EBC22 | Funding for Crypto startups at its Peak

[Applause] awesome thank you all for being here uh to this kind of like graveyard shift of ours you know it's 6 30 we've been uh at it uh since the early early morning so really appreciate all of you being here and hopefully you know i asked victoria to bring in some beers to accommodate uh everybody uh here today so yeah here with tony gonna be talking about uh funding for crypto startups i think it's gonna be really uh interesting one you know as it is uh coming towards the end of the day uh we would like to make it as interactive as possible as well so definitely have a few questions lined up uh for tony here today to kind of get things started but if you do have any feel free to kind of just raise your hand and we can kind of get straight to it but um tony maybe you can give us a little bit of a background to yourself and while you're here with us today yeah absolutely thanks guys for coming my name is tony dong i currently lead capital formation and business development at op crypto op crypto for reference is a 50 million dollar venture fund we do primarily seed and precede investments across the blockchain i currently lead the fundraising efforts for our new vehicle we're raising 100 million for a fund of funds that actually deploys into emerging managers so two different angles there but very kind of you know intertwined uh and excited to be here today fantastic tony thank you so much um i need to give a little bit of context as well uh about myself um i'm the co-executive director of the crypto valley association one of the leading nonprofits uh in in the space based in sugg for a little bit of context there as well tug is one of the largest ecosystems with over 1 128 crypto blockchain companies that have been uh founded there since of course ethereum being founded a lot of the other crypto startups came uh to be and i'm also the managing partner of storm partners which one of the leading service providers in the space helping enable the web 3 strategy of some really big firms all the way down to uh smaller smaller startups and we've helped a little bit with finance and fundraising for various different entities um as well so maybe tony can give us a little bit of uh insight into what your investment thesis is or you're looking uh what you normally look for yeah absolutely for us specifically on the venture side i think we're very much more geared towards infrastructure with a kind of emphasis in gaming and especially kind of projects that you know blend web 2 between web 3 call it web 2.5 because you know investing those projects once you make that bridge you access a larger target audience than you can just with a web 3 startup awesome okay so infrastructure and gaming we'll definitely get to that but maybe we kind of dive straight in and kind of like tackle that kind of thorny bush in in the room markets what are your thoughts yeah i mean it's been a wild couple months you know obviously everyone's seen it in their portfolio definitely probably felt it in your heart as well but um yeah i think it's it's one of the interesting times where things are very connected with the macro effects in the us with inflation as well and we're seeing kind of a very very significant cooldown in the markets compared to you know december even march um for us specifically you know we've always been very kind of thoughtful in our investments uh when valuations were very high we were very selective in terms of the projects that we deployed so you know 20 deployed in the venture fund so pretty well equipped to kind of survive this bear market but you know i personally think that we're in for a little bit more pain until it gets better but i mean like the sign says outside this is the time to build so you know you guys obviously are in this room because you have some sort of conviction and you know we do as well also and what type of projects do you believe has like been suffering the most in terms you know a lot of people here have been like oh there's a lot of trimming of fat that's going to be happening right we're going to get a little bit more leaner through this market i mean what have you seen has kind of been like dropping out through these past couple of months yeah absolutely i think so when this whole kind of bull market was going you you would see a lot of copycat projects so for example an nft marketplace that had a unique idea would get funded but then you know there's a tier b tier c kind of project but they would also get funded because investors were building off that hype getting fomo et cetera but realistically you don't really need that many of a similar project and those kind of you know tier b and c type projects that we're trying to address the same issue without that much creativity or innovation are starting to see some some real struggles right now awesome and you mentioned that you're currently 20 uh invested and so you have the 80 that you're looking to deploy sometime over what what kind of horizon what are you looking at within this kind of bear bear market if we can call it that uh use the b word here what is the kind of like time horizon you're looking to kind of deploy the rest of the yeah i think uh specifically for our venture fund actually it's a five year fund so we closed it in september of last year so really three year investment period and then kind of two years to divest those investments so you know we've been very steady so i think over the next two years we're looking to take larger positions lead some rounds uh now so i think yeah in the next 18 to 24 months we should be fully deployed awesome then if we talk about the two elements that you mentioned so infrastructure and game fi let's start by infrastructure i mean what is really kind of you're what are you really looking out there for at the current point in terms of infrastructure i mean there are a lot of companies have been trying to build out the infrastructure now for the past let's say even 10 years i mean what are some of the angles that you believe aren't covered yet or that are kind of covered but can be improved yeah absolutely one of the most interesting