Bruce Croxon: Web3 infrastructure “a natural extension” to Round13’s software investments.
Round13 Capital has unveiled a new venture fund focused on blockchain and Web3 infrastructure companies.
The Toronto-based tech and growth-stage-focused VC firm has secured $70 million USD for its recently launched Digital Asset Fund, from a group of undisclosed investors led by a “major Canadian pension fund,” with support from family offices, high-net-worth individuals, and members of the Round13 team.
“We think [Web3 has] got a long and game-changing future.”
To date, Round13 has made a name for itself backing mostly Canadian software companies, like Hubdoc and LifeSpeak. According to Round13 Founding Partner Bruce Croxon, the firm’s evergreen Digital Asset Fund hits Round13’s “sweet spot,” and comes as “a natural extension” to the software investments and sectors that it has previously played in.
“We’re not speculating on cryptocurrencies like John [Eckert] and I might have been in late 2016,” Croxon told BetaKit in an interview. “We’ve evolved to be much more interested in the underlying infrastructure that is going to be supporting the next wave of innovation and protocols.”
From this perspective, said Croxon, this fund fits right within Round13’s wheelhouse. “We are venture investors looking to back companies that are going to provide the base for which this new industry is going to grow,” Croxon said.
Round13 has set an “initial target” of $100 million USD for the open Digital Asset Fund, but Croxon said he wouldn’t be surprised if the firm soon surpasses this goal.
Founded in 2011 by Croxon, co-founder of Lavalife and former Dragons’ Den star, and longtime investor John Eckert, Round13 is currently in the process of growing its selection of funds with both this new Digital Asset Fund as well as its second growth fund, which the firm is currently working to close. So far, Round13 has closed $150 million USD in capital towards its goal of $180 million for Growth Fund II.
Through its initial growth fund, Round13 aimed to “bridge the late-stage growth funding gap in Canada between traditional VC and public market investors” by focusing on companies close to going public or being sold. With Round13 Growth Fund II, Managing Partner Sanjiv Samant told BetaKit that the firm plans to invest in both private and public rounds, with an eye towards companies that are “undervalued or under-followed.”
With its new Digital Asset Fund, Round13 now operates in the early-stage, growth-stage, and crypto investment spaces.
Round13 claims the fund is “Canada’s first institutional crypto native venture fund.” The country also plays home to Dapper Labs’ new $725 million ecosystem fund, which focuses on Flow blockchain innovation; Ether Capital, which invests in cryptocurrencies; Top Hat founder Mike Silagadze’s DeFi fund Gadze Finance; as well as other traditional venture funds that dabble in the blockchain and Web3 sphere. Outside of Canada, crypto-focused VC funds abound, from players that include Andreessen Horowitz, White Star Capital, and John McCann.
Round13’s Digital Asset Fund will be operated by managing partners Satraj Bambra and Khaled Verjee. “We’re looking for high quality technical projects,” Verjee told BetaKit, adding that the fund will focus on companies solving problems related to interoperability between blockchains and scalability (or speed), and firms building blockchain-based applications.
Verjee told BetaKit that the fund will be flexible in terms of the stage and size of its investments. The Digital Asset Fund intends to invest between $300,000 and $5 million USD per company, generally at the Series A-stage or below, but remains open to investing at later stages should the right opportunity arise. Round13 plans to focus on blockchain and crypto companies both in Canada and around the world.
The fund has already invested in “several projects” to date, including in United Kingdom-based metaverse company Improbable Worlds; United States’ Bitcoin application firm Trust Machines and Lightning infrastructure services startup Ibex; and Canada-based blockchain R&D firm Chainsafe and Red Jar Digital Infrastructure.
The launch of Round13’s Digital Asset Fund comes amid a steep crypto sell-off that has seen cryptocurrency prices drop precipitously, NFT sales slow, and DeFi darling and algorithmic stablecoin Terra collapse.
In response to a question about how this environment impacts Round13’s plans for this fund and investment approach, Croxon stressed that Round13 is looking at startups with “a 10-year future or longer.”
“I won’t say we’re completely indifferent to the volatility in the coin market, but we care a lot less,” said Croxon. “We see Web3 as something that the horse has long left the barn—[and] if anything, I feel we’re a little bit late, believe it or not, even though we’re amongst the first, and we think [Web3 has] got a long and game-changing future.”
The fund is also being rolled out during a broader tech stock selloff, as valuations of public and private tech firms like Shopify and Wealthsimple have dropped significantly in recent months amid rising inflation, interest rates, and Russia-Ukraine-related geopolitical tensions.
“We have been through an incredible period of multiples and wealth creation and technology valuations being, some would argue, artificially high,” said Croxon. “The inevitable correction is happening, and this is, as a result, a great time to be sitting with dry powder.”
At the same time, Croxon added that Round13 is “not rushing” to deploy venture capital right now given that valuations are still being adjusted. In the crypto space specifically, Bambra told BetaKit that valuations have “come down slightly,” but for the most part remain high, and “were already quite inflated.”
Round13 has set an “initial target” of $100 million USD for its Digital Asset Fund.
Bambra is a entrepreneur and software engineer who has previously built and sold two Toronto-based tech companies, including crypto wallet BlockEQ—which was acquired by Coinsquare for $12 million in 2018—and mobile development firm B House, which was acquired by TWG in 2016. For his part, Verjee is a lawyer and investment banker who has been an early investor and advisor to blockchain startups since 2015.
“There’s lots of funds that just deploy capital,” said Bambra. “We understand the builders in the space, we’re able to evaluate projects on a very technical level, and that sort of gives us an edge in the way we were able to find these projects.”
On the sourcing front, the fund has also partnered with Satstreet, a Toronto-based digital investment firm and Round13 portfolio company with a “deep network of relationships in the crypto universe.” Satstreet has invested in the fund, and Round13 plans to leverage Satstreet for deal flow and help with the custody of crypto assets generated by projects it invests in.
Round13’s Digital Asset Fund is also a member of the recently launched Web3 Council of Canada, through which Bambra and Verjee anticipate “playing an important role in the development of a strong regulatory framework.”
With files from Meagan Simpson.
Feature image of Satraj Bambra and Khaled Verjee, courtesy Round13 Capital.