On September 27, at the 8th Global Blockchain Summit - Chunjiang "Water" Warming DAO Theme Forum held by Wanxiang Blockchain Laboratory, Paul Veradittakit, partner of Pantera Capital, Jehan Chu, founder and managing partner of Kenetic Capital, Gavin Wang, managing partner of SNZ, and Xiao Xiao, investment partner of HashKey Capital, conducted in-depth discussions around the Web 3.0 investment trend, The following contents are arranged according to the on-site simultaneous interpreting translation (with deletion):
Xiao Xiao (host): First of all, I would like to ask you the first question: Do you think there have been some fundamental changes in the encryption market, and have they had an impact on your own institutions?
Paul Veradittakit：Pentera was not a family office at the beginning. Since 2013, we have been raising funds from external investors. For us, the past few years have also witnessed ups and downs.
I remember when I communicated with a series of family offices in 2013, I was also asked some very basic questions, such as why the total supply of Bitcoin is only 21 million, and what is the use of Bitcoin and blockchain. So at that stage, it was more educational work, and there were not many applications and use scenarios at that time.
In 2013, very early, institutional investors were dismissive of us. So in many cases, what we do is just basic education. Later, we gained more attention in 2017 and 2018. At that time, although we invested in many projects, they did not succeed in the end, but we did see excellent developers enter and pour into this field, which is consistent with the characteristics of every bull market. After entering, these developers made a lot of innovations and attracted a lot of institutional funds. We have seen institutions pay more and more attention to this area.
In 2018, the Fund raised more funds from institutions in the process of fundraising, but for us, 2020 and 2022, that is, the recent DeFi period, are really explosive development. Because there are two kinds of combinations. First, institutions have more knowledge about the application of tokens, and even more about the specific scenarios of these applications in the DeFi field. In addition, they do see the upward return on investment in this field. Finally, it raised 1.3 billion dollars in the latest round, including money from pension funds and university endowment funds.
We see a series of trends, one of which is that university endowment funds and pension funds enter this field, but their investment amount accounts for a very small proportion. It can be imagined that although the amount of investment is small, because this field brings asymmetric opportunities, you will soon see that investment in this field has become a commendable part of your portfolio, which is very obvious indeed.
In addition, as an investor, your work risk is relatively small when investing in encryption, so invest in this field and cooperate with relevant managers to see where you can eventually go. In addition, enterprises also have some funds to invest in Bitcoin and other cryptocurrencies. We have also seen that banks and other encryption enterprises have also invested in the latest round of fundraising. What we have seen is a trend of multiple sources of funds.
In addition, for institutional investors, because of the great volatility in this field, many members of the Institutional Investment Committee are not accustomed to such volatility. When the market goes down, they are afraid and finally decide to quit. But some VCs are willing to bear a longer investment cycle, so this fund is good. These institutions say that I am willing to invest money in the encryption field. I am willing to wait for 5-10 years. This is what they have done. They have invested money in people they trust and are willing to grow with this industry. So we see that many people have entered and established their own brands, and we see that there are some good fund managers and there is a trend of very good investment performance.
Jehan Chu：Let me add one or two points. For institutions, entering this field has some secondary effects, that is to say, it further verifies that this field provides a good endorsement for institutions other than finance, or investors have made a good endorsement for investing in encryption. This makes it easier for other institutions to persuade their own investment committees.
I do see growing interest in different fields, especially China. China may be the global leader in the application of blockchain technology. Although from the public level, it is limited to cryptocurrency, blockchain is widely used at all levels. This is underestimated outside China. For example, China's largest state-owned enterprises, such as China Mobile, China UnionPay, and some relatively large ministries, such as the China Development and Reform Commission, took the lead in the research and application of blockchain technologies that need to be licensed. To sum up, we have seen that these financial institutions participate in endorsement, thus providing a better security guarantee for the entry of various enterprises.
Second, it is necessary to go beyond the public chain to enter many different types of blockchains, such as blockchains that require permission, or semi decentralized blockchain technologies. In the final analysis, this will eventually form a very important part of the blockchain technology ecosystem. It may be that in the first decade of blockchain, the trend of everyone is more decentralized narrative of the public chain, but now this trend will change and move towards a more diversified direction, such as the mixed direction, or semi centralized blockchain technology. That is to say, decentralized technology is used by centralized institutions in the background, which is a very important influence I see.
