One of Australia’s highest profile venture capital funds, which has cast itself as a blockchain believer, told nervous investors in the days after the implosion of major cryptocurrency exchange FTX that its stakes in the sector were small and it planned to keep them that way.

A letter to investors at the fund, AirTree Ventures, from November last year described how only 2 per cent of two its funds have been invested in “Web3” – a term used to describe projects that are based on blockchains.

AirTree wrote to investors to reassure them in the wake of FTX’s collapse.Credit:AP Photo

The letter, seen by this masthead, tells investors that figure will likely stay at 5 per cent or less for its funds established in 2021, and emphasised that AirTree had no direct exposure to FTX which was once worth $US32 billion ($45 billion).

All six of AirTree’s partners, including industry veteran and AirTree co-founder Craig Blair, pinned the failure of FTX, which grew significantly as users cashed in on the price growth of largely unregulated cryptocurrency assets, on “human misconduct rather than technological failings”.

FTX collapsed in November amid a general downturn in cryptocurrencies and allegations that its founder, Sam Bankman-Fried had loaned customer assets to a floundering crypto hedge fund that he owned called Alameda Research. Bankman-Fried has been charged with fraud over his alleged actions, which he denies, and plead not guilty early this month. Some of his associates have confessed.

The saga led to a prolonged downturn in cryptocurrency prices, increased regulatory scepticism and job cuts at a number of prominent Web3 start-ups globally.

Airtree’s partners (from left to right) Jackie Vullinghs, John Henderson, Helen Norton, James Cameron, Craig Blair and Elicia McDonald in Surry Hills.Credit:Jeremy Piper

The AirTree letter said most of its Web3 investments would only endure general market volatility from FTX’s collapse, while two could be marginally more affected.

In February last year AirTree, which is one of the country’s three largest venture capital funds, launched a $50 million fund dedicated to Web3 investments. The firm was never uncritically bullish, but projected confidence in the space, adopting the industry jargon of “diamond hands” and “black belt HODLers” to indicate its commitment despite market volatility.

“There has never been a more exciting time to start a crypto project,” one partner, John Henderson, wrote at the time.

AirTree declined requests for an interview. A spokeswoman for the group said Airtree had followed through with its investment intentions for the Web3 sector. “AirTree’s approach is to make selective early-stage investments in companies with large potential and then be able to provide follow-on capital to the top performers,” the spokeswoman said. “Web3 is no different, and so far we’ve made six early-stage investments in the sector and one follow-on investment.”

She pointed to the February post, which cautioned that “We’re ready for our investments to look silly before they look smart.”

“FTX made the whole industry look silly,” the spokeswoman said. “Like everyone else, we were shocked and disappointed when it unravelled. But FTX’s failure was the result of human misconduct, not technological shortcomings. So, while it is certainly a big setback, we do not think it heralds the demise of the sector and retain our conviction that blockchain technology will be a key driver of innovation over the next decade.”

She said AirTree was not capping its Web3 investments at 5 per cent of its funds, but had instead provided guidance on the subject that could change.

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