Welcome back to Office of the Venture CFO, where we talk to the people actually running finance at top venture firms. If you missed our last issue with Matt Guiney from Flybridge on tax season, QSBS, and fund admin division of labor, you can catch it here.
This edition we’re sitting down with Adrian Galea, VP of Finance at BITKRAFT Ventures, a global investment platform focused on digital entertainment and gaming. Over the last few years, Adrian has been part of one of the more unique finance buildouts in venture: taking a gaming-focused VC firm through RIA registration, standing up institutional-grade compliance infrastructure from scratch, and launching a new fund product that lets them distribute capital to LPs on a quarterly basis. A lot to get into.
The transcript below has been edited for length and clarity.
The following content is for informational purposes only and should not be construed as personal legal, tax, investment, or financial advice.
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WHY BITKRAFT BECAME AN RIA
Venture5: Walk us through how BITKRAFT ended up registering as an RIA. What triggered it?
Adrian Galea: We describe ourselves as a global investment platform. Venture capital is absolutely core to that, but the framing allows us to think in terms that go beyond what venture capital can offer. We can provide solutions to founders and emerging technologies in areas that don’t fall neatly under the VC umbrella.
There’s a threshold in the Investment Advisers Act. When a firm is investing in assets beyond plain-vanilla equity and quasi-equity startups, and that activity surpasses roughly 20%, you’re required to register as an RIA. For us, the trigger was when we started investing in digital assets and crypto. Blockchain was entering the gaming space, and we wanted to capture that intersection. That’s what prompted the filing.
But what I want to share goes beyond the technical necessity. When we got into digital assets, it opened up investment activity we couldn’t do under the venture capital exemption regime. We could get exposure to tokens, engage in forward contracts, buy and sell positions as listings occurred. These are transactions you simply can’t do as a plain VC fund.
Venture5: So it started as a regulatory requirement but turned into something more strategic.
Adrian Galea: Exactly. The RIA gives us regulatory certainty. It gives peace of mind to our investors. But it also allows us to go where the puck is moving, to be in the market where we want to play, create alpha for ourselves and for our LPs, and help the startups that want to scale in new ways. We hit all of those points with one opportunity the RIA label gave us.
“The RIA gives us regulatory certainty, it gives peace of mind to our investors, but it also allows us to go where the puck is moving.”
The Venture Market Has Barbelled. Now What?
Presented by Carta
Peter Walker runs the Insights team at Carta, focused on discovering key data and narratives across the private capital ecosystem. In a former life, he was a marketing executive for a media analytics startup and led the data visualization team at the Covid Tracking Project.
The transcript below has been edited for length and clarity.
Venture5: Marc Andreessen described the venture market as “barbelling” — heavy concentration on the emerging manager end and the mega fund end, with everything in the middle getting squeezed out. Do you think that’s actually happening?
Peter Walker: I think it has barbelled. The real question for me is what happens to that middle group.
Very clearly there’s space for pre-seed investors super close to founders. Very clearly there’s space for mega funds who sell a different proposition to LPs. Many of those LPs want access to private markets and have no time to investigate 2,000 emerging managers. It’s just so much better for them to invest through the mega fund. They understand their returns are going to be lower. They’re not dumb. They’ve accepted that as the trade-off.
So for me, the real question is: what happens to your $400 million Series A/B fund? I think we’re probably going to see fewer VC funds in total in existence over the next five years. That’s where I’d point to as a likely leak in the VC ecosystem.
Venture5: Do the mega funds and the EMs actually play separate games, or do those games intersect?
Peter Walker: They may be playing different games, but those games intersect with the emerging manager space. They’re not separate from it. The top five to ten percent of founders that mega funds invest in — if those funds didn’t exist, those founders would be investable by typical seed managers. They’re just really not as much anymore.
And I think that some emerging managers are intellectually a little too rigid about the mega fund model. The mega fund has a ton of advantages. Acknowledging those advantages is actually useful for emerging managers, so they can feel like they’re playing both sides fairly. When Marc Andreessen goes on a podcast and says what we can give our founders is power, he’s not lying. Whatever you believe about the mega funds, the allure makes sense to me. If I’m a founder trying to build a trillion-dollar company, why wouldn’t I want powerful friends?
“The real question isn’t whether the market has barbelled — it has. The question is what happens to your $400 million Series A/B fund.”
BUILDING COMPLIANCE INFRASTRUCTURE FROM ZERO
Venture5: Once you made the decision to register, what did the practical buildout actually look like?
Adrian Galea: You fill out a form explaining what types of investments you’re going to make, and that immediately starts placing requirements on you as a firm. One of the first things we had to do was appoint a compliance manager. We went external. We found a professional firm that understands how the SEC works and that could offer guidance on how to operate correctly as an RIA.
One of the first things they helped us produce was a compliance manual. And one of the most important lessons from that process: if you include something in your policies, you have to actually build processes around those policies. Anyone who thinks this is a check-the-box exercise is going to find out the hard way. When you enact a policy, you need to live by it.
