WHY FUND OF FUNDS?

Fifth Era/Blockchain Coinvestors Newsletter

Vol. 3, No. 7, April 2021

WHY FUND OF FUNDS?

As we wrap up our oversubscribed second fund and prepare to launch our third Blockchain Coinvestors Fund of Funds, we thought it might be worthwhile outlining the advantages of fund of funds and why we are convinced that this is the right model for investing in the global leaders of the blockchain world. 

To begin, we should recap briefly some unique characteristics of early stage technology investing that make it perhaps the best asset class for a fund of funds strategy:

HIGH EARLY STAGE RETURNS
First and most importantly, early stage technology investing has the high returns to make the fees on fees of a fund of funds strategy justifiable. The Cambridge Associates US Venture database shows that early stage venture has the highest returns of almost any asset class - and so far our experience in early stage blockchain investing has far exceeded the broader benchmark with most of our 25 funds performing as top quartile or better. An institutional fund of funds will have low costs of 1% management fee and 10% performance fee and an exceptionally high return asset class will absorb these low fees easily.

PERSISTENCY OF TOP QUARTILE
Next, a fund of funds strategy works best where there is persistency of the top quartile funds. Persistency is a measure of whether a fund that was top quartile in the prior period is likely to be top quartile in the next. Early stage venture has one of the highest persistency rates of any asset class at 48% according to Harvard University and State Street data. This is important, because if you can secure access to the top quartile funds you have a high likelihood of superior returns in the next period.

HARD TO ACCESS THE BEST
Unfortunately, investors find it hard to access the highest performing funds on an ongoing basis. Not only does it take a great deal of work and relationship building to know which are the top quartile funds, but in addition, as soon as you know who they are, it seems as if all the capital in the world finds out too and beats a path to the fund manager's door. So securing access is hard to do, and consistent investment vehicles that support these funds over time are more likely to be able to allocate capital to them.

ONE STOP SHOP
A fund of funds like ours is a one-stop shop for leading blockchain venture managers and strategy diversification. Our goal is to be in all of the best funds globally in this sector, and to allow our investors to write a single check and get global coverage - often beneath the minimum commitment requirement of any one fund. In terms of diversification, if a fund of funds invests in 15 funds each of which invests in 30 or so blockchain businesses, that implies a combined portfolio of more than 300 after overlap. This level of diversification is unparalleled at this time.

MORE EFFECTIVE, LESS EXPENSIVE
While most family offices don't want to build an internal team to handle every category of investing, some larger institutions do. However, by the time that they get to a unique and complex area of investing like blockchain, this requires a great deal of expertise that generalist alternative investment professionals do not have. It is more effective and less expensive to use a fund of funds, rather than building a direct and diversified portfolio in-house which requires dedication of time and staff.

DEDICATED STAFF
The corollary of the prior point, is that a fund of funds has skilled and experienced staff dedicated to sourcing managers and performing comprehensive investment and operations due diligence, analysis, and monitoring. It is all we do.

ACCESS TO INNER CIRCLE
Last, but perhaps most importantly, the almost 8 years that we have been backing the leaders of the blockchain venture space, and the more than 300 blockchain companies and projects that are in our combined portfolio today, bring additional access benefits. As noted above, early stage technology returns are concentrated among the persistent performers, and enhanced returns are possible due to access to ‘inner circle’ partnerships and the most attractive coinvestment opportunities. 

This is what we offer.

We hope you will wish to know more about our third blockchain venture fund of funds. Please don't hesitate to subscribe at www.blockchaincoinvestors.com or contact our investor relations team at ir@fifthera.com if you would like to learn more.

Thank you for reading.

Alison Davis
Matthew C. Le Merle

ABOUT BLOCKCHAIN COINVESTORS

Since 2014 our goals have been to provide broad coverage of the emerging unicorns and fastest growth blockchain companies and to capture superior returns from investing in the leading blockchain venture partnerships. The strategy is now entering its 8th year, and so far we are investors in 20 pure-play blockchain venture funds in the Americas, Asia and Europe and in a combined portfolio of more than 300+ blockchain and crypto projects including 20+ blockchain unicorns. Simply put, our funds, SPVs and syndicates represent the best way to invest in blockchain businesses.