Gavin Wang：These trends are very obvious, including traditional companies, financial institutions and private equity funds. The first two round table guests have just discussed that a large number of traditional institutions are exploring potential possibilities, cooperating with native blockchain players and encrypted native players, and entering the Web3 industry. I helped more than 10 companies, mainly financial technology companies, listed in Hong Kong and the United States; It is also familiar with many Asian Internet and financial enterprises. However, in the last cycle, these companies had doubts about encryption assets and blockchain, whether from the perspective of infrastructure or assets, especially about regulatory risks.
However, in the last 1-2 years, it is obvious that most companies have decided to make some investments and attempts. Although some companies may have limited investment strength and scope, such as trying to explore mainly by setting up overseas entities, we do see that progress in this field is very substantial and constructive, and it is expected that in the next four or eight years, After several cycles, we will see more applications, and we can see that the gap between the current situation and large-scale adoption may be closed.
As a VC, we have seen many traditional investment institutions enter, some of which are building pure Web3 funds, and some of them just expand their original fund investment scope to related fields. We do see some challenges, which need to be very frank. The reasons include the professionalism of investors, their experience and resources in the traditional Web2 field, including many with their own ecology. But at the same time, I also see relevant opportunities to cooperate with these traditional Web2 investors. Although their entry is a challenge to us, there are more opportunities for cooperation. In fact, at the very beginning, blockchain and encryption were more like a niche geek world. But now we see more and more trends moving towards the mainstream, so under this background, we should also cooperate with large traditional financial institutions. This trend is very constructive.
Xiao Xiao (host): As the top VC in this field, how do you keep your competitive advantage?
Jehan Chu：I think the trend we have seen in recent years, especially in the last bull market, is the influx of funds and fund managers. It is different from VC and hedge fund in many fields. Now there are hybrid funds, DAOs, family offices and enterprises investing in these fields. In other words, this field has become more saturated and more competitive. For all fund managers, it is necessary for us to find our own unique competitive position.
For Kenetic Fund, I hope it can be more counter intuitive. For example, I just mentioned the case of China. In fact, we pay much attention to China, but many companies from other countries (especially American companies) either feel reluctant to invest in China, or they do not know enough about China, or because of geopolitical reasons, So they can't get access to good projects in China.
However, as we are located in Hong Kong, we have good close communication with Chinese Mainland, natural geographical advantages, and unique investment methods combined with our own technical advantages. From the perspective of opportunity, this is a fertile land for investment.
At the beginning, the investment focused on traditional public chains, such as Solana and Avalanche, but now it has entered into the new chain ecology of Aptos, hoping to participate in these ecological investments at an early stage.
Through the support of relevant funds and relationship resources, I hope to maintain the competitive advantage in the next bull market and do better.
Gavin Wang：For us, the first thing is that we pay great attention to the construction of the community, just like our own slogan, "from the community builders to the community builders". In 2015, I started to establish the Ethereum community. At that time, I built the largest community in Ethereum Asia and held many parties, Hacksong and other activities.
A few days ago, on August 28, at the Chase Center in San Francisco, we just held a 1000 person Ethereum community activity jointly with Ethereum University and Ethereum Foundation. Vitalik and more than 20 other Ethereum foundations were invited; Core members of the community will come together to discuss key issues such as merge. As for community building, we will continue to do so. This is the first priority.
Second, from a strategic perspective, we focus on early investment, which is completely consistent with our original intention to build a community. For the secondary market, we will only do two things: first, do some cash management; If the time is right, we will consider configuring some blue chip tokens; The second is to invest in secondary projects in a similar way, focusing on long-term fundamentals and not doing frequent transactions. Our energy is more focused on early investment and construction with community members.
For example, in 2018, when the angel round invested in Infstones, the valuation was about 10 million dollars. Later, we tried to give them some support, including API, operation, community building, investor docking, etc. With a series of company and support, it is gratifying to see that their latest round has reached a valuation of 600 million dollars. So we are helping these projects continue to grow and build an ecosystem.
Third, we have invested a lot of support in deepening ecology and promoting collaboration, such as projects like Chainlink and Dfinity. For example, Chainlink started with one employee to help them build teams and communities in Asia, and now there are more than 20 of them in Asia.
