Good morning Term Sheet readers—it’s Fortune Crypto editor Jeff Roberts tagging in. In recent weeks, an interesting storyline has emerged concerning the intersection of venture capital and crypto. Discussions on the topic have mostly revolved around VC firms getting burned by ill-advised crypto bets—most notoriously, Sequoia vaporizing $200 million on FTX—but there is another aspect to the story.
I’m referring to crypto companies’ forays into venture investing. The topic has been in the news this month as a result of a strange twist in the FTX debacle: It turns out that, while alleged fraudster Sam Bankman-Fried was squandering his customers’ money left and right—including massive loans to FTX executives and a promised $55 million be-my-friend deal with Tom Brady—he stumbled on a jackpot.
The bonanza in question comes from a $500 million bet by FTX on the buzzy AI company Anthropic. The startup, which was founded by disgruntled ChatGPT employees, raised $300 million from Google to make the tech giant its “preferred cloud provider”—and then turned around and raised $4 billion from Amazon Web Services. Now, there are rumors Anthropic is raising another $2 billion at a $30 billion dollar valuation. Ironically, this could lead to a handsome return and ease some of the pain for FTX’s fleeced customers and investors.
The Anthropic situation is an outlier, but FTX is hardly the only crypto firm with a VC portfolio. There is also Celsius, another bankrupt crypto firm whose founder liked to help himself to customer money and that ended up as roadkill during last year’s meltdown. The defunct firm was acquired by a group—appropriately named Farenheit—led by Silicon Valley veteran Michael Arrington, in part because of its venture capital portfolio.
The portfolio consists of startups focused on “DeFi infrastructure, trading tools, treasury management and Bitcoin mining innovation. We are very excited to help these companies grow and reach their full potential,” Arrington told Term Sheet. Fahrenheit does not for now hold any soon-to-be unicorns in its portfolio, but it’s early enough some diamonds in the rough could emerge.
Meanwhile, the big dog when it comes to crypto firms making VC bets is Coinbase Ventures, which owns shares in hundreds of startups. In March of 2022, Oppenheimer said the portfolio had “hidden value” and estimated it was worth over $6 billion. That assessment is 18 months old and it’s unlikely that valuation has held up following the recent carnage in the crypto industry, but don’t be surprised if there are some thoroughbreds in that stable.
Things will get really interesting if crypto can turn the corner and embark on another bull run—an event that’s a matter of time if previous cycles are any indication. If that happens, the industry’s current reputation as a blackhole for VCs could quickly change, and the biggest crypto firms will not be not asking for funds but instead talking about exits for their portfolio companies.
Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts
Joe Abrams curated the deals section of today’s newsletter.
