an AI startup founded by the founders of Renhe and LinkedIn, plans to raise as much as $675 million.
The amount of financing in the AI track is huge, and the financing ratio is also increasing. Some start-up projects in the Web3 field are also trying to catch the ride of AI. According to RootData data, AI-concept Web3 projects have received a total of 10 financings in recent months. Worldcoin, which has just completed the C round of financing of US$115 million in recent days, is still an encryption project related to OpenAI.
According to statistics from RootData, since April 2022, the amount and frequency of financing in the encryption market have shown an overall downward trend. Among them, the cumulative financing amount in April was only 815 million US dollars, which was not only far lower than the same period last year, but also far lower than the data of the same period of the AI track.
In addition, venture capital institutions under the crypto bear market are faced with the dilemma of high investment risk, low return rate or even no projects to invest in. Earlier in Shenchao's article "Delete the expression of cryptocurrency on the official website and enter AI. What is the paradigm shift of Paradigm?"It is also mentioned that as a VC, Paradigm needs to invest money. When too much money is raised, there will be fewer investment options, and the expected benefits must be obtained.
according to
according toThe Information is based on statistics from Paradigm's website, since early October last year, at least eight employees have left, including two investment partners and four engineers. The departures are primarily from Paradigm's engineering and investment divisions. Paradigm lost $278 million from the FTX debacle late last year.
In November 2021, before Paradigm announced the completion of $2.5 billion in new financing, it conducted a major expansion round, doubling its size to 31 people. In the following year, Paradigm continued to expand, and the number of employees in the company once reached 70 people.
In addition to considerations from the perspective of company operations, the uncertain regulatory policies in the United States are also an important reason for Paradigm's rebranding.
After the collapse of FTX, the US SEC began to review and prosecute some encryption projects that may have violated securities laws, including leading encryption companies such as Binance, Coinbase, and Kraken, many of which are Paradigm's investment portfolios. Paradigm co-founder Fred Ehrsam also expressed his concerns about US regulation on his Twitter many times.
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2. Paradigm team temperament has not changed
"Paradigm is a research-oriented technology investment company"-this rebranded description is indeed not inconsistent with the temperament of the Paradigm team.
Paradigm has always followed the investment philosophy of research first, and technology research has always been its main hard core strength, allowing them to actively integrate into the project construction of start-up teams.
Paradigm has appointed two new general partners, what impact will it have on its investment strategy?
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In addition, the two founders, Matt and Fred, have experienced multiple cycles of cryptocurrency, and they insist on the idealism of encryption, but they are more rational and realistic investment strategies. Paradigm made a fortune early on by buying bottom-selling bitcoins, and in the bear market of 2018, most of their first $400 million fund was used to buy bitcoin and ethereum. Just in May, Paradigm One LP, an entity under Paradigm, bought 810,000 Coinbase shares at an average price of $61, or a total of about $50 million, and also participated in stock investment.
Therefore, crypto funds that have survived from the early stage, including Paradigm, must be realistic and flexible in their investment strategies: invest in the secondary market if the primary market is depressed, and expand to a wider range if the crypto field is not working now.
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3. Paradigm Portfolio Analysis
The change of Paradigm's investment direction this time has largely been reflected in its recent investment situation. As one of the largest fundraising funds in the encryption industry, Paradigm has only disclosed its participation in 2 financings (Conduit and Code 4 rena) since the FTX incident in November last year, which is very low among first- and second-tier encryption funds number. In contrast, Paradigm invests in 1-3 projects almost every month.
Next, based on public reports and RootData data, this chapter willParadigmDetailed analysis of past investment strategies and styles.
According to RootData data, Paradigm has disclosed 92 external investment rounds, of which 55 were lead investment rounds, with a lead investment rate of 59.8%, which ranks second among all crypto venture capital funds with more than 10 investments. Second only to a16z. In addition, Paradigm is in a leading position in the proportion of large investment, reinvestment rate and other data. At the same time, the total number of investments is not high, maintaining a "delicate and beautiful" style and daring to make heavy bets.
On the NFT track, Paradigm’s typical investment projects include the NFT market Opensea, Blur, Magic Eden, Zora, etc. Among them, Blur was led by Paradigm in March last year. At that time, Blur was still an unknown anonymous project. Paradigm has made a lot of money.
However, Paradigm’s investment in Opensea is hardly a success. The investment occurred in January 22, and Paradigm led the financing of US$300 million at a valuation of US$13.3 billion. However, judging from the current market conditions, this investment may also be a serious loss. Just in April this year, foreign media reported that Tiger Global had lowered the valuation of OpenSea to $3 billion. Recently, Tessera, an NFT fragmentation protocol led by Paradigm for many times, also announced that it will cease operations.
On the DeFi track, Paradigm's typical investment projects include the decentralized exchange Uniswap, the liquidity pledge agreement Lido, the decentralized derivatives agreement dydx, etc. However, most of these investments occurred in previous years. Since the beginning of 2022, there have been few new DeFi projects, and there are only two projects, Exponential and Ribbon Finance.
On the CeFi track, Paradigm has invested in a series of well-known projects such as FTX, FTX US, Amber Group, Matrixport, Bitso, and Rain. The economy and reputation have suffered huge damage.
On the infrastructure track, Paradigm has invested in well-known projects such as Optimism, StarkWare, Mina, and Fireblocks. Recently, it has invested in the infrastructure Conduit, which is used to launch production-level Rollup based on OP Stack, and the blockchain index and data infrastructure platform Nxyz , Ulvetanna, an enterprise-level zero-knowledge proof acceleration platform.
It is worth noting that Paradigm has also maintained a very restrained attitude during the two-year "new public chain" boom, and has not disclosed relevant investments, which is very rare among first-line venture capital institutions.
In games, social networking, DAO and other tracks, Paradigm’s investment frequency is even less, with a total of only about 10 deals, and there are no particularly typical investment cases.
Crypto track investment has suffered setbacks and the market is sluggish. New directions such as AI may be the best way for Paradigm to give LPs performance and returns. As for the investment in the AI track, Paradigm invested in Numerai, a hedge fund project based on artificial intelligence technology, a few years ago, but has not disclosed the relevant investment recently.
At the moment, institutions such as Polychian and a16z are still on the way to raise Crypto, while Paradigm has decided to slow down the pace of investment and extend its tentacles to larger tracks such as artificial intelligence. What future will this new route lead Paradigm to? Perhaps only time will tell the answer.
