SG’s Play Ventures buys stake in crypto-focused LuneX fund from Golden Gate

LuneX Ventures managing partner Kenrick Drijkoningen.

Singapore’s gaming-focused venture capital firm Play Ventures has taken over as the new fund advisor of LuneX Ventures from Temasek-backed Golden Gate Ventures.

As part of the transaction, Golden Gate Ventures conducted a partial sale of its rights to receive carry for the LuneX fund, Kenrick Drijkoningen, managing partner at LuneX Ventures, told DealStreetAsia.

LuneX Ventures was spun out from Golden Gate Ventures in 2018 as one of Southeast Asia’s earliest cryptocurrency and blockchain funds.

Drijkoningen declined to share details on the size of the transaction, but industry experts told DealStreetAsia that such stake sales are usually sized between 20% and 49.9%. Lunex added that there has been no change in its LP shareholder base as a result of this deal.

The transaction will also see Drijkoningen, who is the founder and sole member overseeing LuneX’s investments, come under the management of Play Ventures, which is led by Henric Suuronen in Singapore. Drijkoningen will relinquish his role as head of growth at Golden Gate Ventures.

Meanwhile, Drijkoningen will continue to oversee LuneX’s $10 million first fund, which has generated 720% in returns since inception, clocked an internal rate of return (IRR) of 147%, and distribution to paid-in capital (DPI) of 2.9x. The fund also began distributing its returns amounting to its limited partners (LPs) this month.

LuneX has around 25 LPs on its cap table, including Malaysia Venture Capital Management Berhad (MAVCAP), technology corporates from Japan and Europe, family offices from Singapore, and high net worth individuals (HWNIs).

LuneX’s first fund, which had a corpus of $10 million, has been fully deployed across 15 startups from Singapore, South Korea, Europe and the US, tackling gaps in the global cryptocurrency infrastructural ecosystem. This comprises custodians, know-your-customer (KYC) and anti-money laundering (AML) systems, derivative exchanges and stablecoins.

LuneX’s portfolio companies include Merkle Science, a Singapore-based blockchain data analysis startup; Terra, a Singapore-founded stablecoin; Sparrow Exchange, a Singapore-based crypto options exchange; and Propine, a Singapore-based storage facility for blockchain-based digital assets.

Drijkoningen shared that Play Ventures plans to launch a new fund with a corpus of around $20-40 million, which will look into investing in cryptocurrency and gaming opportunities.

“Traditional gaming hasn’t necessarily looked at the crypto angle yet, and a lot of these things are crypto native and have overlaps with NBA Top Shots, XE infinity, and Crypto kitties. These are crypto native gaming companies and they’re starting to eat into the gaming market, and the gaming market has to start taking them seriously. That’s where I think is a very sweet spot right now for investments,” shared Drijkoningen.

“Mobile phones revolutionized how gaming can be enjoyed by billions of people. Blockchain is now doing the same to digital rights, payments and marketplaces. We believe that the intersection of both gaming and blockchain will create the ultimate metaverse where people meet, play and trade — a true trillion-dollar opportunity,” added Henric Suuronen, managing partner at Play Ventures.

The fund will raise external LP capital for the fund, which will likely see Golden Gate Ventures joining as an investor. Drijkoningen currently has a rough timeline of 3-6 months to launch its second fund.

Edited excerpts from an interview with Drijkoningen:

Do you think the LP landscape for blockchain and crypto has changed?

It has changed in the sense that a lot of LPs have grown much more educated on the sector. Just a couple of years ago, it was still very difficult for a lot of people to just buy bitcoin. There weren’t a lot of institutional solutions. It was frowned upon. But today, there are lots of ways to do that in an institutional, regulated, safe and compliant way.

With that, I also think the understanding of the whole industry has gone up. But it’s still very, very limited. The US endowments are a good example of institutional investors investing in bitcoin. We’ve seen the likes of Fidelity Investments and MassMutual from the US buying into crypto.

When it comes to traditional finance companies, it depends on the leadership. If there’s a family office that has slightly younger leadership, it may get crypto compared to a more traditional outfit. It’s an evolution that will take another 10 years, but it has made significant strides from three years ago.

