NFT-focused fund finds parallels with traditional venture investments

NFT-focused fund finds parallels with traditional venture investments

Spencer Ventures, a crypto fund focused exclusively on NFTs, has decided to exit stealth mode after receiving a $4 million check from a family office with $10 billion in assets under management.

Blockworks spoke to founder and fund manager Spencer Gordon-Sand about what it takes to launch a fund aimed at institutional investors in a bear market.

At the height of the bull market in November and December last year, Gordon-Sand advised investors to sell a large portion of their portfolio and wait for the right moment to buy back.

Now the 30 individual investors, mostly from Chicago and the U.S. Midwest, have collectively raised $4.5 million, he said.

The group's anchor is a $4 million investor, who Blockworks said is likely the venture capital arm of Chicago-based Pritzker Group, according to a source familiar with the deal.

Institutions looking to increase their exposure to digital assets are turning to NFTs, Gordon-Sand said, while most of the top funds, like those from Grayscale or Galaxy, only offer exposure to Ether or Bitcoin.

“NFTs, to me, are the first really compelling thing outside of the core technologies of Ethereum and Bitcoin, where I see people building real businesses and creating real value,” unlike other alternative cryptocurrencies, or DeFi, he said.

Gordon-Sand added that he has seen an appetite for the venture aspect of crypto-native companies – NFTs and decentralized autonomous organizations (DAOs) – from the institutional family office space, investors who may be struggling to find ways to deploy capital.

Gordon-Sand has been a venture investor for the past decade, working his way up to partner at VC firm Lofty Ventures. There he founded a venture syndication practice aimed at accredited investors curious about angel investing.

“One of the reasons [institutions] invested in me,” Gordon-Sand said, “is because they don’t actually want to deal with holding these assets on their own balance sheets,” due to the increased internal and statutory taxes that most family offices face.

So far, Spencer Ventures has only deployed 20% of its total capital since the market collapse in the second quarter. He was waiting for a post-merger market to deploy the rest of the cash that remained in USD.

Gordon-Sand's greatest skill appears to be timing. Among his biggest purchases is a rare cosmic Moonbird NFT, purchased three hours before the project's parent company, Proof Collective, raised $50 million in funding notice End of August.

He also purchased a Laser-Eyed Bored Ape Yacht Club (BAYC) NFT for 133 ETH. He said he used Ether purchased after Wednesday's Fed meeting for $1,227, for a total of about $163,000.

Laser eyes are one of the rarest traits of a bored monkey, and during the bull market they tended to trade at three to five times the reserve price. Gordon-Sand bought his when the floor was at 70 ETH, while currently the cheapest BAYC NFT on OpenSea is being offered for 80 ETH.

He also bought “a bunch” of Mutant Ape Yacht Club and other BAYC NFTs during the BendDAO liquidation scare.

The CryptoPunks in his portfolio were bought “for culture.”

“People see me buying punks, know I have liquidity, and message me when they want to sell interesting grails that are harder to move,” Gordon-Sand said. (Grails is slang for a coveted item.)

Spencer Venture's strategy is to look at highly liquid collections for entry and exit. By usually taking on larger positions, he treats the company like a venture capital fund.

"That's the cool thing about NFTs. It's kind of a risk investment, but you can actually short positions, manage liquidity differently and actively manage risk," Gordon-Sand said.

He compares the market capitalization of NFTs to that of private market valuations of startups. Yuga Labs, for example, was valued at $4 billion following its funding round in March - a valuation typically seen on publicly traded companies.

NFTs are relatively illiquid, but that can be an advantage, Gordon-Sand said.

“Being liquid in an illiquid market is the path to the best deals,” he said, adding, “In bear markets, the value multiples for rare assets fall relative to floor assets, which I see as an opportunity for someone with a longer horizon like myself.”

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The post-NFT focused fund finds parallels with traditional venture investments is not financial advice.