Crypto VCs were once an exotic species—now they’re part of the tech ecosystem

Happy Friday everyone, it’s finance editor Jeff Roberts pinch-hitting for Allie. Since I moved to Southern California two years ago, I’ve been struck by the region’s thriving venture capital scene—one that seems to fly under the media radar compared to Silicon Valley and New York. I recently spoke to a longtime veteran of the scene, Adam Winnick.

Winnick is a lively guy and has that all-important VC quality of being able to convene influential people. I first encountered him last month at a dinner for members of the Medici Network, a crypto-focused institutional investor conference, that brought together everyone from startup founders to bankers to representatives of Ivy League endowments and sovereign wealth funds.

The dinner took place at Avra in Beverly Hills. Having attended more than a few of these things, one thing I noticed—aside from the excellent Mediterranean food—was just how normal it felt. There was a time when everyone at a crypto event saw themselves as an outsider, and the VC industry viewed crypto venture capitalists as a different breed playing a different game.

I’m not sure that’s the case anymore. Crypto investing now feels like just another stream in venture capital, though some obvious differences remain—especially when it comes to getting paid. Unlike the traditional model where VCs obtain a bushel of shares from a startup, and then wait seven years, the crypto VC world is more liquid and revolves around tokens not stock. (If you want a closer look, check out this deep dive on the topic by Leo).

In the early days, the mix of crypto and venture capital resulted in some pretty egregious behavior—think VCs filling their bags with tokens tied to half-baked projects, and then dumping them onto retail investors. Lately, though, the adoption of stricter lock-up periods has curbed some of the worst abuses, and the expected arrival of clear regulations should improve things further.

For his part, Winnick is a big advocate for the token model. “It’s a powerful incentive mechanism to bootstrap network effects. Just because people misuse them today or didn’t know what to do with them early on doesn’t mean they’re not going to be used in the future,” he observes.

Tokens are likely to become a more common feature of the VC landscape if, as Winnick predicts, the worlds of traditional tech and crypto move closer together. If this convergence is indeed taking place, Winnick says the winners will be those who can figure out how to combine the mature tech stack and broad business networks of so-called Web2 with the highly technical and less capital intensive dynamics of Web3. 

Winnick, a former banker, and his cofounder Kamel Mokeddem, a former Oracle exec, appear to be cracking the code on crypto investing. The IRR for the inaugural $45 million fund at their firm Finality Partners was 69% at the end of last year, and boasts Series A investments in promising crypto staking projects like Eigen Layer and Babylon. Meanwhile, though it’s early days, the fund’s second vehicle Liquid Fund is up 12% this year at a time when many other funds are posting flat or negative returns for the first part of 2025.

While Finality Partners is dwarfed by the giants of the crypto VC world like a16z and Haun Ventures, the traction its partners have gained suggest they’ve found a lane of their own—an achievement Winnick attributes to his willingness to give blunt advice and be directly accessible to the firm’s portfolio companies.

As always, Term Sheet is curious to hear your thoughts. Do you think the worlds of crypto and traditional VCs are coming closer together? And finally, in reading up for this column, I came across a New York business reporter who described the L.A. venture capital scene as more “passive aggressive.” Fair?

See you Monday,

Jeff John Roberts
X: @jeffjohnroberts
Email: jeff.roberts@fortune.com
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This story was originally featured on Fortune.com