Investment Meetup & Q&A: When Will VC Money Return to Web3? | European Blockchain Convention 9

[Music] 3 2 1 yeah okay we got three we got three speakers on stage have we got one on their way because the traffic has been problematic is there one more joining you oh oh we got to need the mic okay you got a mic there excellent yeah actually Alex flly if I'm not wrong got delayed FL you know we've been having a lot of that folks have been flying in the flights have been delayed Barcelona Airport is is a challenging place today so uh so with apologies for Alex we're going to hand it off to our power Trio give him a big round of applause one more time yes fantastic thank you well hi everyone hope you're enjoying the session so thank you so much for having us here maybe we could start uh by introducing ourself uh so yeah it's Ivan founding partner at ends of entance uh we're an emerging fund uh based in South European regions we are investing since last one year and a half and I'm so happy to to be here today really looking forward to have the chat about um about how we as a VCS see the web 3 Industry I would speak from a general generalist uh point of view and yeah really looking forward to to get your Insight so maybe uh we can start with you Anton like check check nice um yeah hi everyone happy to join the panel um my name is Anton I'm partner and head of venture capital at Hodo group um essentially we are multi-stage Investment Group running several strategies from open-ended liquid funds to venture capital and algo funds from is it good afternoon guys this is V from Cipher Capital we are $100 million single LP fund based in Dubai over 300 plus Investments uh the parent is the world's biggest minor as well uh something from the last session we had a $5 million check in sui blockchain the answer wasn't correct though from the panel people invested in sui and Aptos because the founding team comes from Facebook blockchain that code exists uh they raised $400 million in a bare market and if you look at how layer one and Layer Two valuations went in 2007 uh 20121 you expecting a 3 trillion market cap to end a 3 billion market cap uh to go anywhere from 90 to 100 billion so there's a huge upside for VCS as well as people who landed on a binance launch but so just a few few point because we invested in so so thanks so much so maybe we could start the session by defining what is web 3 and how it does from uh web two projects right so I sorry yeah maybe yeah um yeah I can elaborate on that like from the deal perspective um if you'll take traditional venture capital or private Equity um the primary form of the deal has always been uh Equity uh when you take VC within crypto uh I think something that's that's very specific is of course toen structures um that brings first of all better liquidity Horizon if you take traditional Venture Capital fund the average fund life is I think five seven years before actually harvesting and distribution to LPS and if you take ABC fund within crypto uh like Hollow Ventures uh it's basically much faster um liquidity distribution than Equity is uh so just adding to the point normally when you look at a web uh in a web two stage you know someone comes up with an idea goes to mom dad takes money goes to an angel investor takes money does $100 revenue does a series a ,000 series B and eight years later lists himself in an exchange anyone who comes in the wi has a eight-year lockup Web Two funds normally are of a 10 plus threeyear Horizon when we look at web 3 someone comes up with an idea and six months later they are doing an Ico it has happened of course there are companies which have done longer periods so you know the key difference here is in web2 there is a lot of adoption that comes in you know people actually have booked an Uber or ordered a pizza on one of those sites and then end up buying an IPO uh while in web3 it's more about you know people just come to know about a product there are no users around and people are investing based on the future potential of these things there's more liquidity again web3 funds have a fiveyear horizon so they have to deploy money in two years and get a cash out for their p uh LPS as well so differen is basically on the adoption difference is basically on the the time Horizon and uh it's a growing industry it's a grow growing asset class it's not like web2 which has been there for years that's PR interesting thank you and what do you guys consider that are the key trends that are attracting generalist BC money uh key trends in terms of uh the segments exactly segments applications any any use case that is uh mainly attracting BC money uh from a journalistic point of view yeah so you know my view on the whole uh investment space in web 3 is to 2017 anyone who had an idea to plant a tree in Africa went and did an ICU and raised $100 million 2021 was all about products that had use cases you had a you had compound where people could lend and borrow so use cases came in I think the next season is all about adoption how do we get 400 million people to become a billion or two billion people who use uh web3 so it's all about the DBS that come in a lot of people said you know there was a lot of investing in layer ones layer or the infrastructure plane bare Market the reason was when these companies were ending up raising 20 million 50 million or $400 million you knew that they can run the bare Market but as as the bull market starts coming people go towards things that will get adoption because in then you can have millions of Highways but until the cars don't run on them it's not going to go anywhere so the daps would come into play whether it is D5 DBS whether it's gaming things that can get number of users so for us we did the bare Market investing in layer one's layer 2's infrastructure