The NFT craze of the past year has triggered an avalanche of crypto capital flowing into art, trading card games, luxury avatars and digital objects but so far, institutional investment firms have largely been keeping a watchful eye on the blockchain-based goods while reserving their capital pools for equity bets on the platforms behind them.
Miami-based Meta4 Capital wants to buck that trend and put LP dollars into the projects themselves, buying up pixelated toads, digital horses and moderately fatigued apes with investor capital. It’s a bold proposition that many traditional startup investors might scoff at, but the team has already secured a major endorsement — a lead investment from venture capital firm Andreessen Horowitz (a16z). Meta4 is ultimately targeting a $100 million fund anchored by a16z.
Founders Brandon Buchanan and Nabyl Charania hope they can blaze the trail of funds backed by storied firms entering a market that has largely been known for its lack of predictability. Meta4 is more interested in buying up rare items of established “blue chip” NFT projects rather than focusing on quantity. Earlier this year, the team deployed a $1 million pilot fund, using the capital to buy up just 31 NFTs including a pair of CryptoPunks, a CrypToad, and a handful of Zed run horses. They say their investments have already appreciated 500-600% in total value amid a market resurgence in recent months.
While NFTs first popped up on the radars of many investors after the $69 million purchase of a Beeple collage back in April, the space has seen a dramatic influx of capital since. In August, NFT platform OpenSea recorded a record $3.4 billion in transaction volume. One of the catalysts for that dramatic surge of investment was business influencer Gary Vaynerchuk buying a rare ape CryptoPunk for $3.76 million. The pace of high-priced deals has continued. This week, a rare Bored Ape sold for $2.7 million (it specifically sold for 696.969 ETH).
“I’m telling investors that the tsunami has not even hit yet; we need this stuff and we need it now — we need an alien and we need an ape,” Buchanan told TechCrunch in an interview.
What the NFT space has in excitement, it lack in regulatory clarity and often adherence to known rules, as well. While regulatory bodies largely seem focused on major exchanges like Coinbase at the moment, Buchanan, who was previously a securities lawyer before getting involved with the crypto investment world, says that a number of popular NFT projects are drifting into murky territory. Many NFT projects are developing complex mechanisms for returning investor capital, with Buchanan specifically highlighting a handful of projects that reward NFT owners with proprietary tokens over time, something he says behaves an awful lot like a security.
“There are reasons that there are some assets that we have not purchased yet,” he says.
New projects are popping up every day, and the explosion of capital has created a number of fast-rising unicorn NFT startups, many of which have been minted by Meta4’s anchor a16z, including OpenSea, NBA Top Shot-maker Dapper Labs and Axie Infinity-maker Sky Mavis. This summer, a16z launched a $2.2 billion crypto-specific fund. With this fund, Meta4 says they will focus on the art and collectibles and shy away from making equity investments in NFT startups.
“I think [a16z] has that side of it covered,” Buchanan says.