Podcaster to Crypto VC With $100 Million Backing

• Andrew Steinwold is one of the biggest names in NFT investing.
• He shares his storied history in crypto that resulted in the launch of an NFT investment firm.
• He explains the investing strategy that helped him secure backing from heavyweights like a16z and the Winklevoss twins.

In 2017, Andrew Steinwold and his childhood friend Dan Patterson launched a multi-strategy crypto hedge fund known as Polynexus Capital.

Despite beating the broad crypto market, compared to its peers, PolyNexus Capital was flailing, Steinwold said.

“If you have the option to invest in Polynexus Capital or fund 1, 2 [or] 3, you’re probably gonna invest in those ones,” Steinwold said.

At that point, it would have been easy to accept defeat and say “game over”. 

After all, Steinwold already had a storied history in the crypto space, from a poorly timed bitcoin bet as a junior in college, to unsuccessfully cold-calling blockchain tech experts when he was 21 to try to get them involved in his own blockchain business ideas.

“Bought bitcoin at around $200 and then it went up to $1,000,” Steinwold said. “For like, a two-week period, I was like, ‘I am the next Warren Buffett, I’m so smart,’ and then it pops …  it popped right back down to $200, I sold that right at my entry. So I ended up making no money, and the whole experience shocked me.”

But still bitten by the blockchain bug, a nudge from his wife resulted in his crypto investing fortunes turning around when he looked at the nascent asset class of non-fungible tokens (NFTs).

“I felt like my skillset was massively different and proven from previous times,” Steinwold said. “And we were just positioned in a perfect spot to kind of really build something here that was impactful.”

Steinwold quickly made a name for himself in the crypto sector thanks to a podcast and a newsletter that focused on NFTs. In 2019, he launched NFT-focused investment firm Sfermion alongside Patterson.

“That was all personal capital up until January of 2021,” Steinwold said. “The reason for that was because I want to build the internal track record and build out the back office and really have that more stable footing before diving deeper with outside capital.”

In January last year, Steinwold launched his first fund with outside capital to buy and sell NFTs. 

And four short years on from the initial struggles of the first hedge fund, Steinwold secured $100 million in backing for a second fund focused on venture investments from some of the biggest names in the crypto industry, from Andreessen Horowitz to Alan Howard and the Winklevoss twins.

The track record of the first fund helped catch the attention of those industry heavyweights. 

30-year-old Steinwold shares the unique NFT investing strategy he used in the fund.

NFT investing strategy

He describes the approach much as more low-key compared to other NFT based funds.

“For us, if any NFT product is being talked about, that’s not something that we approach,” Steinwold said. “We are finding things that are not being talked about, we’re acquiring a position in that thing very quietly.”

It’s not about being sneaky, Steinwold said. It’s more that the NFT markets are so illiquid that if anything is revealed in advance, it can mess up the entire position, he added.

Over a one-year period, NFT sales are up 102%, according to NonFungible.com. With the NFT market booming, Steinwold quickly realized he would need to narrow the fund and focus on four key subsets: virtual land, collectibles, art and gaming.

1) Examine the fundamentals

Regardless of the sub category, assessing the fundamentals of the project are key.

That means looking at the team, product, token economics, community, market data and risks.

“And then if it passes muster, you say, ‘okay, great,'” Steinwold said. “This is fundamentally a sound project, we actually want to dive deeper, you have to identify, ‘Okay, what submarket does this asset exist in?'”

2) Identify the value drivers

Each sub-sector has different value drivers.

For virtual real estate, this involves the location of a plot of land, as well as the zoning laws, such as the width, height and length that companies can actually build on the land, Steinwold said.

In gaming, it’s all about utility and functionality, whereas in art projects, it’s about the reputation and brand.

Collectibles are the hardest to explain, Steinwold said. The story and narrative around the project is what makes it collectible, he said. 

One example is the CryptoPunks project. It’s considered one of the first NFT projects in crypto, there’s a scarcity of 10,000 and they were given away free with a bitcoin launch in 2017.

“All those bits of the story add to that value narrative,” Steinwold said.

3) Create the investing thesis

The final piece of the puzzle is creating an investment thesis, which helps ensure diversification across similar projects.

Despite two virtual land projects having similar drivers, they can have completely different investment theses, Steinwold said.

A virtual world like Somnium Space is oriented towards virtual reality users aiming to offer a high end and high fidelity experience, while another virtual world like Cryptovoxels is much more oriented towards foot traffic and ad revenues.

A video game like Axie Infinity presents even more challenges, because there is the option to invest in tokens, land, and the characters themselves.

“You have to decide, ‘okay, are we going to equal weight a basket of all these things?'” Steinwold said. “‘Are we only going to purchase the items because we know new players need to level up faster?’

“Every investment is tailor made to work on that specific project after it passes that fundamental bar of quality.”

Projects to watch

The approach of Steinwold’s venture fund is slightly different. It’s much more about the team’s background and the market they are planning to build in with a focus on the pre-seed and seed stages.

Despite being much more open about his venture investments, Steinwold’s portfolio is still incredibly diversified with names that aren’t often found in many traditional venture portfolios.

He shares four under-the-radar names to watch: