CMCC Global, a $500 million Hong Kong-based crypto investment business, is diversifying its funds portfolio to reach all corners of blockchain-based finance.
The team began fundraising for the fourth iteration of its Alpha series of pure token-based investment vehicles in April this year. It’s now preparing its first equity VC fund, with a market-neutral crypto fund of funds on the drawing board.
These are on top of three token-based funds and a Cayman-regulated bitcoin tracker strategy that is currently available only to institutional investors, but which CMCC is hoping to list as an exchange-traded fund, possibly in Australia.
“CMCC Global’s mission is not to manage just one fund,” said Martin Baumann, co-founder and managing partner (pictured, left). It wants to become a global asset manager across the asset class of blockchain-based enterprise: “We are building the BlackRock of crypto.”
That may sound aspirational. BlackRock manages $9.5 trillion today, and there are plenty of startups who say they are going to be the XYZ of crypto.
But CMCC is already managing $500 million after five years, and it counts a roster of big-name investors and general partners, including Hong Kong tycoon Richard Li and other Asian elites, as well as Cameron and Tyler Winklevoss.
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It has been a seed investor in some of the ecosystem’s biggest projects, including Ethereum, Solana, Hedera Hashgraph, and Korea’s Terra stablecoin, which has fueled outsized returns for its investors – with its original fund returning 8,471 percent after five years.
Is that a lucky one-off or the beginning of a consistent turbo-charged investment business? Many wealthy backers are betting on the latter.
The firm’s fourth iteration of the Alpha series is set to raise another $300 million, although half of that is being reserved for investors in its third fund that want to roll over. CMCC has closed on $120 million, leaving only $30 million left to allocate.
The team is applying for licenses to advise on securities and run an asset management business (types 4 and 9) in Hong Kong, so it can launch its Titan equity fund.
Shifting from pure crypto investing to equity has two purposes. One is to access different investment stories, such as exchanges and custodian services – “pick-and-shovel businesses”, Baumann said, that don’t have a token but do provide cashflow. The second reason is to offer blockchain exposure to investors that may not be ready to take the plunge into tokenomics.
From The Globe to Global
CMCC Global got its start in 2016 over beers at The Globe, a popular pub in Hong Kong.
Baumann came from the world of finance. After stints of investment banking in Frankfurt, he moved to Asia to run a fintech providing comparison shopping for insurance, a business owned by Richard Li of Pacific Century Group.
Intrigued by Ethereum, he enrolled in a coding class, just to get a feel for software. His teacher was Charlie Morris, a software engineer who had moved to Hong Kong from London (pictured, right). They became friends and began co-investing in crypto.
Morris was more than a dabbler. He had moved to Hong Kong in 2013, opened a bank account, and then was turned down for a credit card. Needing some kind of card to live, he went to ANX International, which had just opened its doors in Causeway Bay as a retail-facing bitcoin brokerage and exchange. ANX gave him a bitcoin-backed credit card.
“I’d go to their office with a check to top up my account, and used it to buy stuff,” Morris said. Looking back, he realizes it was a waste to spend so much bitcoin on ordinary things, but the experience got him into the space.
(ANX’s founders later invested into BC Group, which operates licensed crypto exchange OSL and other related businesses.)
While catching up at The Globe, they decided to pair their finance and tech backgrounds to launch a crypto fund. They initially called the company CM Crypto Capital (the CM standing in for their first initials), but no Hong Kong bank would open an account for a business with “crypto” in its name.
So they changed the name to CMCC Global – tacking on the “global” both as an aspiration as well as in homage to the pub. “We told the banks we invest in fintech,” Baumann said. “Which was true.”
Big returns, more funds
Morris, who is also managing partner, says the next step was to raise a $1 million fund. “That was the hardest million dollars we ever raised,” he said, but they launched it as Hong Kong’s first pure blockchain fund with external money.
Ether at the time was trading around $7. It’s around $4,300 today. Over the past five years, redemptions have brought that initial amount down to $700,000, which the founders have this year returned to the investors – along with a $60 million gain (a return of 8,471 percent).
“We were seed investors in Solana when it was 20 cents a token,” Baumann said. “If we did nothing with that original $1 million raised, it would be worth a billion now.”
The second fund came right on its heels, raising $3.5 million, this time with their first family-office money, from Jebsen Group; that fund returned $40 million. Number three raised $25 million, with Richard Li as its anchor investor, and will mature in a few months.
In 2018, in addition to getting a mutual fund license in Cayman for the bitcoin tracker, the team opened an office in Toronto – where Ethereum was invented, and is still home for many Ethereum developers – which is where Morris is now based.
The big returns are obviously what puts CMCC on the map. Morris says big GPs back CMCC to provide market intel and possibly source fintechs for their corporate needs. LINE is one corporate backer that uses CMCC to hunt for opportunities; PCCW considered one blockchain app for a 5G telecom rollout; the idea didn’t make it all the way, but encourages CMCC’s partners that they’re on the right track.
Below the radar
Their Alpha funds have so far only done seed investing. “We invest prior to the hype,” Baumann said, meaning they’ve never invested in a project valued at more than $50 million at the time. They said no to big ICOs (initial coin offerings – crypto IPOs with no governance) including huge raises such as the $4 billion launch of Block.one.
Like equity VC, a crypto investor will look at a team’s track record and its ethics. Incentive structures are also important – especially after the ICO boom when many teams raised money and vanished. CMCC ensures any deals come with vesting schedules for tokens that ensure the firm is protected.
Valuations in blockchain far outperform those in equityMartin Baumann, CMCC Global
Morris says due diligence includes looking at a project’s ability to quickly amass a community. “A project is worthless if it doesn’t attract users and engineers,” he said. CMCC will look at a prospect’s code and what they’ve lodged in GitHub repositories, but it will also check out Discord and Slack groups, to get a sense of which projects are getting talked about.
CMCC is shifting its focus, however. Its first funds invested in technology infrastructure – the “layer-1” blockchains themselves. Although it has taken longer than Baumann and Morris expected, the tech is now sufficiently mature for applications to look promising.
Into the appiverse
For example, CMCC has recently taken a stake in a blockchain-based identity solution that it expects will be a useful bridge to traditional finance.
They also point to Terra as an example of blockchain becoming relevant beyond crypto. The Korean startup offers an app, Chai, that is now being used by 2.5 million users as a domestic Venmo- or PayPal-like payments app, at a much lower cost to ecommerce merchants than credit cards.
The founders are most excited now by an impending deal on an Australia-based project consisting of only six people that is creating a lending business using non-fungible tokens from games. The project lends these NFT assets to top players, who earn money using these in games, and split the proceeds.
Morris calls this “metaverse lending”. CMCC hopes to gain from the project’s upside from both the appreciation in the NFT assets as well as the revenues the players generate.
It’s a business model that can only exist in a crypto environment. Baumann says the project is attracting many investors and could raise $100 million, but the founders are only asking for $6 million.
“There are two types of founders,” Morris said. “There are the missionaries who will build regardless of price, and the mercenaries who are in it just for the money. The best projects are run by the true believers.” Although, he adds, it’s good if there’s one or two mercs on the team to ensure it’s got the right commercial acumen.
This is true of traditional VC too. But equity investing is about betting on a team’s future cashflow. Token investing may not have any cashflow: investing in Ethereum or Solana is about the right to use the network’s computational power, and betting it becomes popular and useful.
For the time being, getting these bets right is lucrative. “Valuations in blockchain far outperform those in equity,” Baumann said.