Three Factors that VCs Consider When Evaluating Web3 Startups | European Blockchain Convention

[Music] hello everybody it's a great pleasure to be here today and it's our second day but we're going to discuss quite important to topic of wec investing into crypto startups and evolation of uh crypto startups and just in the first half uh year in 2024 we saw approximately funding of the crypto startups of $ 5.19 billion uh this number is still below the peak levels of 21222 uh but uh it's rising because we see some victories of crypto companies in legal battles uh we see as well much bigger legitimization of our industry uh with the approval of Bitcoin and ethereum spot uh ETFs in the US and as well we see the pump of the market so of course the interest to our industry is uh coming back and uh among those startups the most funding got uh trading uh web3 and infrastructure startups especially with the deals like for example of modat uh 2225 million doll uh series a round bar chain of$ 100 million series B Round And as well the US crypto startup ecosystem is still leading uh because uh despite some challenges uh in the us with the crypto regulations uh so uh let's uh first start with the introduction of our panelists and with their funds and uh in what deals and what type of companies they invest into so let's start with Carla so hi everyone I'm Carla um I'm from lead Block B Panda Ventures um lead block is actually a European Venture Capital fund who's been around for the past five six years um investing in the centralized part of the ecosystem um we invested in bit Panda um leading European crypto platform we invested in toos trading infrastructure foring a lot of the crypto products for um us institutions um and more recently we actually partner with bit penda to launch a new um Bunch Capital fund it's a 50 million fund um this one will'll be focusing more on the decentralized part of uh the ecosystem we invested so far in four companies um including morol Labs defi lending perer Finance liquor rest staking um yes that's it thank you Ivan greetings everyone my name is Ivan malv and I'm a general partner at 3x Capital we invested in more than 50 early stage startups specifically their tokens also participated in different node sales we invested in layer zero Cai teera and many other notable startups mainly focused on infrastructure defi real world assets I'm super excited to be here and yeah looking forward to the panel Anna Maria uh hi everyone my name is Anna Maria and I am chief of staff at Triton liquid fund we are new digital asset hedge fund based in the UAE and while we invest in liquid tokens we invest with a VC fundamentals perspective and do the writeups and due diligence into teams and investors in the same way as other VC funds and collaborate with VCS as well as liquid GPS and we currently have 45 million AUM after launching this year and have around 30 investments in our portfolio uh thank you and uh let me introduce briefly myself uh I'm CEO of coins telegram uh we have group of companies in the news media space uh we have a News website as well PR marketing agency so we support both startups and already established uh companies and we help them with the promotion we gotten them featured in top media like fobs entrepreneur coin desk as well we work with a lot of influencers qls and we produced a documentary about web3 uh we have the many top leaders of the industry like vitalic ban create eum Paulino CA yio CH and animoca Brands and as well many other Founders and vs and we'll be having a Premiere soon in Dubai on 21st October so if you are in Dubai during uh that um those days you're welcome to to join our event uh so let's uh start with our discussion and my first question what are the key metrics you looking at while evaluating crypto startups and let's start with scarla the key metrics H yeah what key metrics you're looking at when you assess was it to invest into this that company um so it's a very vague question maybe the first thing we'll look at is um the team um I think you know the team has to be able to demonstrate s ible um understanding of the industries they're building in whether it's gaming social financial services and so on um I would say even more than an understanding um you need to be able to demonstrate that you have a sensible Network um Cy relationship that would enable you to maybe um unlock key Partnerships uh make key contracts that would help your business flourish I think that would be key for us um because you know in the early day everything is down to the funding team to actually convince clients users VCS um in the potential upside that they can bring um I can go on but if you want to say one something else sure definitely agree regarding the team and I think that the main trait that we are looking for in the team is adaptability so we try to challenge them with new ideas brainstorming together and working together on the product and if we see that there is a resistance between us and the founder is not ready to evolve and to brainstorm together probably we will not invest in this scenario uh also the market potential is crucial to understand who are your customers how big is the market what is the potential Revenue projections for for the next at least 5 years yeah uh as a as um a trident liquid we have a proprietary data platform where we gather data from 18 different sources and we go super Niche we look at each vertical dpin defi everything across the digital asset spectrum and we look at which metrics are most important per vertical but we can get very fancy about it at the end of the day most important is Tam are you addressing a market and is that growing and are you able to provide solutions that can scale with that Tam that's the bread and butter at the end of the day uh thank you and Carla and Ivan mentioned that team is on the first place uh when you consider whether to invest into this or that startup uh so like uh what skills and what professional background uh do teens uh need to have whether uh do you consider like firsttime Founders or do you prefer as well with some other background the teams and as well in the crypto space we see a lot of anonymous teams or like mask teams so how is the importance uh the transparency uh of the team for you um I can go first but so maybe as I mentioned you know for us what it's key is to be able to demonstrate sensible um you know experience or at least understanding in in the industry you're building in um I think a skill may be that's very important when you're building a company is resilience um you know building a company is like a roller coaster um we know the crypto Market is moving through Cycles up and down so you know definitely during the Downs you want to still keep your motivation keep building so you'll be able to take advantage of the next bow and reach new