Fourth, our mission is to achieve empowerment through links. Whether it is between Web2 and Web3, traditional finance, traditional TMT and digital assets, blockchain, or between China and the West, or from the current time point to the real realization of large-scale applications, we have found many gaps.
The overall background of our team is relatively comprehensive, including OGs that are native to blockchain and come out of the community, as well as traditional ones that have a very deep understanding of TMT, financial industry, etc;, Some are very technology oriented, and some are experienced in focusing on investment and even operating business, so they hope to do more bridging work. For example, investors should be better linked with the project side, and traditional TMT giants should be linked with the project side to explore business collaboration.
Finally, we also keep learning and keep an open mind. Because the industry is developing too fast, I feel full of challenges every day, so the whole team keeps an open mind and a long-term vision of continuous learning.
Paul Veradittakit：Our team will be very different from others, focusing on local exchanges. We invest in Coinbase in the Middle East, Africa and Latin America. Of course, we have also made some investments in China, and there will be some local contacts to find local partners for localization investment plans. Usually, we will bridge all the wallets and models, and then extend them to other possible use cases.
Also, if you want to build a new system, you will cooperate with several of you. One thing is very helpful. There will indeed be larger funds, and now we are constantly deploying capital and resources to create a team that can be very helpful to the portfolio. From the perspective of technology and software, we can do some things, including helping more than 200 companies truly use the Internet resources on our network to connect with each other. An expert network can be created to focus on two or three areas of great concern for enterprises through internal recruitment.
At present, many companies are faced with many recruitment problems. Now many investment enterprises can bridge through convenient interconnection, and help enterprises achieve their goals through internal and external recruitment.
In the final analysis, when we want to win the transaction, we hope that these entrepreneurs can study us and talk with the portfolio institutions we invest in, so we hope to provide benchmark service levels, and at the same time find ways to truly stand out and become resources and experts in this field.
Xiao Xiao (host): The next question is more about geographical distribution. At present, we can see the emergence of some new implementations, including new encryption centers. Singapore and Dubai are like "capital hubs", and more and more traditional capital is flowing into this hub, encryption and Web3. Others, like Europe and Vienna, have become "developer centers" because of their geographical location, and the developer community is becoming more and more active in these places. So do you see some new trends in this area, no matter there are new developments and changes in new markets and new geography?
Gavin Wang：Frankly speaking, encryption and blockchain naturally have global attributes. From a natural perspective, they are liberal and decentralized, so opportunities are everywhere. Our own headquarters are in Asia, but about 30% - 40% of the transactions are from regions outside Asia. At present, most projects are also very international. Recently, a friend of mine put forward a very interesting idea. They want to incubate platforms similar to headhunters. Because many web3 enterprises have raised a lot of funds, it is reasonable that most of the investment should be directed to talents. However, due to the epidemic situation and other reasons, it is actually difficult to recruit suitable talents. If they are looking for traditional headhunters, they may not know how to find suitable talents, such as how to help American teams find Asian development and help Asian teams find overseas market operations. About 90% of the projects have great demands on recruitment, which is also a global demand.
At present, it is observed in Asia that many good Web2 developers and product managers want to enter Web3. We really need talented people who have seen and implemented large-scale applications to help Web3 implement it
In the past cycle, we often complained about the lack of good web3 applications, but some of the reasons behind this are that we lack excellent developers and builders, or they can't make long-term planning and focus on perennial development. Recently, we have clearly seen that there are very excellent people entering the industry. They have a global perspective, are ready for large-scale applications, and their minds are also very open and iterative. These people are very important to the future development of the industry. They are the founders and are ready for the next round of prosperity.
Paul Veradittakit：Let me talk about the situation in the United States. There are many contents in North America under the observation of Jehan, so I would like to share some trends with you from the perspective of the United States. Recently I spent a little time in Lisbon, so I also made some observations in Europe.
Now there are also some changes in the United States. When I enter the ecosystem, most of the centers are in Silicon Valley. That is to say, Silicon Valley has developed very quickly and very early when it entered Bitcoin, so it has naturally become the center. Later, I saw Toronto center, and later Europe became the center because of Ethereum. Now when we enter the new field of decentralized finance, we can see a lot of new progress, such as more financial technologies, more institutional capital and blockchain are constantly mixed.