FUND PERFORMANCE

Blockchain Coinvestors Funds are continuing to generate strong returns. To date, over 80% of the funds we are invested in are performing as top quartile funds against the Cambridge Associates benchmark. This remarkable performance results from powerful tailwinds driving the world towards a future in which digital monies and digital assets are ubiquitous and the businesses and projects providing blockchain and crypto products, services, and infrastructure benefit disproportionately.

BLOCKCHAIN COINVESTORS FUNDS

Blockchain Coinvestors’ goals are to provide broad coverage of the emerging unicorns and fastest growth blockchain companies and to capture superior returns from investing in the leading blockchain venture partnerships:

  • Fund III is open only to investors who meet the Qualified Purchaser definition with a minimum subscription of $250,000.

    • A “qualified purchaser” is an individual or a family-owned business that owns $5 million or more in investments. The term “investments” shouldn't include a primary residence or any property used for business.

  • Fund III Parallel is open to investors who meet the Qualified Client definition with a minimum subscription level of $250,000 at the discretion of the Manager. Please contact ir@fifthera.com if the minimum is of concern.

    • Currently, an individual or entity is a qualified client if he, she, or it: (i) has a net worth of $2,100,000 prior to investment in the fund (excluding the value of his or her primary residence).

While the two funds are substantially the same, there may be some funds and investments that are only available in the Qualified Purchaser vehicle. Blockchain Coinvestors funds can take investments via IRAs. We support several providers, including AlgoIRA, Kingdom Trust, Millennium Trust Company and Pacific Premier Trust Company (Pensco).

Please visit the Blockchain Coinvestors website to learn more about our offerings. You can also reach our Investor Relations team directly at ir@fifthera.com.

BLOCKCHAIN COINVESTORS SWISS

We are excited to announce that Blockchain Coinvestors Funds are now available through Swiss certificates for those of our non-US investors who prefer this approach. The underlying fund is the same, however, our Zurich based team at Blockchain Coinvestors Swiss, who will introduce in future weeks, can provide detailed information regarding this investment option. Email us at mlemerle@fifthera.com to learn more.

LINQTO
'Private Investing Made Simple'

While our funds are only available to Accredited Investors who are also Qualified Clients we believe in the democratization of investment access to all investors and look forward to that day. In the interim, we have partnered with Linqto which is an easy to use Mobile and Web app that makes it exceptionally easy to invest into attractive opportunities. The provide access to Accredited not Qualified Client investors as well as much lower minimums. Go to Linqto.com or download the app from your App store to use this approach.

BLOCKCHAIN COINVESTORS ANGELLIST SYNDICATE

Continuing the theme of the democratization of investing, we have a rapidly growing Blockchain Coinvestors syndicate on AngelList providing access to selected coinvestments. Please join us and our partner Lou Kerner on AngelList.

REGISTER NOW FOR UPCOMING WEBINARS AND CALLS

Our investment team hosts bi-monthly webinars and calls to help educate our community about the Fifth Era, fintech, blockchain and crypto. We discuss important trends, tailwinds and investment themes including what we have learned and how we are using our knowledge to inform our own investment thesis and actions. Below is a list of upcoming webinars for which you can register by clicking the links:

Blockchain Coinvestors Fund III Kickoff

- April 12th, 7:00am PST

- April 12th, 12:00pm PST

Blockchain Coinvestors Investment Thesis

- May 3rd, 7:00am PST

- May 3rd, 12:00pm PST

Securing Global Early Stage Access in Blockchain

- May 17th, 7:00am PST

- May 17th, 12:00pm PST


Recordings of past webinars and calls can be found at www.fifthera.com/webinars.

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