parts of kind of the infrastructure ecosystem i think going back to kind of our investments we're looking at something called decent dao and that's essentially a venture studio originally started off as a blockchain consulting company but it's really a group of people creating actually like defy rails and you know effectively putting together their minds uh to build out infrastructure projects and the governance is kind of a dow structure so effectively you get shares of tokens based on kind of like what you build out and i think that's a really great option for a bunch of engineers that don't necessarily have to be siloed to one project but they can kind of you know pick and choose where they want to spend their time and get they get rewarded as such yeah that's an interesting one we're seeing a lot of other kind of like service providers or individuals that have the capacity to build up uh projects and we've been helping other projects actually they transform into actually building their own projects out uh as well so when you're looking at in investing within let's say the infrastructure side i'm sure the team is a really large component what are other some of the components that you look at when you're when you're really looking into the projects yeah definitely team team is is extremely important we have a pretty long due diligence process in terms of just you know looking at the project the road map seeing if like you know what they're asking for in terms of fundraising is appropriate considering what they're trying to build and then a lot of the kind of teams that we back are you know not first-time builders so they might may have exited maybe a web 2 company or have had a lot of experience building uh in web3 and i think that's really important to just have a really core competent you know cto and management et cetera and you know we're very very close with our portfolio companies i think that we definitely try to help them out as much as we can between exchange connections and you know knowing people in the crypto space so um you know when they grow we grow too so it's it's symbiotic awesome and on on the game by side you know i mean i've always been a bit like biased on game five because being an ex-gamer i always used to love to game and it was always like play play play for fun right and now it's turned into like play to earn and i feel like the next generations they're never gonna want to play for fun anymore it's gonna be like wait as long if there's no there's no money in it like why am i going to be playing tetris or or pong or whatever that might be so what are your thoughts on like that future kind of like game fi and how those that home kind of space is moving forward yeah i think uh honestly all games in the future should have probably a component of web 3 blockchain integrated you're never going to you know see a game again that doesn't have those mechanics because you know now you get rewarded for the time that you spend and there's a lot of interesting tokenomics that go behind the game design but you know it's going to take some time right so the major aaa studios are working very hard trying to you know get into blockchain but it takes many many years to build a really solid game right now you're kind of seeing projects come out that are experimenting with different tokenomics and different game design but you'll really see like the quality triple a games come out in the next couple years as well fantastic and if we look at those like game fight projects a lot of them have for like either nfts which are like the in-game kind of avatars they have their own token and all these things what are your thoughts about projects that have multiple tokens in them from like an investment perspective like do you how do you get exposure to those projects do you kind of invest in or eat each each kind of like from the the equity standpoint from the token from the nft do you get like a little bit of each like what is your preference and how and what do you think about that model as well yeah absolutely for us specifically i mean we do a mixture between equity and token investments i think for us our preference is token actually because just you know we're better able to you know assist them in a value-add manner just given our connections to the exchanges market makers etc um but um so on the on the gaming side i think um we're seeing a lot of new games being built but hold on i just lost my train of thought can you give me the question again um the question is essentially when you when you have these different token types right um you have an nft which has a different let's say value proposition to a utility token which of course has a different value proposition to actually the underlying equity and if i carry it to that is that none of the the two formal ones that i mentioned are actually investment products right as in like if you go to a financial regulator and you try to get a an opinion on them you're actually going to tell them hey this is not financial product like we're not trying to like this is not going to accrue in value all these different things yet they're used being used as financial instruments and so when you're investing in them you mentioned yeah yeah we honestly haven't looked at any any kind of gaming projects that um have you know nft components to them it's pretty much all just token related but at the same time our core thesis is you know it's really hard to essentially find you know which is the best game there's always going to be games being developed etc and you really have to invest in all of them to hope you know one of them will be really successful and investing in the studio model is also a little bit difficult which is why we tend to you know try to focus on the infrastructure layer instead yeah i'd love to touch upon that one when you mention like the studio model right do you do you normally try to invest in the specific games themselves ones that you think are are going to do well or do you try to kind of go from that group approach like okay this studio is developing some really nice games i'm gonna try and approach them because i think whatever