After the epidemic, it will be found that New York has gradually become the hub of the United States. Especially in places near Brooklyn, like other ecosystems, the way it is opened is very similar. You can see that many fund managers are stationed in Brooklyn, and some start-ups are just starting, and many talents are constantly stationed in this field, such as Consensus or CoinFin, and Manhattan. New York really started to have many DeFi start-ups and many NFT start-ups, because of the advantages of New York itself.
Now we see many start-ups emerging from the blockchain, but Silicon Valley is more like the field of developers, and more like the field of B2B, such as Facebook or Google. For large technology companies, they now enter this field and pay more attention to data and infrastructure. It can be seen that many blockchain companies are constantly sending talents, which is the case in Silicon Valley. Other regions are growing, like Los Angeles, games and NFT.
I think that in Europe, there are a lot of activities in Lisbon, and there are reasons for many people to move to Lisbon, because the community in Lisbon is very perfect, and Berlin will also become a very powerful hub. This is what I have observed in North America and Europe.
Jehan Chu：Just mentioned Asia, there is no doubt that Hong Kong is in the leading position. At present, due to the epidemic policy and the current situation, Hong Kong's leading edge may fade, changing everyone's view of Hong Kong. Maybe in the next year or two, Hong Kong will usher in a second wave. I believe there will be more hybrid approaches in Hong Kong. With the convenience of community jurisdiction and supervision, it will become an important gateway to China. At present, Singapore's performance is very strong and active, and we still see a lot of talents here. However, Singapore's restrictions are also being strengthened and may lose some light.
From the tax perspective, Dubai in the Middle East has attracted many talents to a large extent, mainly because many community members have moved to Dubai. It is expected that Dubai will not only have more local projects in the future, but more importantly, let Dubai build itself into a hub, just like Hong Kong played many years ago.
In the future, they will pay attention to the value proposition, including the attraction of people. From a historical perspective, they naturally have a lot of views on encryption and payment. Countries like Latin America and Argentina also pay more attention to payment and value. Of course, venture capital and start-ups have also attracted a lot of capital inflows. I very agree with Paul's observation about Los Angeles. As Paul said, now we see new communities, not only emerging geographically, but more divided by themes rather than geography. For example, music community, or brand community, or content community, or influence community. The distribution of these communities is more divided by theme.
The emergence of different fields will activate more platforms, even not encryption native, but they will be very active. It can be seen that these communities continue to use their skills to enter Web3. It may not be linear at the beginning, but they may go far beyond the original geographical limits. This is very interesting, so I also try to track their final development.
Xiao Xiao (host): The last question is about your investment philosophy. In the field of encryption, some investors decided to focus on some familiar fields and try to deepen in these fields. Some investors are more willing to pursue some new hot spots, or they do ecosystem financing. What is your investment philosophy? Which sector do you currently prefer?
Paul Veradittakit：For us, to some extent, we have seen what happened in the last round, that is, the bear market in 2018. We are not sure how long the current bear market will last, so we hope to invest in excellent teams and know that these teams can eventually develop products and launch them to the market. In the process, they can overcome all kinds of obstacles that the bear market may bring, which is the current investment philosophy.
But fortunately, it has been a long time to do due diligence on transactions, because the pace of activities has slowed down. The very important strategy for us is to continue to invest in the seed round in terms of overall investment even if it is not in the encryption field. But now more and more people have entered round A, because the opportunity of round A is very good. Now 50% of the investment is in round A. The current valuation in round A is similar to that in seed round six months ago. It is a good time for us to find some good deals. For investors, they should make the right choice at the right time. So we have a firm belief that the amount of investment is the same, but the proportion we can get can be doubled, or we can invest more, so that we can get the proportion of equity we want. Now most transactions are equity transactions, because no one issues tokens. For us, it was our investment method at that time to increase investment and have seats on the board of directors.
As far as investment style is concerned, more theme oriented investment and more focus on infrastructure, such as Aptos or other related infrastructure fields. However, we think that the current effective business model is not of the To C type, at least the risk of the To C type is relatively high. Currently, consumers in Europe focus more on energy prices than on investment or speculation in the field of encryption. Now more to B businesses will be more promising, providing services for developers or related projects. Now we see that many projects focus on building better data tools, or some search engines, or even doing data aggregation on and off the chain, because data is very important for credit, secured and unsecured loans, and even for data analysis itself. So now we can see that a large number of VC funds have poured into this field, and a lot of attention and research has been carried out in these sectors.
