| Bloomberg Senior Editor Ryan Weeks on what you need to know about token power With nearly $8 billion available to deploy across the digital-assets sphere, a16z crypto is particularly well-positioned for the current “number go up” stage of the cycle. The VC firm is also using its influence to shape how founders approach any new deals. In August, the Silicon Valley giant’s crypto arm published a treatise warning entrepreneurs against accepting “predatory” terms from other VCs and investors when fundraising through token sales. Topping a list of red flags: granting backers “fixed, non-dilutable token interests.” But what does that mean, exactly?
Crypto projects routinely launch affiliated tokens, both as a way to help power their platforms and to distribute influence in the form of voting power. As a result, these tokens tend to become a proxy for a project’s value — and therefore are prized by venture investors. In bog-standard, equity-based venture investing, startup shareholders typically have to invest more money with each fresh funding round or see the size of their stake slashed. Not so in crypto: Early investors can claim a flat percentage of a project’s total token supply and sit on it. Enter a16z. “Fixed token allocations are predatory,” Miles Jennings, Joseph Burleson and Zachary Gray wrote in the co-bylined post in August. “Token rights should be proportionate to equity ownership and subject to dilution.” The venture firm’s campaign goes beyond mere blog posts. The company is actively pushing projects to adopt a dilutive structure in investment negotiations, according to people familiar with the matter who asked not to be named while discussing commercially sensitive topics. The VC firm is also advocating for deal documents that give investors a right either to a slice of tokens that is equal to some fraction of their equity interest in the company behind the project, or that entitle backers to a pro-rata portion of the tokens.
A spokesperson for a16z declined to comment.
The industry may take some convincing. Mathijs van Esch, general partner at seed-stage fund Maven 11, described the proposed dilutive structure as a trade-off. While it gives teams more flexibility in terms of future fundraising, “early stage valuations might come down slightly” as investors account for dilution, he said. The sheer size of a16z gives it a decent shot at reshaping how crypto venture capital works.
Galaxy Digital projects that total fundraising by digital assets-focused venture firms will come to $1.95 billion in 2024 — less than half the $4.5 billion a16z crypto raised for its fourth fund alone in 2022.
Even in crypto, fiat money talks. | 