happens maybe it's one two games kind of flop but that third one is really gonna do well like studio or specific game yeah it's definitely the studio model but we actually uh do more investments in the gaming guilds so merit circle is one of our big portfolio companies as well as snack club which is what they're doing in kind of la tam and that's a really good avenue to get exposure to the gaming kind of world because you know all of these game companies are going to these these guilds to essentially kind of make a relationship and by seeding them you see all of the deal flow and you're really able to kind of pick and choose which projects are the best but also by investing in them you kind of get an overall exposure to to the ecosystem based on the games that come into them yeah fantastic and of course it costs a lot of money to to uh build out a game right um and some of these games are really well funded um but from the gaming side of the community it hasn't really been adopted so much you know there's not many kind of gamers that have been like wow play to earn games this is amazing it's been mainly from kind of like crypto uh d-gens that are kind of like oh i can do this or even maybe in some developing countries i mean in your opinion what what is kind of lacking for to me more adoption from the gamers that really like playing games to kind of be like oh i can play this game that i like and also earn a living whilst doing so i mean where where do you believe that friction comes from and uh do you believe that there will ever like be a kind of a bridge between that or not i think we're at the point where it's still a little bit early in that you know you're playing these play to earn games but you know that you know you're playing it because you're trying to earn money in tokenomics whereas if you're playing like a grand theft auto or you know call of duty you're playing to have fun and i think you know the games aren't there at the point where i think eventually while you're playing these games you won't even notice that it's related to blockchain you won't notice that you know they're creating a wallet on the back end you won't notice that you're occurring tokens you're just playing to have fun but you're also you know interacting in web 3 and gaming uh and that's where the shift will happen eventually for sure yeah there's even a rumor that that just came out i think it was today or yesterday that gta 6 has a crypto component in it uh so actually that's yeah yeah it's a really great example i can't i can't wait it's going to be crazy and maybe i touched on on the element of the developing countryside where you see a lot of be it like axe infinity alien worlds a lot of these other like later earned games that are really kind of the ones that are being adopted the most at the moment a lot of their community comes from asia or from um let's say developing nations that are playing those games because they can earn more by playing the game than they can maybe by going out and working i mean do you see that that's then converting more and like into let's say the westernized uh nations as well that they're being more of a balance of these play to earn games or do you believe really it's going to be for those individuals to bridge that um labor wage gap i think i mean just right now the product market fit is in the emerging markets because you know you can make more money than your actual job but whereas in the western world like you do have well-paying jobs like you're willing to you know pay someone for their time um so until you know the token tokenomics model switches and whatnot i don't think people in the western markets are really going to be spending their time playing actually infinity um to to farm you know slp and whatnot but there still is a bit of clout to it right if you look at maybe the the kind of the board apes kind of they're rather expensive and people want to to buy one for the cloud or being able to then use it within like the other diesel other side like in the metaverse as well so maybe there's a way to kind of have an element that is maybe a bit more expensive and that maybe is approached by these people that might just want it for clout and then the other side where you can actually work to kind of earn it up uh as well totally yeah but to your point i think it's like those types of games like are very crypto native users that play it's not like your average joe is you know playing axe infinity and stuff but once you get that model and like a grand theft auto or whatnot um those skins become way more valuable and honestly like one of our thesis is at the fun is uh gaming is going to bring the next 100 million users to to web 3 just given you know the amount of interest there is and they're not even going to realize that they're moving over to the blockchain it's going to be you know seamless hopefully yeah hopefully yeah and that's like and if we move on to topic uh based around like the jurisdictional element right i mean you're based uh in new york uh in america you're here in europe uh in barcelona i mean why why why are you here i mean not not from like [Laughter] like what brings you to europe what are your thoughts about the european ecosystem um how do you feel about being here yeah no um i love you know traveling around meeting new people i think europe is definitely kind of an area that our fund specifically doesn't have very great routes so it's important to you know show face meet founders meet funds et cetera and i do think that the eu is definitely you know more advanced in terms of setting up legal frameworks uh than the us obviously we're gonna see a lot more kind of you know legislation being passed and with all the stable coin stuff that that happened but i think the eu is a little bit more forward thinking in that um which is great so love to hear new perspectives love to connect with people and yeah it's great fantastic and in in in america i mean how do like when you're looking at projects there when you're looking at investment rounds in america we all know that kind of there are a lot of projects in europe that should go to america to see fundraising