The analogy of crypto is very apt compared to the Internet in the 90s where some companies adapted to the Internet. Traditionally, you see this over and over again where a new technology comes around and disrupts existing frameworks and technologies. The incumbents are not going to be the leaders in this industry.

Crypto native companies like Coinbase, which just IPO-ed last week, are built on crypto rails by people who understand crypto and will displace traditional finance. This will happen in the same way as 2000. Nobody thought Google, Facebook, Amazon, Netflix would be the biggest companies in the world 20 years later.

Given that blockchain and crypto cycles are much shorter, how does LuneX plan for its own exits?

Blockchain and crypto cycles are roughly 3-4 years. These exits need to happen during bull markets and we’re very much in one now. Bitcoin has grown 10x over the past year. Valuations have gone up and there’s a flurry of M&A activity. Coinbase is one of them. There’s a whole bunch of others, which are acquiring. So, I would expect a lot of M&A activity over the next year. Afterwards, the market will probably cool down a bit. The crypto market is all centred around the bitcoin halving where bitcoin supply gets cut in half every four years, after which the price starts running up and lifts the whole market. We just had the halving last year around April or May.

Where do you expect most of this M&A activity to take place for buyers?

The older, much larger crypto-native companies will acquire the earlier-stage startups that complement their businesses, very much like Google started acquiring complementary businesses.

The other one is traditional finance firms making acquisitions. That has been slower to date because I think a lot of them are still doing their homework or think they can build it themselves. That’s very much dependent on the strategy and the leadership of these companies. On one extreme, you have Fidelity, which is really forward-thinking. But on the other extreme, we have HSBC, which is even blocking people from trading MicroStrategy stock.

Microstrategy is a Nasdaq-listed company operating a SaaS intelligence platform for business analytics. Its CEO, Michael Saylor recognised how powerful Bitcoin would be and started buying it on his balance sheet, starting with not-so-small amounts of $500 million. He started about half a year ago and has placed $2.5 billion into bitcoin.

Microstrategy is still a SaaS business analytics tool and that business continues to operate, but Saylor has already doubled his money so he’s made roughly $2 billion on his bitcoin buys. We’ve also seen Elon Musk getting into crypto with Tesla putting $1.5 billion into bitcoin a couple of months ago.

Facebook announced their plans to set up Libra a few years ago and has not made much headway. Do you think we might see a shift on that front soon?

There will be digital dollars, but I don’t know if it will be Facebook doing that. If you look at stablecoins, they’ve grown exponentially, right? Their market cap is something like $40 billion. Most of the investments we’ve done over the past year have been in stablecoins. USDC is another one.

There’s a US-based company called Circle Financial which issues USDC, a one-to-one token backed with one US dollar in the bank. That’s been getting a lot of traction because it’s regulated, there’s compliance, so they are having a bit of a headstart in terms of stable coins. So, I don’t know if Facebook will do something, but it’s a completely separate thing from bitcoin or permissionless finance, so they will be tightly regulated, tightly controlled.

You have plans to get into gaming and crypto investments next. Where are we on this front? Why does it make sense to get into this space now?

Gaming has a number of large incumbents whether it’s Activision Blizzard or King Digital. Many of these large gaming publishers don’t have an incentive to do anything crypto-related, because it could potentially cannibalise their own businesses, similar to how crypto finance would cannibalise traditional finance.

The other reason is that even now, a lot of these crypto platforms like Ethereum and even bitcoin are not highly scalable. You need a lot of scalability for gaming. Gaming platforms have a lot of transactions happening and you need instant settlements. The networks haven’t been ready very much for that. You need a critical mass of people who actually want to interact with these protocols in transacting Ethereum and bitcoin, So, now that finance has made some strides, you’re starting to see more in the gaming space as well.

There are so many interesting things but it’s still really early days. That’s why I think it’s interesting to invest there now. Traditional gaming hasn’t necessarily looked at the crypto angle yet because a lot of these things are crypto-native and have overlaps with NBA Top Shots, XE infinity, and Crypto kitties. These are crypto native gaming companies and they’re starting to eat into the gaming market and the gaming market has to start taking them seriously. That’s where I think is a very sweet spot right now for investments, because the understanding of those two is quite limited still.

[Editor’s note: This story has been amended to remove reference to a co-GP fund to be launched by LuneX and Play Ventures. The fund will only be managed by Play Ventures.]

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.