but next season is all future investing is all about daps that get users on board Point Anon um on the side of Hol group we are a big proponent of sematic investment um when you look back at crypto you basically see a clear Capital rotation across different sectors um in 2020 we had um defi hype in 2021 we had gamify and as Ben need set layer one and then it was metaverse so there is always a big narrative that that's been played um I agree that I think defi offers something very cool um far more on the fundamental side I think that's the only sector within crypto that actually has real businesses you know with recurring Revenue model that you can make some you know traditional valuation models from tradify and and and you know calculate Fair valuation at the same time vertical like gaming for example uh we believe it has you know huge user base that has digitalization and crypto in their DNA so that's super easy to transition this people from gaming from web to space to web free space from our point of view um we decide to launch a preed fund because we really saw a lack of um capital in very early stages at least in web 2 uh market right the thing is exactly the same case for web 3 you think that there's a space uh for you know middle and let's say later stage projects but there's not enough capital for very early stage uh again you know we talking from the last two years of bare market and you saw not a lot of people investing uh but again there are investors who are investing you know if you look at Saudi they came up with neom has launched up a fund uh there was Savvy games you know there are Pockets where money is coming in I know one of the exchanges that we are backing just got half a billion dollars from muad so there is money there but again you know the problem is with how people think you know in in the bull market everyone is a warrant Buffet you go outside and the kid having $50 in his pocket knows how to invest but in a bare Market people just go hiding into into into their shell and that's the time that should they should be investing for us as a fund we have done three to five Investments every month we have never stopped I deployed $60 Million last year uh close to $10 million in this year as well you know out of token 249 we had 18 Investments that we did so yes real long-term VCS are still deploying but the kids who were building up small VCS in bull market have all vanished so there is capital it's just that finding the right uh people who would invest the number one variable overc fund performance if you look back at the history has always been the Vintage year or the year where the capital has been raised for this fund and the deployment time uh so on the balance of probabilities you know with some positive Catalyst coming like uh the ETFs for Bitcoin um and also on the crypto level the Hing in 2024 uh we believe that on the balance of probabilities it's actually the time to be invested so smart money has been at least on the private Market sites and VC site has been actually deploying quite actively and we did the same so in our case we we've been deployed at like almost one company per month during the last uh one year and a half and we've seen a lot of difference in valuations so we we speak about valuations what's your experience like during the last two years and what's the what's the current status on that s uh so again I have also built startups for 15 years you know whenever markets are down whenever there's no Capital survivability comes into effect so there were companies which raised at $100 million valuations in the uh bull market are now actually raising doing down rounds so yes valuations have come down uh but again uh that's how you survive you know today when you look at I remember at one of the stages in the US Gala clearly said that you know whoever needs money we have $400 million uh to invest in startups today Gala in itself is $400 Million worth so where's that 400 so point is valuations have come down uh new companies also have to look that you know when they are looking at the one point .5 billion like for example sui was at $3 billion uh bar chain is at $1.5 billion so they also have to look at comparables what are the other comparables which are listed why shouldn't someone go and buy a a token that is listed on the same segment which is at a lower valuation and buy something which is completely uncertain so valuations have come down it's the best time to actually be investing but the problem is people always uh run on Fair and greed right now fair is with everyone when BTC was at 60 ,000 everyone was waiting for 5,000 now it's at 35,000 and everyone's buying Anon yeah I think the answer actually depends on the time frame uh if we look back at for example 2018 um even protocols like on the infrastructure layer like l1's were're actually raising at you know 20 30 million valuation at the six stage uh for example salana was talking to to the other day uh to the guys from from Cosmos Foundation is a offered salana seat I think at 15 million valuation which was very small at the time if you look at actually at the current deal flow within VC space I think it's very problematic and um you know difficult to find good Bargains from the perspective of valuations because valuations got much higher uh in comparison to the previous cycle um so yeah one of the most challenging parts of uh being an emerging fund manager um is about structuring follow ons right so once you have your portfolio construct uh how do you decide who to support how do decide how to keep supporting and I'm just curious about your your follow on strategy right so maybe we can start with so again you know uh follow on for Investments happen once you see the founder doing something you know lot of people raised in the bull market