Asian FO's investment style and cheque size align "just right" with crypto-unicorns: VC founder

Family offices in Asia may have a significant role to play in the early days of cryptocurrencies. A Hong Kong venture capital founder argues that their investment horizon and goals are better aligned with the financing and growth needs of cryptocompanies, making them more ideal investors than institutional LPs (limited partners).

Allen Ng, who founded Hong Kong-based Everest Ventures Group in 2018 with the backing of 15 major families and listed companies within North Asia, has seen contribution from family offices not only into his crypto-ecosystem-focused venture capital (VC) fund, but also into his cryptotrading platform, Kikitrade.

“We have invested in about 20 companies globally surrounding crypto-infrastructure, ranging from public protocol all the way to blockchain games and media companies to build a holistic portfolio”, Ng told Asian Private Banker. He described this as a “Tencent approach”, where investments are made into players along the cryptovalue chain.

Three major theses underlie the portfolio of blockchain-enabled companies: blockchain gaming/NFTs/digital collectables; defining decentralised finance; and Web3.

Notably, interest from family office investors had proliferated over the past years, observed Ng, as they grew into knowledgeable and sophisticated traders of cryptocurrencies, while dipping their toes into private deal opportunities in emerging companies. Admittedly, he added, their approach stays largely conservative in terms of capital deployment, and their exposure remains limited.

However, the VC dynamics are quietly shifting and participation from FO investors is growing more prominent. Ng believed the changes result from a natural alignment between the style, cheque size of FOs and certain characteristics of cryptocompanies.

Made for each other?

The VC firm finds its sweet spot in either very early-stage or late-stage cryptocompanies, as “cryptocompanies need a relatively shorter time to become profitable and they need less capital to sustain growth”.

Blockchain companies have more means to raise capital, Ng continued. They can issue tokens, and the tokens can raise money from other token funds. They can also get a token to get listed on major crypto-exchanges within only a year of launching a project. This significantly shortens the time it takes for a cryptocompany to get an IPO.

In the case of a successful pick, investors may soon expect a spike in the firm’s growth curve after capital deployment, or find an eye-watering opportunity for an IPO exit — while the size of the investment is kept relatively small by private equity standards.

In fact, FOs are no stranger to the VC landscape in Asia — long before cryptocurrency became the new vogue.

“If you compare the VC landscape in Asia with that in the US, the latter is a lot more institutional driven. In Hong Kong, for instance, the biggest private investors are not the funds but the prominent family offices, the venture capital investor explained. These families are looking at deals on a global scale and they are LPs in many funds, and these funds would feed and source deals for them.”

The same strategy now applies when wealthy families invest in cryptocompanies via VC vehicles: they co-invest with VC fund managers and rely on their market expertise to tap into cryptorelated deals.

“Essentially we are the trailblazer for them in a new market. At the same time, they would involve us in new deals, too.”

Booming “cryptowealth”

The burgeoning cryptoscene, with a growing number of investors jumping onto the bandwagon following the exponential appreciation of cryptocurrencies, gave rise to billions of dollars worth of private wealth, most of which still sitting in investors’ portfolios in the form of cryptocurrencies.

But the liquid nature of the asset class, as well as diversification needs, means that such cryptowealth may soon be spun into cash.

For those who participated in the industry at a very early stage, the massive appreciation made cryptocurrencies swell to take up more than 90% of these investors’ portfolio — what the industry dubbed “cryptowhales”.

“But at a certain point, these investors would want to divest a little from crypto”, Ng noted. “There will be increasing needs from those holding the cryptowealth to rebalance their portfolio and allocate their wealth to other asset classes to hedge against the risks within the cryptospace.”

His observation dovetailed with comments from Gary Tiernan, who heads the multi-family office Golden Equator Wealth as well as Golden Equator’s capital business arm.

Among Tiernan’s network of clients, opinions diverge drastically: “Investors are either believers or they’re not. And we certainly can find people within our network that are on both sides of the spectrum.” But he cautioned, “the level of volatility in cryptocurrencies makes it difficult to be a major part of anybody’s portfolio.”

The multi-family office is no staunch advocator of digital assets, but Tiernan said it is observing closely relevant crypto-opportunities.

Most importantly, it recommends client constantly rebalance and cash out their investment gains whenever suitable.

“And I would believe — as with a lot of assets — it can be sensible to take some of your money off the table when very high gains have been made. Some of our clients have made significant multiples of the money that they put to work, but we also remind them of making decisions of when to take the gains away, so that it will not end up an all-or-nothing play.”

On the other hand, Ng said cryptowhales are taking a much bolder approach.

“I do not believe these investors would divest all their cryptocurrency holdings to only 10% of their portfolio. By virtue of their deep understanding of crypto-assets, the cryptowhales who hold billions of dollars in cryptocurrencies will be much more comfortable holding their position in this asset class.”