Corporate Venture Funds
Hey everyone,

My latest memo revolved around $COIN venture fund. I feel that "in-house" venture capital arms are becoming more mainstream. For many years, companies like $CRM, $ORCL, and $SAP have found ways to identify potentially disruptive technology that is adjacent to their own. One of the primary reasons for investing in these companies is that the larger entity can "preview" (for lack of a better word) how these start-ups perform without investing the time and capital needed to develop a competing product themselves.

As a stock, Coinbase has been all over the place. It's been public for exactly 1 year, and is down about 50% from its IPO. Although the stock price tends to move in parallel with large protocols like Bitcoin and Ethereum, I think a lot of investors are not taking to heart what CEO Brian Armstrong wrote in his shareholder note in the S-1 filing.

Armstrong made it clear that Coinbase's revenue and profits would ebb and flow in the short term given the current adoption of crypto. However, he stressed that in a long-term view, Coinbase could end up being at the center of many different aspects of the broader crypto spectrum.

I took a look at Coinbase Venture's portfolio and was stunned to see that they have made 250 investments. Several of these companies are now valued at billions of dollars. Although these are "paper gains" and not yet realized, there is the potential for Coinbase to realize windfalls of cash in a liquidity event.

Whether these valuations are justified or not is hard to know. But with top-notch VC's like A16Z and Sequoia now getting involved, I'd like to think there is some validity to the crypto space. Moreover, data from Pitchbook suggests that 2022 will be a record year for crypto fundraising. Of course, the notion of FOMO is playing a big part here (and also probably influencing the valuations, too).

But at a high level, I think Coinbase is extremely well-positioned to move past its competition given the number of different services it is exposed to via its venture fund, as well as the potential opportunity for strategic alliances / outright M&A should it choose to pursue that route.

Please let me know what you think!

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