and then did nothing you know they are trying to pass their time in the bare Market I one of the startups that I in invested in uh in one of the rounds today they have signed up with ICC which is the cricket uh governing uh uh body of cricket and today they're on the World Cup they're actually having 50,000 downloads on the app now when you see Founders doing stuff like that when you see Founders going to uh good events and you know talking about their product you know that they're going to do something great later on so for me the fall on strategy is all about what are they doing you know all the Twitter Fe hype and all the influencer hype is off what is the product they are building is one of the games that I invested out of uh Paris known as cross the ages I you know it has been top of the charts across multiple countries you see them actually working you see them going to events you see them having gamer uh uh display so when you see that you're happy to invest because you know this is not anything can fail but you know that this has a least chance of failing so uh we like doing those follow on and uh we support them not just through money but through connections through uh relationships through Business Development anything that they need just to add on like how much are you keeping uh Reserve Force 4 ons out of your total size uh so luckily for me I'm a single LP fund that means the same guy gave me $100 million so I don't have strict rules on to do this and do that I invest based on uh what I see you know for us ticket sizes have been from quarter million to half a million and have been 5 million as well and so so we are very fluidic in terms of nature I see someone working why and if he needs money why don't we invest so we're not very strict on such rules okay yeah I believe that um on the side of portfolio management follow-ups are essential because venture capital is a game of uh exceptional outliers where a small percentage of protocols succeed and most of protocols actually fail and this small fraction pays for for all the losses so you want to actually ensure to size your position in the in the winning deals uh for us at H uh we there is no like clear ratio how do we split between follow-up and initial investment but we also always structure um essentially either you know um an an option to invest along the way at a predetermined valuation and for example double down on the deal or we also have open-ended liquid pocket within the VC fund which allows us actually to size our position on the secondary Market just just buy it from um from the market basically can you make sense makes sense how do you see web 3 Industry basically in the future um I I'm talking about how Capital will be distributed right there's a lot accelerators incubator programs uh if we we stick on the early stage Market do you believe that actually verticalized or industrialized uh let's say VCS um makes more and more sense or do you think that there's also space uh for generalistic VES we could start with uh so before going to that answer I think web3 is still very nent I compare it with the 1980s stock market of India where people didn't understand that a share represents the future potential of a company's earnings similarly in crypto no one understands you know people really don't understand even the difference between layer one layer two or even a layer zero so I think it's too early to make these decisions whether they will be verticalized or whether there will be a single entity like soft bank that will control the market in 2030 because that's what we plan to become by 2030 it's we still evolving you know people have no clue what crypto is all about what blockchain is all about there are no users so when I was sitting with someone from pif and she said that you know we have a long-term view of crypto and I asked her have you ever booked a uber on web 3 have you ever ordered a pizza on web 3 she said no so the there are no customers here at the moment 400 million wallets in the market 90% of these people wake up in the morning to see the BTC price they have never lent on crypto they have never borrowed on crypto they have never done kyc on crypto they've never used it so I think this question is very early right now it's the industry is evolving and right now there are generic pces who are backing for us we are backing things which are having great Founders great investors and there's a definite product use case so we're not very specific and segment focused what about you Anon yeah I think one of the recent trends that we actually see is a bluring of lines between private and secondary markets so we see many you know Crypton native we sees that actually um are either pivoting or you know introducing uh secondary Market deals and at the same time we see liquid funds uh still making you know uh VC Investments so I think the future is like a blend mix of private and uh secondary markets we also see you know a great growth in um in uh user Capital platforms and the launch pads that actually not only bring Capital but also introduce Community you know to the formula so I think the future is bright and and um I think there will not be you know um limit to Capital in the next 5 years in a way that makes sense let's talk about Founders right let's talk about due diligence process and and how do you guys structure this process internally so any any specific topic you would like to uh highlight on that part uh in the sense that what really requires a fers uh to be having know um you know for you guys to be investing in in their in their Ventures maybe Anon we can start with you again yeah I think when we look at the teams we try to see whether the founders actually internalize the problem that they that they are solving like on a deep level um because I think