Today, we are excited to announce the first close of Heartcore Capital’s Web3 I, our inaugural venture fund dedicated to protocols and their native tokens, with a particular focus on the application layer. We are thrilled to have successfully completed an initial closing of €15M.

About Heartcore

For those who may be unfamiliar with us, Heartcore Capital is one of Europe's pioneering and leading venture firms. Since our inception in 2007 in Copenhagen, Denmark, we have grown to manage c.$1BN across multiple funds from our offices in Copenhagen, Paris, Berlin and Stockholm. Our early investments in Web2 success stories like Tink, Neo4J, GetYourGuide, Travelperk, Reddit, Boozt, Natural Cycles amongst many others have consistently positioned our funds among Europe's top performers.

Why launch a dedicated crypto fund?

As students of the technology industry, we recognize the immense value created by major technological and architectural shifts. From the steam engine, to software, to personal computers, from the internet to smartphones, these shifts were almost always met with skepticism and ridicule - even from seasoned tech investors.

We believe that the shift towards on-chain protocols will be of similar magnitude. Our thesis is simple: the introduction of blockchain technology, as outlined in the Bitcoin whitepaper, revolutionized “digital ownership”. With Ethereum and programmable smart contracts, the notion of digital ownership expanded to include "software itself", in the form of protocols. Web3 protocols are now evolving into robust businesses generating meaningful revenues and accruing significant value. They often showcase higher capital efficiency and virality than their Web2 counterparts. We believe that this shift towards protocols is an extension of the software revolution of the past three decades and foresee these protocols progressively disrupting parts of the economy, like previous internet startups.

Yet, this shift is uniquely different from previous ones in the way it has spawned a new asset class. Protocols and their tokens differ in many ways from traditional companies and their shares. We believe this calls for a distinct fund.

At Heartcore, our motto is "investing in happiness." We firmly believe that underneath all the speculation and attention-grabbing stories, the core technological innovations beneath crypto hold fundamental importance for humanity’s well-being. Decentralization fosters freedom and resilience, while permissionless and community ownership bolsters financial inclusion.

Our Team

Our journey into launching a crypto fund was not a coincidence or a sudden decision. Our investment team is crypto-native at its core. Yacine began privately investing in protocols as early as 2013, joining the very first rounds of investments in multi-billion dollar protocols like Ethereum, Cosmos, Polkadot, 0x, Stax, and Stargate.  Angelo and Yohan have been crypto power users and investors throughout multiple market cycles. 23-year-old Thor has amassed a significant influence in the space with over 100k devoted followers.

However, we’re more than crypto natives. Heartcore's reputation comes from our Web2 investments since 2007, and we bring decades worth of experience in supporting Web2 startups across categories and stages. We believe that many of our learnings on product, go-to-market, or organization are directly applicable to protocols.

Lastly, investing in protocols requires a hybrid approach that combines elements of early-stage tech investing with the dynamics of liquid markets. Yacine's earlier career as a trader at Goldman Sachs provides valuable insights into liquid markets investing.

Why now?

In 2023, while all eyes have turned to AI, Web3 is a contrarian bet. We hold that being "contrarian and right" is the best way to generate outsized returns in technology. Amid a two-year crypto winter with 70-80% price corrections, and the biggest fraud case in the history of the tech industry, many have again dismissed the field. Historically, such phases of the cycle have provided ideal investment opportunities, given the improved signal/noise ratio, reasonable valuations, and lower expectations. Notably, Brian Armstrong, Vitalik Buterin, and Hayden Adams built Coinbase, Ethereum, and Uniswap during such periods.

The standout feature this time is that the new cohort of founders is building upon an infrastructure that is finally ready for wider adoption. From L1s and L2s able to process thousands of transactions per second at minimal cost to account abstraction, it is increasingly possible to create Web3 user experiences on par with leading-edge Web2 products.

The Application Layer

Today, the infrastructure layer holds 98% of the industry’s ~$1.4 trillion market cap, with only one application layer protocol in the top 20. Remembering the early 1990s tech industry, telecom, semiconductor, and networking companies held the most value. Analysts and investors assumed these infrastructure companies would harness most of the value created on the internet, with telcos trading at staggering PE ratios > 150x. Fast forward 30 years and telcos are trading at PE ratios <10x, many of these infrastructure companies have shuttered, while Web2 application layer firms like Apple, Amazon, Microsoft, Alphabet, Meta, or Netflix have built trillion-dollar empires as value moved “up the stack”.

While history doesn't always repeat, it often rhymes. We see crypto currently mirroring the mid-1990s tech industry, with the upcoming cycle driven by the rise of the "application layer” - from DeFi to gaming, social, or software. Web3 applications demonstrate real moats, often stronger monetization models, and increasingly own part of their infrastructure. Interestingly, application protocols already make up ~33% of total Web3 protocol revenues, despite only accounting for ~2% of the aggregated market cap.

How we invest

We invest in crypto-native projects, where value is expected to accrue at the protocol level. We either invest pre-token in early private rounds or later in more settled liquid protocols that align with our thesis (through secondaries or treasury diversification). We typically do not lead private rounds and our tickets range from $250k to $500k. Our liquid venture investments tend to be larger.

No matter the stage, our investment approach is long-term and practical. We take a 5-8 year outlook with all our investments. We focus on products over narratives. On the private side, we look for products that could open up novel user behaviors. On the liquid side, we aim for resilient protocols with proven product-market fit, solid unit economics, and category dominance potential.

Being based in Paris, Berlin, and Copenhagen, Europe is our backyard, yet we have a global mandate, and 50% of our investments to date have been outside of Europe.

What we have done so far

In parallel with raising the fund, we already started backing founders in early private rounds. We are excited to announce our investments in projects such as Panoptic, Elusiv, Li.Fi, Superform, Rhinestone, and Metahood. Our gratitude goes to to these founders for their trust. We're actively investing, and our DMs are open. We co-invested with leading crypto funds such as Polychain, 1confirmation, 1kx, Greenfield, Coinfund, Dragonfly, and Zeeprime. These partnerships are central to our collaborative strategy. Get in touch if we haven't met yet.

Before this fund, our team made early private investments in protocols like Ethereum (2014), Polkadot (2017), Cosmos (2017), 0x (2017), Stax (2017), Stargate (2022), and many others. As a firm, Heartcore has invested in over 100 Web2 companies.

As a final note, we’d like to thank our LPs for their trust. In times when others have withdrawn, we feel privileged to be in a position to double down on the space. We are eagerly looking forward to the years ahead.