Crypto venture capital is a different game than traditional venture capital, which isn't something that every participating firm has yet to fully appreciate.

Why it matters: The key is matching the asset class in which you're investing.

Key attributes of the modern crypto VC:

• Registered investment advisers: Venture funds are exempt from registering as investment advisers, but only 20% of their holdings can be in “non-qualifying investments” like digital tokens. So it’s no surprise that a growing number of firms are registering with the SEC. Complying with custody and other requirements also makes limited partners feel more at ease.
• Tokens + equity: While some crypto investments are best done at the company level, others’ value is in the tokens (or eventual tokens). For example, about 75% of Andreessen Horowitz's current crypto fund’s capital is invested in tokens, partner Katie Haun said at an event last week. Some firms even manage more hedge fund-like vehicles that trade tokens, given the liquidity of many of these assets.
• Multi-stage: Paradigm, which just raised a $2.5 billion fund, describes itself as an early-stage investor, but co-founder Matt Huang admits the firm won’t always catch every great investment in its earliest days, so it’s used to writing checks across all stages. It participated in crypto exchange FTX’s $900 million July round, for example.
• Research: Hiring smart tech researchers is all the rage among crypto funds, in part to build up their credibility with entrepreneurs and to keep them abreast of the latest trends and advances. “[Our research team’s] core work is to be on the frontier,” Huang tells Axios.
• Services: Crypto startups have some of the same help needs as other tech businesses (e.g., hiring, marketing, etc.), but they also have unique challenges. Navigating the fuzzy regulatory landscape and attracting quality contributors to their projects are among them.

What they’re saying: “In the normal world, there’s existing software, or vendors or providers. In crypto, a lot of these solutions don’t exist,” says Huang, adding that his firm (and its peers) must build many of the tools it users to manage its own operations.

• “We view ourselves as a startup.”

The bottom line: “You can’t get away with being just signal,” says CoinFund founder and CEO Jake Brukhman. “I think they have to be active participants [in the ecosystem].”