that's like differentiates the ones that will actually stick during the the bare market and build through it and the ones that actually are just after money and uh will you know offer um will'll go after just mercenary you know incentives uh so for me I've been a startup founder for 15 years I did three startups my last one failed thanks to co so again you know I look at you know other than the great idea that everyone has you know I come up with 10 ideas when we meet a Founder we look at how persistent this guy is you know is he ready to battle it out uh in fact I was seeing a video in the morning where you know this founder said that you know it's not that easy to build a startup you know a Founder has to be 24/7 working there are no Saturdays and sun is the founder has to have a vision the founder has to have the charm of uh getting people to work for him and getting Capital so for me it's all about this Founders you know these Founders and I don't invest in single Founders I invest in teams where you have two three founders you don't want a single founder who goes off in a car crash and then you are left with bags of nothing so I think it's all about the founder who who really has the persistence to build a great billion dollar company and has the vision on how to go go around there so that's how I would I got it that's clear I'm sure there will be web three founders on the audience so I'll take the chance to you know uh let you ask any question you may have uh you have the chance uh to to ask directly to uh to VC now so um is there any question uh before we get a question can I have a raise of hands how many of you have Bitcoin and or ethereum or any crypto how many of you have lent or borrowed on a compound see the number of users dropped down H how many of you have actually transacted anything other than this on crypto a kyc a world coin see see the number of users drop so we are so so so early in crypto people think that you know we didn't enter when Bitcoin was $10 and it's 30 it's not even started guys there's no consumers in web 3 2030 will be when your kids will come to you and say you saw the whole industry and didn't do about it so get on the transaction action side of it okay sound advice there do we have any questions from the audience for these three experts such an interesting topic as you can tell the room is absolutely packed but do we have any questions anything they haven't answered yet yes a question over there good man okay waving your way I got you eventually thank you if you could sorry Victoria if you could introduce yourself to the room thank you hi my name is ranoa I'm a Founder myself I'm building an AI platform for investing in crypto assets based on fundamental analysis so my question is how early are you willing to back a Founder who's going to jump in there that's a leading question very good um yeah for us at H Ventures our sweet spot is basically preed and seat stage uh so we don't do incubation or acceleration uh we always prefer some sort of MVP available so we can test it and you know gauge whether there is pre-product Market fit so I guess the answer is uh pre-at seat uh is perfect for us us so 90% of ciphers deals are uh fall on Investments as not a lead investor but a co-investor so I have deals which happened with a6z with pan I a co-investor but this is 90% there are 10% of startups which have come randomly and actually shown a product and a vision and an implementation strategy and we have uh invested Small Checks into it but as predominantly as Cipher Capital our checks always go as co-investors in something that has a lead investor and uh has a workable product from our side uh we we have invest uh in Founders that uh were actually their previous jobs even before starting the the product itself so we try to discover Founders in a very very early stages we like to co invest with business angels and we like to be the First Institutional VC uh on board so that's our case fabulous question great answer thank you very much oh yeah sorry I beg your pardon so we got one question here and then I will come to you I'm sorry I woke past so uh Javier please introduce yourself to the room hi nice to meet you guys my name is Javier thio I'm one of the co-founders of lead lab games and I've been traveling through Asia in token 2049 Japan and all these uh well meeting these VCS around and what I felt is that uh what you guys are looking right now is more into the team or the vus that uh a team has a platform rather than the product because for example H we have one of the best performing video games at the moment in the web space but we felt that uh vs are a bit pushed away at the moment they're just following Trends and following big names how do you feel about this are you just at the moment focused on the MVP what you were mentioning at the moment Anton on more into how back is this project and how back is those project because now everything is super speculative so again for us it's more on what the founders have done I've invested in games uh where the founders are amazing I'm I'm looking at a game which has 100 million uh Gamers on its web to platform known as gble I haven't invested I'm just saying a name so thing is you know we clearly know that next season is about adoption and you have to have an adoption strategy you know building a great game doesn't mean that you will get adoption to it so we at least need that the founder has some expertise in say Electronic Arts or some other gaming studio where he got a lot of users or he had a web to play so it becomes an easier investment because as you know games are either a hit or a Miss sometimes unless it's not a gaming studio so for us uh we look at what are the credentials of the founder or if they have anything on the web to side uh yeah for us we have