especially in switzerland we see that switzerland is named one of the most innovative countries in the world however i mean a lot of the unicorns of that become unicorns they actually go to silicon valley or somewhere else i mean you mentioned that you're seeing europe barcelona other um kind of crypto hubs in europe as as talent pools of interesting innovation i mean how does how does america see that or how does like other fellow investors of yours see see that from the american perspective yeah i do think there is a lot of venture capital money in the u.s and a lot of projects do come to try to get that capital um and you know the topic of this discussion is you know funding at its peak and i think it's pretty hectic you know um just six months ago where it was very much so a builder's market versus a a vc market and us as a venture company and i'm sure a lot of other ones actually had to go pitch founders what's your value add et cetera but now we're seeing a shift in that you know the power has swung back to people with capital and uh you're seeing a lot of down rounds so just looking at a few companies last week you know seed rounds at its peak we're something around 40 to 60 million depending on the valuation uh now a company came back to us oh we can drop to 25 oh we can drop to 17. like there there is quite a shift in sentiment and but i do think that the us is still an excellent place to to get that funding i know a16z raising their four and a half billion dollar fund um announced last month like there's plenty of capital uh especially you know if they're trying to dedicate that to some early stage so plenty of opportunities but it's definitely more focused now on shipping really really good products instead of just you know doing another nft marketplace right yeah yeah i completely completely agree and understand right from the mirroring perspective that you mentioned uh earlier on and and so we we've seen you know a lot of these bigger companies like they they they were heavily funded they went through series a b even sometimes c for some of the larger larger companies and now this recession is kind of hit this bear market has hit and you see a lot of those larger companies that raised so much that it hired immensely now they're stopping their hires some are even kind of firing a percentage of this stuff i mean from an investor's perspective i mean how do you see that do you believe that it's kind of it's it's part of the game they needed to hire quick because they needed to accommodate to the market uh or do you believe they kind of they should have been a bit more cautious uh with your money uh ultimately yeah absolutely i think i think definitely there was some folks that got caught up in the hype i mean just the trajectory was was insane and a lot of you know the growth equity funds fomo'ed in and they were able to raise larger and larger rounds i don't think a lot of people were focusing too much about valuation when initially seeding a lot of these projects even at the earlier stages which is why i think it's important for venture funds to be very cautious when even in any market bull or bear to really look at valuation really look at the team and not get caught up in the hype um now you know like bain capitals holding bags like they're pretty they're down pretty bad yeah no definitely and maybe we kind of turned into the audience here i mean are there any startups uh around by any chance raise of hands startups okay look so there are still some young companies here you know some entrepreneurs what was some tips and tricks that you can give them you know if they're looking for investing at the moment what's some advice that you might be able to give to them uh if they're looking to race yeah absolutely so like i mentioned i think um it's more crucial now than ever to really have a great kind of business plan going forward when you're asking to raise funds et cetera like you really need to have a targeted focus and understand how far is this runway going to get you and honestly sometimes the story and the narrative is just as important as the product you're building so i'd encourage you to you know reach out to venture funds early stage especially and just ask for their candid feedback i think most people are more than happy to actually you know give you really good kind of advice and that way create a better pitch you know uh kind of get that narrative going make it sound more compelling and you know that that would definitely definitely help you raise raise capital fantastic and maybe one of the last questions here before we do to turn to the audience uh for some questions i mean maybe you you can leave us with some of the trends that you're seeing what you're really looking into for the future and some things that you believe are going to be uh trending for the next six months maybe a year that you believe is gonna be maybe not the next hype way but that you're like okay this this has a really good uh there's a really good opportunity here to invest in for me personally just you know leading our fun of funds effort i'm really bullish on emerging managers coming to the space now you know you look at these guys they're raising first-time funds you know first-time gp but not first-time investor very very hungry to do well um when they're funded 100 capital 100 ammunition with no baggage we look for you know people that are very specialized in a specific sector have a geographic concentration and i think that these new fund managers are going to drastically outperform and you know we've seen it the market is very cyclical and deploying in a bear market um i think accolade released a report uh for 60 venture funds over the last four years and i think the aggregate return for close ended funds was about an eight to ten x um which is quite compelling so hopefully you know these emerging managers can knock it out of the park but i'm really bullish on the ecosystem and i think it's harder and harder to become a generalist venture fund these days you really have to have like a targeted focus targeted value-add um and these are the type of folks that we want to back and we want to