As cryptocurrency markets rise, buoyed by the approval of spot Bitcoin ETFs and expected Federal Reserve rate cuts, venture capital funding is returning to the volatile sector after a cold 2023.
On Thursday, venture capital firm RW3 Ventures plans to announce the successful closing of its first fund, a $60 million war fund led by Raptor Group, the family office of billionaire Jim Pallotta, as well as significant backing from Mubadala, a of the rich sovereign funds of Abu Dhabi.
In an interview with FortuneRW3 founder and managing partner Pete Najarian said RW3’s brand advocates and commitment to real-world blockchain use cases like music and healthcare will help it ride an expected bull market , despite the relatively small size of the fund compared to the leviathans. of the last cycle.
“We wanted to be agile and have a dunking first base,” Najarian said. “I actually love our size right now.”
TradFi meets crypto
Before founding RW3, Najarian had deep roots in the cryptocurrency world, working in the institutional business at Xapo Bank, an early adopter of digital assets led by Wences Casares, and later serving as Chief Revenue Officer at BitGo after Xapo sold its custody and wallet operations at Coinbase. .
Najarian teamed up with Pallotta to create RW3 in 2021. Before founding Raptor, Pallotta was vice president of Tudor Investment Corporation and held executive positions with AS Roma and the Boston Celtics.
Although RW3 is a separate entity from Raptor, Najarian said the fund benefits from the family office’s strong network connections, including in the hardware space: One of RW3’s investments is in a company working on a cryptographic technique called fully cryptographic homomorphic that could destroy semiconductors. production, although Najarian declined to share the name.
Najarian said RW3 began raising from limited partners for its first fund in the second quarter of 2022 and has deployed less than 50% of its capital. Mubadala’s participation reflects a new willingness by sovereign wealth funds to venture into the cryptocurrency sector after the disastrous collapses of 2022, with FTX backed by groups including Singapore’s Temasek. As Abu Dhabi and Dubai look to consolidate their status as crypto hubs, Mubadala has invested heavily in the sector.
Najarian said RW3 has more than 25 other limited partners in RW3’s first fund, though he declined to give a specific figure.
Real-world use cases
According to a new report published Thursday by PitchBook, the fourth quarter of 2023 saw a slight increase in cryptocurrency investment, the first quarter-over-quarter increase since the first quarter of 2022, with analyst Robert Le predicting an increase in venture funding in 2024.
RW3 has been an active player in the cryptocurrency space. While the buzzword in the digital asset space has been real-world assets, or the tokenization of instruments like carbon credits and fiat currencies, said Joe Bruzzesi, partner at RW3 Fortune that the company’s focus is on real-world blockchain use cases. In other words, RW3 wants to support applications that go beyond speculation.
Early deals for RW3 include a lead investment in Rymedi, a healthcare technology platform that uses blockchain to transfer medical records, and a co-lead seed round for CAT Labs, a cybersecurity and forensics startup founded by a former special agent of the Department of Justice. RW3 has also invested in game studio Web3 Gunzilla and K-pop music label Titan Content.
Najarian said RW3 prefers to invest through a combination of traditional equity warrants and tokens, a common strategy among venture capital funds, although the firm also does token-only deals. RW3 can also invest in liquid public market tokens, although only up to 20% of its overall portfolio.
“We think there is a limit to the addressable market for a lot of what is being built just to cater to a crypto-native world,” Najarian said Fortuneadding that RW3’s target investments help bridge Web2 and Web3.