DeFi Hedge Fund, Fresh off Profitable Private Bets, Launches First Venture Vehicle

A hedge fund firm specializing in DeFi is launching its first venture capital fund on the heels of investor demand following a series of winning private bets.

Coral DeFi held a first close of $5 million for its Coral Ventures LP Fund 1 In January, according to two sources familiar with the matter. The vehicle plans to raise about $50 million overall, with a second close penciled in for April or May.

Patrick Horsman, Coral’s managing partner, confirmed the fundraise to Blockworks. The firm has been investing in startups via its flagship hedge fund, Coral DeFi Ltd Fund, typically deploying less than 10% of the vehicle’s capital in side pockets — a type of account hedge funds use to segregate riskier bets from more liquid investments. The fund made about 15 such investments last year, gaining 43.7% in the process, with a net exposure of just 25%. 

The firm took a stake in Animoca Brands, the parent company of The Sandbox metaverse, when the company had a $1 billion valuation. It most recently hit a $5.4 billion valuation after a $359 million fundraising haul.

Crypto hedge fund managers — who specialize in trading liquid tokens — have increasingly proven unable to resist soaring valuations in private markets, despite the fact that such investments require a different skill set and vetting prowess. Others, including Travis Kling’s Ikigai Asset Management, have raised venture funds after previous side pocket bets paid off. 

Coral has just under $100 million of assets under management overall, predominantly from high-net worth individuals and family offices. The firm, though, is starting to get traction from larger institutions, including fund of funds, which are on the rise this year.

The venture fund plans to key in on pre-seed, seed and Series A investments, with an emphasis on play-to-earn gaming and infrastructure plays across the DeFi (decentralized finance) space. Horsman is planning to hire a portfolio manager specifically for the vehicle. 

“We want to be early, writing smaller checks to a decent amount of deals and getting in on the ground floor,” Horsman said.

Since starting to trade in January, the fund has invested in startups including Atmos, Boto, 

DeVol, Flow Carbon, Near, Smart Valor and Tea. The strategy is a “little more focused on the token side,” Horsman said, but still does a “fair amount of equity deals.”

Partly because of the heavy token focus, the fund offers more liquidity than most pure-play venture vehicles. It has a three-year investment period, plus two optional one-year extensions.

In addition to cash, the fund accepts the stablecoin USDC for limited partner contributions, with Horsman saying about one-third of inflows are now in stablecoins.

While most venture funds draw down — or call — investor capital as deals pop up, Coral gives limited partners the option to park their funds in Coral High Yield Ltd Fund, a high-yield, market-neutral stablecoin strategy that targets returns of 15% to 20% a year.

The fund, which offers monthly liquidity, is also being marketed to other crypto venture capital firms looking for yield while they hunt for investments. 

Coral also raised a few million dollars in December for a 5% general-partner stake in the firm, Horsman said, which is earmarked to make additional hires and build out internal risk controls.

The firm brought on Chase Mayeux as head operations in January. Horsman, an alternative investing veteran, previously founded Verified Organic, a seed-to-sale, Ethereum-based tracking mechanism for organic food. He has also been a managing partner at Cashmere Capital and Octopus Investments. 

Horsman was sued for fraud and misrepresentation stemming from a role at a former company. He calls the legal action “basically a shakedown” that has no merit and has recently counter-sued for defamation, among other allegations.

David Namdar, who co-founded Galaxy Digital, SolidX Partners and NFT.com, is also a general partner at Coral. Thomas McLaughlin, formerly the CEO of crypto miner Blockstake and a veteran of Bank of America Merrill Lynch, is the firm’s chief investment officer.

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