support yeah stay stay hungry stay foolish fantastic um wonderful well don't think thanks so much and i finished grilling you for the moment maybe let the audience uh get to get to it um please if anyone has any questions uh for tony here um happy to have them thanks a lot uh for the presentation and uh for the candid talk i have actually two questions so i'm gonna be a bit cheeky but what is the crazy story maybe that you've heard with crypto stars getting funded at its peak and then second is for example you were talking a lot about gaming that 80 or a large part of your portfolio is gaming what would you say is the next frontier for crypto investors afterwards um so to answer your second question first i'm really bullish on the metaverse actually and one of the funds that we actually uh seated was called every realm so republic they have a group that's spun off and they're creating a metaverse specific fund that focuses on metaverse land investing infrastructure and gaming within the metaverse so i think that's a really really interesting kind of field that we don't have that much exposure but you know learning a lot about it through chatting with the gps of that fund and now we have exposure through the fund of funds um and you know the adjustable market is insane obviously the tech isn't there yet if you guys have used an oculus recently you know it's not amazing but it's definitely better than it was a few years ago and then sorry can you remind me your first question again was the crazy story uh yeah i mean uh you guys remember like that soul checks product right i think there was like 100 vcs on the cap table back in december which i thought was a pretty big red flag um i mean aren't i don't sit on our investment team but there was a lot of back and forth about you know the product being kind of you know a little skeptical but just seeing so many vcs on that cap table at such a high valuation was definitely interesting and obviously we know how that all went thank you yep anyone else questions you have an investor here all lonely uh thank you guys for your presentation i have an interesting question regarding your phone strategy i mean first you started as a direct investment fund and then you managed to launch your fof uh i mean how do you what's your thinking or strategy when you were making this transition from a direct investment fund to uh off in the webster or crypto sector yeah absolutely i think i think both are very synergistic and our whole vision for op crypto in general is to build out a bigger platform so the founder of op crypto david gan actually started his career off investing at holby where he led their adventure arm but it was unique in that he also did fun to fund investments so seating funds like multi-coin 1kx dragonfly and we really are in an environment now where we think we can replicate this strategy specifically and how it's so synergistic is think about it like we will eventually be deploying into 15 to 25 funds each one of them with a very very defined sector focus or geographic coverage and us having our own venture fund you know the deal flow sharing and thought leadership is immense and being able to you know really help them in terms of funds set up uh i think we can help these emerging managers a lot but at the same time the deal flow is massive so it's like you're going to have your direct investment phone and phone cell phones in operating at the same time yes exactly and you think it will bring you guys synergies in doing so absolutely so like our core competency i think like our fund mainly you know focuses on bridging east and west i think a lot of our our members have kind of some sort of background in asia et cetera but that doesn't mean like we have great coverage in la tam or south south africa or israel and these are some types of emerging managers and markets that we're looking at so having those in the fund of funds you know you get exposure to the deal flow there um in core competency areas that you might not have coverage on specifically understood geographically make sense definitely wonderful great question we have another four minutes left thank you um hi my question is you as as an investor what's the most important three um yeah like things that you really evaluate i mean besides of uh that is a imagine that is a good project but what is the most important things besides of the project that you really evaluate i mean in terms of decide if you are invest and how much you invest in some specific project yeah absolutely um so besides the fundamentals of the project itself like i mentioned the team is super important so like having a very very competent cto and kind of you know higher higher management is great and you know a lot of early stage vcs they all talk to each other as well so looking at cap table is pretty important too because you can see which vcs that enter and every one of them adds some sort of you know different value add we do deal flow sharing calls with you know 50 plus vcs a month just to exchange thoughts and whatnot so the most competitive projects i think are a lot like a lot of people are talking about the same ones and we're able to you know share thoughts around it as well that's a great point i think there's also the the exit plan as well sometimes for for various investors right they're like okay do you have a plan for me to get my money back at some point we've seen that being a really important one yeah um wonderful we have time for one last question if anyone has ah thank you guys so um short question do you read cold emails do i read cold emails yes uh yeah yeah i do uh like i said i don't sit on like ic or anything so when projects come through i definitely just forward them off to the right folks internally um we have analysts that specialize in each specific vertical um so i mainly do capital formation on the final fun side but to answer your question yes i do my email is tony op crypto dot pc and my telegram is tony dong opie there you go you will read it tony thank you so much for joining us uh here all the way in barcelona hope you all enjoyed it and now time for the drinks thank you thanks guys [Applause]