Crypto-focused Dragonfly Capital launches $650M third fund

The crypto market is showing no signs of slowing down as funds and investors alike continue to deploy massive amounts of capital into the ecosystem. Today’s evidence of the trend: Dragonfly Capital, a crypto-centered investment firm, closed its third venture fund for $650 million, the firm’s managing partner, Haseeb Qureshi, told TechCrunch.

The fund was oversubscribed, with limited partners including Tiger Global, KKR, Sequoia China, Ivy League endowments, Invesco, Top Tier Capital Partners, and an undisclosed Southeast Asian state-owned investment company, among others. The firm initially planned to raise $500 million, according to a filing with the U.S. Securities and Exchange Commission in January 2022.

To date, Dragonfly has invested in almost 60 companies through its previous funds launched in 2018 and 2021 for $100 million and $225 million, respectively. Dragonfly plans to focus its investments across all stages of blockchain and crypto-native companies, protocols, and tokens.

“We see more opportunities across the different stages and through the lifecycle of a company or protocol,” Qureshi said. “Also, the market has also grown so much. When we first started investing, the entire market for crypto was a few hundreds of billions and now it’s in the multitrillions.”

Additionally, the capital landscape has changed dramatically since Dragonfly’s previous funds, Qureshi said. “There’s a lot more understanding of the importance of crypto. There’s a lot more interest in crypto investments not just from traditional VCs or crypto VCs, but also traditional institutions that are now getting into crypto investments because they realize how important this stuff is.”

After working as a software engineer, Qureshi caught the “crypto bug” in 2017, he joked. And within a year, his firm launched its first fund with an investment team made up of a handful of ex-techies from computer scientists to coders, Qureshi said.

“It’s really important to have that technical fundamental knowledge when investing into early-stage crypto technology,” Qureshi said. “It’s like investing in crypto without understanding technology is like investing in biotech without understanding biology. You’d be missing the core mechanics of what you’re investing in.”

There is a lot of excitement in the crypto community and among investors around play-to-earn gaming, decentralized autonomous organizations (DAOs) infrastructure, and web3 developer tooling, Qureshi said. But Dragonfly will continue to invest in those areas, as well as decentralized finance, smart contracts, NFTs, the metaverse, and other sectors in the crypto ecosystem, he said.

“If you’re a crypto investor, I don’t think your job is to pick out one sector that you think will be the future,” Qureshi said. “The honest reality is that we don’t know. The future is still unwritten. As people show up and build, they’ll determine where the future [of crypto] is going.”

In general, 2022 is looking to be another hot year for crypto in terms of capital investments. Last year, over $30 billion was raised by crypto companies and about $13 billion has been raised within the first four months of 2022, according to data from PitchBook.

Additionally, late-stage post-money valuations for venture capital-backed crypto and blockchain companies rose on average 91%, to $3.95 billion, according to a PitchBook report. The average global late-stage VC valuations, meanwhile, dropped 14% to $697.6 million.

The growth of the crypto sector is not just affecting investors but companies and institutions, too, Qureshi noted. “[They] are scrambling to figure out how to retool themselves and start understanding how this paradigm shift coming from the crypto industry will affect what they do and how they run their businesses.”

“It’s really clear that the whole world now realizes how important this industry is,” Qureshi said. “After everything that happened in the past year, it’s no longer a question of whether crypto will be a thing.”