Crypto VC firm Paradigm downplays AI ambitions, but some investors and founders are frustrated
When ChatGPT launched in November 2022, consumers were amazed by the powerful artificial intelligence technology, as were major venture capitalists. At a time when venture capital firms struggled to deploy capital amid a market downturn, AI presented a dazzling new opportunity.
While generalist VCs investing in all sectors quickly turned to AI, those managing crypto-focused funds had to proceed with more caution. In the case of Paradigm, founded by Coinbase co-founder Fred Ehrsam and former Sequoia Capital partner Matt Huang, the company’s recent interest in AI — and lack of communication about its intentions — has ruffled the feathers of some of its investors and founders. of portfolio companies.
In late May, crypto news site The Block spied changes to the homepage of Paradigm’s website that completely removed any mention of Web3 or crypto. This was news given that the company had previously touted its focus on “disruptive crypto/Web3 companies and protocols” and sparked chatter about Paradigm’s new broader interest in “research-driven technology”, including AI. The changes led to discussion – and mockery– on Twitter, where the concept of “a pivot from Web3 to AI” has become meme fodder in the past months.
The changes at Paradigm also came as the company faced continued headwinds from its investment in the toxic FTX empire, a decision that Huang expressed “deep regret” in mid-November. The company reportedly had to write down its $290 million investment to zero.
Meanwhile, Paradigm is publicly downplaying any shift to AI, with COO Alana Palmedo Fortune“The new website language emphasizes the research-driven approach that Paradigm has always had, and does not reflect a lynchpin of crypto.” In a tweet from earlier this month, Huang wrote“We haven’t dropped crypto… Some of our research team has been tinkering with AI and AI x crypto.”
Huang wrote another longer tweet emphasized this week that the company has “never been more committed to crypto,” adding that “it seems trendy to frame crypto versus AI as a zero-sum competition. But we’re not buying it.”
Despite Paradigm’s clarifications, the company’s apparent meddling with AI – and communication strategy in particular – has upset some of its limited partners. An LP that spoke Fortune on the condition of anonymity, the public said changes to its website — and any potential shift in investment focus — were not communicated to them. Paradigm is “notoriously bad [at] LP relations unfortunately,” they said.
It is striking that the fund also does not have a dedicated investor relations officer, and that Palmedo takes on that responsibility. Meanwhile, a founder of a Paradigm portfolio company told me Fortune that, to their knowledge, the company has not communicated changes to the site to its companies.
Another founder of a Paradigm portfolio company, who requested anonymity to speak freely, said the decision felt “weird” to them.
“If a new founder asks me if they should raise from [Paradigm]”I’d say, ‘Maybe that’s not at the top of the list anymore,'” they said. “They’re just not focused on it, and it kind of feels like, ‘Hey, we’ve invested in all these things, but we really don’t care anymore,’ which is probably why they’re trying to say it’s a do not change.”
Other founders shrugged at the event: “I really don’t know what the motivational reasons were, but I really don’t think there has been any brand contamination from crypto,” said Tom Walton-Pocock, co-founder of Paradigm portfolio company Aztec, who now works at his other project, Geometry, a crypto-focused startup venture and research lab.
Walton-Pocock argued that the bigger challenge for crypto funds will be repairing reputational damage they incurred last year in their pursuit of rapid liquidity from token sales – emphasizing quick access to exits over long-term holding – to it adding that “crypto tends to be a bit of an island in itself.”
As for AI, given the number of VCs now chasing deals in the industry, it’s unclear if crypto-native funds will be able to compete. Huang has argued that the optimal strategy for such funds may be to go after projects that combine crypto and AI. One such deal is Andreessen Horowitz’s recent $43 million investment in Gensyn, which a16z crypto partner Chris Dixon described as the “Airbnb for GPUs”.
Paradigm has not yet announced investments in AI startups. The company has had a slow 2023 so far, much like many VCs en masse. Paradigm has only announced a few deals, including a $15 million round in ZK-proof startup Ulvetanna, which co-led the company in January, and a $7 million round in crypto infrastructure startup Conduit, which led the company in March. . Still, Paradigm continues to publish crypto-related research on topics such as regulation and “friend of the court” files in support of high profile litigation.
Other Paradigm founders who Fortune spoke to still see the company as a leader in the digital asset industry. “I don’t know if there’s a VC firm in the space that has a better overall view of crypto than Paradigm,” Dee Goens, co-founder and COO of NFT creation platform Zora, told me. Fortune. “They are absolutely brilliant when it comes to protocol-level thinking.”
This story was originally on Fortune.com
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