New Form Capital founder sees opportunity in crypto downturn

Despite recent events causing investors to sour on crypto, New Form Capital plans to increase its pace of investment in the sector, as founder and general partner Alex Marinier remains confident in the technology and talent flowing into the industry.

“Obviously the market is a little less hot than it was in 2020 and 2021, but this is actually when we like to invest the most,” Marinier told Venture Capital Journal. “Valuations, especially at the seed stage, have been cut in half, and we still see a ton of great talent coming into the space. Similar to 2019, we see really great teams coming from Wall Street and a lot of the FAANG companies that are leaving their jobs to go create companies building in Web 3 and blockchain technologies.”

New Form, a New York-based seed-stage investor, recently raised just over $70 million for its sophomore fund. It plans to hold a final close on another $5 million to reach its $75 million target to invest in blockchain companies engaging with finance and data.

Marinier declined to reveal the names of LPs in Fund II, but said it is anchored by “household name macro hedge fund founders, growth equity funds, market making high frequency trading funds that are all very complementary to what we do in seed investing.” The fund employs a standard 2 percent management fee and 20 percent carried interest.

Marinier began his career working on VC and tech deals as an analyst at Blackstone before moving to DCM Ventures as an investor in 2016. At the end of his first year at DCM, Marinier gave a presentation to the firm’s leadership on blockchain technology and was given “carte blanche” by DCM co-founder David Chao to dive down the blockchain rabbit hole and serve as the firm’s internal expert on the space, he said.

After spending three years as DCM’s go-to source for blockchain investments, Marinier left the firm to found New Form in 2019 to invest in the same deals he helped DCM find, with a slightly more targeted focus.

“The whole thesis behind New Form was to build a seed fund that was investing at this intersection of financial markets and blockchain technologies,” he said. “We don’t invest in the metaverse or NFTs or any of the more consumer facing parts of the technology, not because that stuff isn’t interesting, we just felt the best way to create billions of dollars in economic value today was in the financial markets.”

The firm has already completed 18 investments out of Fund II after holding a first close in mid-2022, and it plans to grow the total to 30 to 35 investments.

After two huge years, crypto-related VC investments declined sharply in the past few quarters, according to PitchBook’s Q4 2022 Crypto Report, which defines the space as including blockchain networks, infrastructure and developer tools, access (including crypto exchanges and payment networks), Web 3 and decentralized finance. VC invested $26.2 billion in the crypto sector last year, up about $1 billion from the prior year, but they pulled back in late 2022.

“At -47.9 percent, crypto VC deal activity continued to decline sharply in the fourth quarter of 2022,” the report states. “The vertical’s third consecutive QoQ decline to $2.5 billon is the lowest amount of capital invested since Q4 2020.”

Insider insights

As a personal LP in early blockchain and crypto strategies including Polychain Capital and Multicoin Capital, Marinier said he saw firsthand the growth that GPs in the space could achieve. When analyzing how he could compete with already established firms, he realized that his mix of experience on both the venture GP and Wall Street sides could give him an edge in seed investing.

“I decided there was an opportunity to create a fund that bridged these two worlds,” he explained. “If I could get a lot of these Wall Street-based funds on the LP side and pitch them on the potential growth of this ecosystem, then it would help me get into competitive seed deals because I can take those founders and plug them into the existing Wall Street capital allocation system so they can have those guys as customers, investors or liquidity providers.”

New Form raised a $21 million “proof of concept” fund in 2019 that has already achieved “a multiple that is above 2x,” according to Marinier. The firm has co-invested across the US, Europe, Africa, South America and Asia with some well-known names in blockchain and cryptocurrency, including Coinbase, Lightspeed Ventures and Techstars.

Marinier said his firm has been “lucky” with the timing of its two fundraises, though he was quick to point out that he doesn’t “have some kind of crystal ball that tells [him] when the market swings are going to come, otherwise [he’d] be a billionaire.”

Fund I opened in Q4 2019 and was almost fully invested before the markets started ballooning in 2021. Fund II held a first close just under three months after opening at the end of 2021 and was almost fully capitalized before the fall of crypto exchange FTX.

Given the high profile of FTX, regulators now have a heightened awareness around cryptocurrency companies. Marinier believes this may impact cryptocurrency start-ups’ ability to flourish in the US but points to Enhanced Digital Group, a portfolio company of Fund II, as an example of how founders can succeed in today’s market.

“That team is a bunch of ex-Goldman execs who spun out and are now building a structured products shop that’s fully regulated,” he told VCJ. “I think in a post-FTX, post-regulatory environment like we’re in now, the teams that go out and are more buttoned up, cross their t’s and dot their i’s from a regulatory standpoint starting day one, are going to do really well in this next generation of regulated crypto-trading.”