In addition, there are some eternal themes, even in the bear market. Even in a bear market, there is still a need to audit smart contracts, and there is still a need for insurance. These are eternal investment themes. There are also other tax and accounting needs that still exist in the bear market, which are some of the sectors we focus on at present.
Now we see that some private wealth managers, such as banks and other private banking management institutions, have entered the encryption field. They also need relevant tools to help their customers find ways to invest in the encryption field. This is a global trend, and it is also a trend that we are focusing on now.
Jehan Chu：No matter whether this idea is right or wrong, to a certain extent, there is no theme or idea for investment, and investment is eclectic. At the beginning, we had no investment theme, and we had a broad imagination for the development of the whole field. In addition, to some extent, we invested with our own money, so there was no LP that forced us to say that we could not shift the investment style.
In the past one to two years, I have gradually formed an idea that we do have an investment idea. We call the investment idea a super parallel theme, which is a very broad investment scope in the blockchain field. This is not a bad thing. To some extent, it helps us understand that, just like the Internet, the Internet itself is very large, and the blockchain itself is also very large, So we can see that many companies seem to be deeply engaged in different fields, but eventually they converge and return to the blockchain field.
That is to say, investment in nodes, investment in DeFi, investment in NFT, investment in staking pledge and other fields. However, in the last cycle, it was found that these projects are related to each other, cross border and can cooperate with each other, and they have very interesting interdependence.
For example, if you are a wallet and you are a managed wallet, you become an NFT wallet. Then you can overlay DeFi layer or pledge layer on the wallet. Therefore, this shows the self interdependence between different projects and different fields. For us, we do not focus on a specific field, oppose the interaction between all of these and keep the resulting result board open.
The last cycle realized that when you had an epiphany moment, you suddenly realized that there were various possibilities, in fact, some very exciting things. Such an investment method is very exciting, and I hope I can focus more. The three funds we have launched are more focused on a specific area. For Kenetic, the master fund, it invests more in the whole encryption field.
Gavin Wang：For us, the first two points are very clear.
First, focus on community building. From the perspective of financial returns, the risk return ratio of some investments in the past may not be necessarily good, but it is true that the industry needs to support relevant excellent founders in the early stage. We have gone through many cycles and always believe that if we find the right person, as long as they stick to it, they will eventually have a chance to shine.
Second, it mainly invests in the early stage, such as seed round and angel round, about 70% of which are invested in these two rounds. Because the industry is very early, sometimes the so-called growth projects may not have much less risk, but the valuation may rise a lot... Sometimes some companies are very good, but the valuation may be more aggressive, we may not be too aggressive, but we do not feel sorry to miss this. We will also spend a lot of time to help the companies we invest in gradually grow, which is a pleasure for us.
There are mainly three different investment fields internally:
One is infrastructure, which mainly solves some basic problems, such as scalability, privacy, and how to solve regulatory problems. In addition, the tool companies Paul just mentioned are also a very important link for us. If we want to truly let more investors, users, etc. enter the Web3 world, tools are a very important link to build a foundation for the future.
Second, applications. Now there are all kinds of games and NFT projects, but there will certainly be more types emerging. The industry needs killer applications, otherwise there may be many questions about whether to continue N cycles or infrastructure construction. Especially, if Vitalik mentioned that the infrastructure completion of Ethereum has reached 55%, more applications should emerge in the future cycle, thus creating more possibilities.
As Paul mentioned, it is still in the very early stage of the cycle, and some projects may not survive to the end of the entire cycle. Therefore, we will be more careful when selecting projects, and will also provide more support to the invested enterprises from all angles as much as possible to help the invested projects succeed.
Just now Paul also mentioned xFinance, that is, projects related to finance will be divided into two segments. One is related to centralized and traditional finance. However, as we are technical VCs, we pay more attention to market segmentation opportunities, including tools to help integrate traditional finance and digital assets. If some large projects are beyond our range or have strategic cooperation with Hashkey Group, we may introduce them to Xiao Xiao and HashKey.
For DeFi, we are generally cautious. We invested in MakerDao and Uniswap, which are really fundamental innovation projects in the early stage... But if some DeFi projects are not particularly cautious, there may be regulatory problems. In fact, their benefits sometimes come from the release of excessive risks, which may also be passed on to the ecology, so we will be particularly cautious.