Crypto investor Dan Tapiero taps Asian LPs for newgrowth equity fund, eyes up to $800m
It was 1.00 pm in the back of the lounge of the Four Seasons Hotel in Hong Kong where Dan Tapiero rushed through his breakfast whilst sharing one of his proudest moments since his entry into growth equity investments in the digital asset sector over four years ago.
In town for a one-week business trip in early December, Tapiero had arranged back-to-back meetings with one important goal: To gauge investor interest in his coming fourth fund, for which Tapiero targets to raise anywhere from $700-800 million.
While many other fund managers would, more often than not, brag about their “proven track records” and “alpha generation” strategies, this New York-based founder and helmsman of 1RoundTable Partners and 10T Holdings threw a somewhat bizarre fundraising pitch.
“Listen to this,” said Tapiero, “what I’m very proud of is the third fund. The third fund, which we launched at the absolute peak of the market around December 21 to January 22, is flat in performance.”
His pitch would make a lot more sense when put in the context of the crypto market volatility that—in its most turbulent times around 2022—wiped out almost $1.5 trillion worth of market capitalisation, according to Forbes research.
The price of Bitcoin, for example, fell approximately 74.9% to under $17,000 around the end of 2022 from an all-time high price of almost $67,600 in November 2021. Its current price is near $41,500.
A cascade of crypto bankruptcies and liquidity issues in recent years, including the high-profile collapse of crypto exchange FTX, have triggered tightening regulations and done massive reputational damage to the entire industry. That also puts downward pressure on venture fundraising and investments in the sector.
Statistics from US-based crypto financial services firm Galaxy Digital Holdings show that venture investments in the crypto and blockchain sector in the third quarter of this year were below $2 billion – its lowest since Q4 2020. This marked another quarter of a continued downturn that began after a peak of $12 billion in Q1 2022.
In the recent four quarters (Q4 2022 to Q3 2023), crypto and blockchain startups raised less money than they did in just Q1 2022. Deal count in the four quarters combined also dropped to a new low at only 376, the Galaxy data shows.
A portfolio that ‘sits through bear markets’
Tapiero is in the market raising his fourth growth equity fund focusing on the so-called “digital asset ecosystem (DAE) companies.” Like the predecessors, the new fund will invest in growth-stage companies with a mature business model to contribute to a portfolio that “sits through bear markets.”
Built under 1RoundTable Partners, Fund IV will primarily invest in DAE companies with $40-50 million in annual revenue and a market valuation of over $400 million.
Given that the crypto market is still in its infancy, only about 150 companies currently meet the criteria, according to Tapiero, who also has no plan to invest in any cryptocurrencies or tokens that come with high volatility. Neither is he interested in early-stage investments.
This strategy that zeroes in on lower-risk, growth-stage opportunities comes from Tapiero’s hedge fund legacy, after spending the first two decades of his career working at top companies including Julian Robertson’s Tiger Global Management and Michael Steinhardt’s Steinhardt Partners.
“One of the reasons that we have been attractive to traditional investors is because the way we explain how we build our exposure makes sense to them,” said Tapiero.
His first three funds, managed under the 10T Holdings brand, count the $200-billion Teacher Retirement System of Texas, one of the world’s largest public pension funds, and the Municipal Employees’ Retirement System (MERS) of Michigan as limited partners (LPs).
With nearly $1.2 billion in total assets under management (AUM), 10T Holdings has fully deployed the three funds, including a $125-million Fund I, a $265-million Fund II, and a $350-million Fund III, alongside another over $450 million in co-investments.
The combined capital went into the formation of a portfolio of 24 active DAE companies. The portfolio includes crypto exchange Gemini, Hong Kong-based blockchain gaming developer Animoca Brands, Bored Ape Yacht Club non-fungible token (NFT) maker Yuga Labs, and Deribits, one of the world’s biggest exchanges for crypto derivatives.
US crypto exchange Kraken and Israeli digital brokerage eToro are two of the earliest investments of Fund I, which was launched around late 2020 to early 2021.
eToro was valued at $3.5 billion in March after the completion of a $250-million funding round from investors including SoftBank Group Corp’s Vision Fund 2. San Francisco-based Kraken, among the likes of Binance and Coinbase, are entangled in lawsuits by the US Securities and Exchange Commission (SEC), which accused them of being unregistered securities exchanges, in the regulator’s latest clampdown on digital trading platforms.
Tapiero is among the few investors who, more than once, turned down the opportunities to invest in companies such as the now-bankrupted crypto exchange FTX and crypto lender Celsius Network at their heights.
“We’ve been very careful about valuations. This is a big part of what we do,” said Tapiero.
“I’ve lived through many bear markets in different assets around the world over the past 35 years, so I don’t have FOMO (fear of missing out). I can love the investment to death. I can absolutely love it, want to make the investment, and still not do it if the valuation is too high,” he said.
Lack of growth-stage capital
With Fund IV targeting a first close at “a few hundred million” US dollars in Q1 2024, Tapiero is actively in search of new investors in Asia, where crypto-friendly rules across markets like Hong Kong and Singapore have strengthened local investors’ confidence in digital assets.
“There is a lot of interest,” said Tapiero, who was in Tokyo and Singapore earlier this year as a speaker at two of the region’s most popular crypto events WebX and TOKEN 2049.
His efforts aim to help Fund IV expand beyond an existing global network of about 300 LPs across markets such as the US, Brazil, Australia, and the Middle East. Only three or four of the existing LPs are from Asia.
“There is a lack of capital at the growth stage, usually Series B, C, and later [among] what I call ‘mid-sized companies’,” said Tapiero.
The dearth of growth-stage capital intensified in recent months, when high-profile investors including Canada’s $190-billion Ontario Teachers’ Pension Plan and the county’s second-largest pension fund manager Caisse de dépôt et placement du Québec ended their crypto forays after having to write off investments of tens of millions of US dollars in firms like FTX and Celsius.
Pension funds were not the only investors to be burnt by crypto failures. Hedge funds, too, suffered from the bruising correction in valuations of their investments made at the height of the crypto boom.
Coatue Management, a New York–based hedge and venture fund, recently marked down its stake in the struggling NFT marketplace OpenSea by 90% to just $13 million from $120 million. Tiger Global Management’s $12.7-billion venture fund endured some total wipeouts in its portfolio amid the collapse of FTX and FTX US, as well as steep write-downs in other high-value crypto companies including OpenSea.
Singapore state investor Temasek Holdings wrote off its entire $275-million investment in FTX in November 2022, following similar moves by Sequoia Capital and SoftBank.
This results in opportunities in the secondary market for investors to acquire prominent crypto firms at significant discounts – an area where Tapiero has already invested about $660 million through 10T Holdings.
But investors like himself may face “a six-month window” to capture crypto opportunities in the secondary market. “The bear market is over,” said Tapiero. “This quarter [Q4 2023] will be the best quarter of the year and the best since the last bull market.”