Venture Firm With Rockefeller Roots Turns to Crypto

(Bloomberg) -- A venture capital firm that sprang from the Rockefeller fortune is setting its sights on cryptocurrency businesses while sticking to its roots: investing in startup equity rather than simply snapping up digital tokens.

While hundreds of new hedge funds have popped up to speculate on Bitcoin and its ilk, Venrock Associates is taking “a more disciplined approach,” said David Pakman, a partner at the New York-based firm.

While it may put money into some tokens, it’s principally looking to get stakes in startups before they issue their own cryptocurrencies, Pakman said. The firm’s partners have already invested in CoinFund, which buys tokens.

Venrock was started with 1969 as a venture-capital arm of the Rockefellers, and the family remains a limited partner. The firm has made lucrative bets on other young enterprises: It led Apple Inc.’s first venture round and invested in Intel Corp. before the chipmaker got big. The company’s latest fund is $450 million, and crypto is one of its big wagers.

“I think this is one of the most transformative tech ecosystems and has the possibility of creating hundreds of companies worth billions of dollars each,” Pakman said.

Venrock has a four-person team working on investing in crypto startups. The 49-year-old Pakman, who joined the firm in 2008, said he devotes half his time to crypto-related projects, and the rest looking at robotics and consumer-product startups. The onetime internet entrepreneur and co-creator of Apple Inc.’s Music Group said he’s looked at hundreds of crypto hopefuls.

“We are evaluating scores a week,” Pakman said. “We are really active.”

Pakman said he’s more likely to invest in blockchain technologies than in the applications they may eventually support. Investing in the apps themselves could come later, as blockchain-like systems spawn new Facebooks and Twitters to compete with the web giants. One member of Venrock’s crypto team, Ethan Batraski, was a product leader at Facebook Inc.

“I am approaching this from the very first that this is a fundamentally interesting technological innovation that enabled very serious value creation and may also be a legitimate way to build value away from internet platforms of today,” Pakman said.

Other funds are looking at equity investments as regulation of token sales -- and their legality -- remains murky. Such investors can often later buy a startup’s tokens on favorable terms, boosting overall returns.

Mining Tokens

Pakman has already personally invested in tokens and mined them -- using his computers to support underlying networks for a reward. He focuses his mining on Ethereum, whose currency, Ether, is second only to Bitcoin in the crypto market. Following last year’s rally, Bitcoin is down by more than 30 percent since the beginning of 2018, while Ether is down by more than 22 percent.

“I’ve just come to believe in Ethereum so strongly, I just want to hold it,” he said. “The number of projects building on top of Ethereum is so unbelievably large that you have to declare it a successful platform.”

Don’t expect Venrock to trade Ether itself, though.

“We are not creating a crypto fund that’s buying and selling currencies,” Pakman said. “We still are a venture capital firm.”

To contact the reporter on this story: Olga Kharif in Portland at okharif@bloomberg.net.

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Andrew Dunn, Dave Liedtka

©2018 Bloomberg L.P.