Crypto asset manager Valkyrie looks to raise $30M for its new VC arm

Crypto asset manager Valkyrie, best known for launching one of the only U.S. SEC-approved bitcoin futures ETFs, is moving into a new asset class -- venture capital. The firm hired investor Lluís Pedragosa in April and has been quietly preparing him to helm Valkyrie Ventures, its new VC arm announced today, as managing partner.

Pedragosa, who previously worked at New York-based venture firm Marker LLC, has spent over 10 years investing in U.S. and Israel, largely in B2B software, he told TechCrunch in an interview. Pedragosa caught the crypto bug after investing in Israeli crypto custody startup Curv in 2018, which PayPal acquired last year.

He shared the thesis for Valkyrie's new fund, which he has been working on since he joined the Nashville-based company in April.

"The idea for us is we want to invest in what we call the middleware layer, which is kind of like the infrastructure layer -- anything that is between an application and the layer one protocols and in what we call web 2.5," Pedragosa said, explaining that he aims to back companies that provide a "web2 user experience" but have "web3 infrastructure" underpinning them.

Although the fund is an arm of Valkyrie, Pedragosa emphasized that it isn't a typical corporate VC as Valkyrie Ventures won't be investing Valkyrie's balance sheet capital. Instead, Pedragosa is in the process of talking to external investors including institutions and high net worth individuals to raise $25-$30 million for the fund, he said.

Pedragosa plans to write checks between $250K and $1 million per company and said investment size may vary based on region.

"In the US, I think you can write smaller checks ... But in Israel, you need to be more concentrated on the bets that you make, because the exits may not be as big," Pedragosa said.

The fund is strategic for Valkyrie in that it is focused on nascent infrastructure the firm might use in its digital asset management operations, including: security, authentication, compliance, data management, storage, networking, communication, governance, payments and transactions companies, according to Pedragosa. The firm will focus on investing in the tools developers need to build decentralized companies, he added.

Pedragosa believes raising the capital under Valkyrie's purview but without using the classic corporate VC model affords him the best of both worlds. Valkyrie Ventures joins the growing group of crypto venture funds that have close ties to companies but aren't investing directly off their balance sheets, including Cathay Innovation, which launched a $110 million VC fund in partnership with hardware provider Ledger last month.

"Traditional corporate VCs move relatively slow, or slower than, financial VCs. Sometimes you need to have a champion within the business that wanted to support your investment in a company, for example. So that's why I stay away from that, why [our fund] is separate. I don't need to convince anyone. If we think it's a good investment, we just do it," Pedragosa said.

By partnering with Valkyrie, Pedragosa hopes to leverage the company's in-house technical expertise for due diligence processes. He added that Valkyrie's deep network in the crypto space could be an asset to founders as the firm can help make introductions on their behalf.

As for timing, the down market in crypto gives Pedragosa confidence that he will be able to find strong companies at cheap valuations. He's optimistic about the fundraising process based on what he's been hearing from investors so far and is targeting to close the fund by the end of 2022.

"Those [funds] that were [investing in crypto] just because they thought it was the next big thing and they were just investing left and right just to follow the trend will probably have less liquidity to move forward right now. But I think that many of the institutions and many of the sophisticated investors have been waiting for this and they still have firepower to invest," Pedragosa said.