Hack VC raises $200M fund to back early-stage crypto startups

The investors behind virtual hack.summit(), the world’s largest blockchain programmer event, have launched a $200 million crypto seed fund under the Hack VC umbrella, fund partner Alex Pack told TechCrunch in an interview.

Ed Roman, formerly a solo GP, invested in early-stage tech and crypto companies for over 10 years through Hack VC before partnering with Pack, who previously co-founded global crypto fund Dragonfly Capital and led Bain Capital Ventures’ foray into digital assets. Pack and Roman have each invested in several early-stage crypto companies prior to launching this fund, including DeFi platforms Compound Finance and Terra, Pack said.

Hack VC wrapped up fundraising last fall and has been quite active since — the fund has made “at least” 15 investments worth tens of millions of dollars to date, according to Pack. Its recent investments span a variety of areas within crypto — from NFT emoji startup Yat, to DeFi lending platform Goldfinch Finance, to metaverse gaming company SynCity.

Hack’s thesis is centered around investing in what Pack describes as the “scaffolding” for a digital rights system for the whole internet, with a particular emphasis on emerging markets.

“The easiest use case of a digital-native property rights system is a digital-native store of value, like Bitcoin, but honestly, that’s not very interesting to me, like building a digital gold or whatever. I think it has its place, but to me, building this property rights system that allows anyone around the world to participate in the open financial system is really big,” Pack said.

The Hack VC team is comprised of around 10 people, about half of whom work within its dedicated in-house Crypto Lab, which Pack sees as a source of the venture firm’s competitive advantage. Crypto networks are user-owned, so it is important for investors in crypto companies to be early users of new protocols, Pack said.

“We’ve got to stay on the cutting edge. We have to be more than capital. More than just a random trad [traditional] VC, we have to actually be using these protocols,” Pack said.

Hack VC’s Crypto Lab, headed by a former senior trader at quant hedge fund Jane Street, employs engineers and quantitative researchers to that end. Its team engages in staking to secure networks and is “one of the most active participants” in the DeFi ecosystem through market-making, governance support and liquidity provisioning on various protocols, Pack said.

The lab has also helped Hack source deals through analysis of on-chain data, he added.

Hack VC raised capital for the seed fund from LPs including Sequoia Capital, Fidelity and a16z’s Marc Andreessen and Chris Dixon, alongside other institutional investors. A few of these LPs are active crypto investors themselves, including Sequoia, which last week raised a ~$500 million fund to invest in tokens. Firms like Sequoia and a16z investing in other crypto funds while also managing their own funds in the same sector is a relatively common phenomenon in the crypto world, although these firms are theoretically competing for the same sorts of deals.

Pack said this overlap is a relic of the early days when investing in crypto startups was “the opposite of competitive.”

“Back in the day, we all backed each other’s funds … Now, it’s getting a little bit more competitive. It used to be that we had to send each other deals, otherwise, our companies would go bankrupt. But now, we’re still friends,” Pack said.

Today, Hack VC has “great coinvestor relationships” with other venture firms in the space, partially due to Pack’s involvement in providing seed funding to over a dozen crypto funds, including Multicoin, Polychain, Paradigm, Standard and Parafi, he said.

Still, he believes Hack VC brings unique value to the ecosystem in backing deep-tech, edgy, early-stage crypto companies. Hack VC does, however, consider co-investments with some of its LPs in other areas — it recently invested in a metaverse startup alongside Twitch founder Justin Kan, leveraging Kan’s deep knowledge of gaming, he added.

Pack attributes the support Hack VC earned from other crypto venture investors to its unique community of developers built through hack.summit.

“We spent years building one of the biggest blockchain programming communities in crypto, and that’s very unusual. It’s hard for a traditional VC firm to build [that] because of structural reasons,” Pack said.

“This is why I left Bain Capital Ventures back in the day — if you’re a lean team … you can’t just add a whole massive community arm, you can’t just add a 10-plus person engineering or quant trading team.”