very expensive D due diligence framework so there are many many things that need to do the list but I think it's very important to actually differentiate like a good product from a good deal um so for us as a VC we prefer to be you know somewhere like before 50 million valuation so at precc stage so even if a product is is exceptional um and but it goes to the market at 1 billion valuation is basically just not a fit for us because we are not private Equity company we we are VC so we want to be early yeah and answering your question I think that it really depends on the VC you're talking with uh on our side we're doing very small checks right like from 100K to 500k and valuation should be around 5 million in order to make sense uh for our Equity stake so that's I mean that's something that really Force us to join the company very very early and have high conviction on that whenever you know who who else is joining or not is not something that we we're looking for we're just looking for you know excellent founding teams and uh High conviction on our side nice what a great question thank you my friend great stuff have here yes my friend uh if you could introduce yourself to the room thank you yeah so my name is apurva uh I'm a researcher at digital social ID our team will be pitching in the startup final soon so my question is to vit sir uh specifically what do angel investors look apart from the team in the app when they are willing to invest uh large sums of money before series a like for precede Investments what are the key what are those key key aspects in the DAP that uh investors will be looking in 2024 like as you mentioned right now you guys were investing in the infra first and then you're kind of willing to when the next bull market starts you're going to invest in the uh in the in the daps so what are those key aspects you guys are going to be looking for in those daps so because you specifically asked on the angel side that means early side I think other than you having a relationship with a investor nothing counts what I mean by that is you randomly approaching me and telling me about your product trust me 600 people are doing the same thing I wouldn't remember how do you build a relationship meet a investor outside for a coffee show him the track record of next 6 months decides whether the angel invests I was a Founder trust me I found it I learned it in my investment days not in my founder days I would just land up at a VC pitch my product and nothing would happen because true Founders actually keep on following back keep on showing traction keep on showing what has happened it may take 3 months it may take 6 months but once you have that big check in everyone else follows in you don't have to look at segments you have to look at what you are doing good if you don't know how to make a game there's no reason building a game even if the markets about that build what you believe in Pitch what you believe in and build up a relationship so that whether money comes today or tomorrow it definitely comes on an early stage later stages is a different game fantastic okay and we have one more question here what a great question a great answer as well thank you could you introduce yourself to the room yep um I'm Joe rotundi I'm a co-founder of unit Network on um a pair chain on polka dot so my question is uh it seems like at this conference there's a lot of talk about tokenization it seems like that's become the trend the last several years um but a lot of it's from the corporate perspective sort of should we tokenize the things we already have as digital assets and not so much it seems to me from the perspective of like what's coming up uh uh projects that allow you to tokenize or you know tokenization I mean are you what what are you seeing in terms of um from your perspective in that trend is it is that a growth Trend that you want to invest in or just something that's happening that you don't have too much to do with yeah I think terization is very interesting and specifically in the context of uh real world assets uh I think that's quite you know uh rapidly growing sub sector within defi uh basically soling you know problem of better access to Capital so we big we are big Believers in to conization but I think the biggest obstacles as of today as for for all the crypto is basically compliance and having you know a clear uh legal framework that everyone can comply and operate within so real world asset tokenization is supposedly one of the key uh segments that will come up next season because you know imagine you have a house and the title deed can go online and 100 people can invest on blockchain and there's transparency uh I've been looking at products I've been I've looked at 4k.com which tokenizes things like Rolex watches so this definitely is a use case where adoption can come and crowdfunding has been there for a long time uh again will it succeed or not only time will say but I personally believe rwa and tokenization is uh definitely one of the things in the future yeah on our side even though we are not web three specific investors uh we've seen several uh projects that uh used organization and uh I think it's very very interesting topic at the same time I think that we should keep in mind the fundamentals on on the on the company and it always should be linked uh to a to a business model to a real business model and it's something that uh may be develop in the following years and it's something that we keep exploring but yeah fabulous stuff and with that my dear friends I believe the the clock is approaching zero amazing timing my dear friends please join me in thanking our power Trio explain a lot about some big money and some big potential industries that was absolutely wonderful thank you Ivan Venit and Anton wonderful stuff