(Bloomberg) — Venture capitalists generally invest in startups. A new fund from the Chicago-based firm Sfermion will invest in virtual ice swords.
Sfermion is seeking $100 million for the new fund, which it will invest mostly in nonfungible tokens designed for video games, the company plans to announce in June. It has raised roughly a fifth of the total so far.
The firm specializes in NFTs, in the past accumulating digital collectibles like CryptoPunks and Meebits. Among the backers of Sfermion’s previous funds are Marc Andreessen and the Winklevoss brothers.
The next fund, the firm’s third, is called Halliday, after the fictional creator of the game featured in the book Ready Player One, said Andrew Steinwold, the firm’s managing partner. Sfermion will study crypto games and try to determine which NFTs have the potential to generate high demand in the future. For example, if the second level of a game involves defeating a fire-breathing dragon, Sfermion might purchase a large number of ice sword NFTs that are effective against the beast. Steinwold calls Sfermion’s investment strategy “mini venture capital.”
The video game industry is conflicted over crypto. The largest game publishers have expressed interest, but many customers are loudly opposed. Those gamers see NFTs as a dreary economic instrument and yet another way for companies to squeeze money out of them.
The NFT fund is not a get-rich-quick scheme for Sfermion, said Steinwold. The firm plans to hold onto the NFTs until the games increase in popularity and the assets’ value appreciates. With some gaming NFTs, Steinwold said the firm can earn an annual yield of 5% to 40% by, for example, allowing them to be used in tournaments. The decentralized autonomous organizations BlackPool and Yield Guild Games use similar techniques.
Within the crypto world, enthusiasts argue that venture capitalists hold too much control over the market by snapping up tokens that give them influence over how decentralized platforms are managed. Sfermion will keep tabs on how many NFTs it buys and what percentage they make up of the asset’s total supply, Steinwold said, with the goal of not accumulating outsized influence.
In the future, Sfermion plans to create two additional NFT funds: one focused on virtual land and another on consumer categories like collectibles, fashion and music, Steinwold said: “We’re in the early stages of developing these metaverse economies, and there’s a lot that needs to be learned.”
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