“If you include something in your policies, you have to actually build processes around those policies. When you’re enacting those policies, you need to really live by them.”
The marketing and advertising rules are one of the more prominent examples. You have to be careful how you communicate, how you talk about your funds, how you promote to investors. You need to be balanced in the way you present information.
Venture5: What about custody? That came up as a particular learning curve.
Adrian Galea: The custody rule was a significant one. In a normal VC investment, when you invest in a startup, those shares are held with the startup. But with digital assets, the assets need to be held somewhere, and you can’t self-custody. You have to work with a qualified custodian. The challenge was that the infrastructure for qualified custodians was still emerging when we first registered.
When the SEC came to do a routine review, it became an open learning exercise on both sides. They used the audit as an opportunity to understand how digital assets work in this context. We worked through it together and landed on a framework involving the qualified custodians needed to satisfy the requirements. It was a genuine conversation, not an adversarial one.
Venture5: And valuation policies?
Adrian Galea: Your auditor gets more inquisitive under the RIA. They’re asking more questions, making sure you’re following the relevant accounting guidance and that your valuation policies are documented and consistently applied. Same principle as everything else: build the policy, build the process around it, have open discussions with your auditors. There are service providers who can walk you through it. You don’t have to figure it all out alone.
THE INSTITUTIONAL LP EQUATION
Venture5: Beyond the compliance mechanics, what did registration open up on the LP side?
Adrian Galea: One of the things we thought about strategically is that becoming an RIA enables you to tap into a different source of capital. When you look at our investor base today, we have sovereign wealth funds, institutional investors, endowment funds. And once you’re targeting that type of LP, they want to know you’re working with service providers who understand the institutional mindset and the rigor that comes with managing their capital.
“You have a fiduciary duty at all stages of venture capital, even when you’re exempt. But that elevates itself once you get registered.”
Your fiduciary duty is elevated once you’re registered. So your service providers have to be knowledgeable and experienced in the space. When we evaluated them, we asked: who do they work with, what do their clients say about them, what do the LPs who’ve seen them in diligence say? That’s the main check.
The LPs themselves, when they’re doing annual due diligence or considering an investment in BITKRAFT, have a very substantial section on how you keep your policies in place. We also had to enhance our IT capabilities to meet that standard. We brought in IT specialists. The fiduciary mindset has to be at the forefront at all times, because you’re managing money that people have placed under your safeguard.
THE GROWTH CAPITAL FUND
Venture5: You mentioned earlier that the RIA unlocked a new fund product. Tell us about the Growth Capital Fund.
Adrian Galea: When you look at where the venture capital market is heading, large hyperscaling funds are absorbing a lot of capital that was traditionally going toward earlier stages. And AI is changing how companies are built. A startup embedded with AI can often raise a seed round to get going, and then it really only needs capital again once it’s established product-market fit. But getting to that point of rapid scaling requires different types of capital than a traditional equity check provides.
That’s where our Growth Capital Fund comes in. It’s a non-dilutive source of capital. We fund performance marketing and advertising for companies in our space. We buy a cohort into the performance of a marketing campaign, and we collect fees when those funds are repaid.
Venture5: What does the return timeline look like?
Adrian Galea: It’s fast. The return on ad spend can be as short as three to six months. That means when the capital is returned and we’ve collected our fees, we can start distributing to LPs on a quarterly basis. The traditional J curve of a venture capital fund has you returning capital four, five, six years in. Here, distributions can start well before that.
“You cannot enable one pool of funds by the risk of another. We treat them as completely different products with different risk-return profiles.”
Venture5: How do you manage the conflict of interest between the VC fund and the Growth Capital Fund?
Adrian Galea: That’s one of the central questions we have to answer as an RIA. If our traditional venture capital fund makes an investment in a startup, it cannot be the same team or the same committee taking the investment decision on the growth capital side. The risk-return profiles are different, they’re drawing from different pools of capital, and you cannot enable one pool of funds by the risk of another. That’s a hard line.
Internally, we have Chinese walls in place. Different people, different processes, different investment decisions. They’re completely separate products. The due diligence is also distinct. On the venture side, it’s “who are the people, what’s the project, is the technology sustainable?” On the growth capital side, it’s performance marketing data, financial due diligence on the underlying company, making sure the cash is there and the capital structure supports it.
ABOUT ADRIAN GALEA
Currently engaged as VP of Finance for BITKRAFT Ventures, a global investment platform across interactive entertainment, immersive tech, digital assets and AI. Founded in 2018, it manages $1Bln in AUM across 7 funds and 4 strategies. It is an SEC-regististed investment advisor with 130+ portfolio companies and institutional grade operations backed by Blue Owl.
Regulatory Disclaimer
BITKRAFT Ventures is registered with the U.S. Securities and Exchange Commission as an investment adviser. Registration does not imply a certain level of skill or training, nor does it constitute an endorsement by the SEC. The information provided is for informational purposes only and does not constitute investment advice or an offer to sell or a solicitation of an offer to buy any securities.
