|Fortune Crypto editor Jeff John Roberts here, filling in for Alyson this week.
In recent years, venture capitalists bet big on crypto and it paid off handsomely as some firms posted returns of 10x or more. But then the market turned, and now many of these same VCs are in a world of pain—and it’s not just because of a drop in the price of cryptocurrency.
It turns out the world of crypto investing, which involves startups handing over tokens rather than equity, is a double-edged sword. In good times, the volatile and highly liquid nature of tokens means VC firms can cash out early and often, and deliver spectacular profits for their limited partners (LPs).
But in bad times, that easy liquidity means tokens can crash spectacularly. And because everything is transparent on a blockchain, and transactions are frequent, there is no way for VCs to let the dogs in their portfolio go undetected for months—or even days. Worse, many LPs are new to the hypervolatile nature of crypto, and are not enjoying the ride. The VCs holding their money are getting an earful.
“We continuously have to educate the family offices who are, like, a shipping family industry from Vietnam,” one VC recounts. “They’re like, ‘What the hell did you do? You were 6x up!’”
In a groundbreaking investigation, Fortune‘s crack venture and crypto reporters, Anne Sraders and Leo Schwartz, look under the hood of the VCs riding out Crypto Winter, and share the experience of once-high-flying firms like Andreessen Horowitz, Paradigm, and Tiger Global.
Read the whole account below.