Milestones um in terms of the team I would say you know definitely we are um EU regulated VC fund so we have some legal requirements in terms of when we decide to invest in a company and definitely part of it is going through the team and doing a bit of kyc checks um but I think more more than the legal requirements um you know investment is about building a trusted Rel relationship between investors and and the funding team so if we cannot manage to crack this so that the funding team can trust us that they can divulge their identity um to us at least not to the word um I think you know for us that would be assigned that something's not right thank you Ian what's your comment yeah I just thought about the quote from Warren Buffett uh who once said that uh you are searching three main trades in Founders and and first one is about hard work and energy second is about intellect and third is about relationships or trust so if thiser is not in place probably first two doesn't matter so definitely um I suggest to start with going through some different experiences together with Founders for instance previous year we were doing hiking together this year we did two Yak trips with Founders and investors that helped us to identify the trads and experience different new things and of course become better versions of ourselves so it's a mixture of going through different experiences together and identifying the founders with whom you can work together and whom you can trust uh what I would add in addition is one uh how long has the team known each other and have they worked together in previous projects two is have they built a similar type of product within that vertical previously and how much vertical specific domain expertise they have and three is do they have an understanding of what it takes to scale have they done that previously or have they spoken with other projects and understand the ins and outs of how that works and can they answer reasonably to different types of scenarios and questions after uh after a discussion yeah that's important and as well in the crypto space it's quite differen shates from the traditional uh web to startups uh because investors often invest not just into the equity of the company but into the token so it can be a combination of equity and stuff for the tokens uh so what role does economics play in your evaluation process and uh how is it important the uh token distribution and utility of the tokens in your assessment um I think the first question a funer should ask itself is that whether a token is actually needed for their project or not I think we've know we've seen a bit too much of a hype around it um so you know if it is the case that the token is actually bringing utility to your project um then you still should be very careful when planning for the different parameters um we've seen many projects you know getting funded right before token launch because I know they had publish a token location did not please their users um and you know once the token is launched it's it's very difficult to revive it and it is very likely that you'll be more focused on finding ways to revive your token rather than done building your actual product um so I think you know definitely building a token is not an easy task um so that's why you know you should try to partner with people that can help you do so um at e BL you know we try to spend time on the toomics on the token listing strategy um helping relationship with market makers exchanges um but it's definitely not an easy process thank you Ian yeah I I truly agree with your uh comments regarding the necessity of the token I also have a joke during one of the pach session uh we asked the founder what will be the token and what will be the utility he said we plan to have a token discount so of course in this scenario there is no need of token so there will be for sure the strong pressure on on the token price so there should be some value uh for for it that will create a significant demand and we truly try to help Founders based on different models to to create these uh projections for for the demand uh that can lead for a sustainable token price but of course due to Market frustration it's it's completely un possible to to project everything so I think that U the main wants will be to put together the model that will work with different participants of this market like developers users investors Founders and try to project the uh demand and project uh the selling pressure cuz I am sure 100% that people will sell I'll just iterate uh further on top of the utility which we strongly believe in which is a clear plan and schedule for the unlocks the vesting and really understanding how you're going to allocate that but just because just saying that you're going to allocate 60% to air drops next year is not helpful but a clear plan with transparency is key uh thank you and as well in the case one project has a token and it's a b2c project so they basically need the community uh which would use the project and as well which uh will trade uh uh those tokens so how do you evaluate the community involvement into the project and uh uh the attraction and uh how do you uh assess how active the community is because now nowadays a lot of projects just like easily can put fake followers on their Twitter and telegram Discord channels so how what metrics do you use uh to check whether that Community is real or not and how much it is in I think the good thing about blockchain is that everything is on chain so it's easy to check you don't have to wait for the quarterly reports to come in to get a sense uh about the numbers um so you know you have plenty of tool that help you get through onchain data analytics um token terminal for example but you can look at different metrics the amount of money deposited on the protocol the or the t total value locked um you know a number of wallet that interacted with that application protocol um amount of volume that went through so yeah there's different metrics you can actually look at to get a good sense of you know either there a bit of attaction in that application of protocol um the other point as well I would say is is about engagement in socials um so you know definitely looking into whether Community is engaged key opan leaders are engaged on Twitter X um or foraster is also a good indicator uh really we have any requ ments for the community if you're looking for a press seat or seat project um I guess it depends for us we're mostly looking post seed Pro um pre- series a so you know definitely we don't have specific numbers but being able to demonstrate of a sensible traction um and having a bit of numbers um is is part of of the game thank you Ivan yeah I like the interview that we did with my partner dimma and one of the founders Gavin from tayer who mentioned that proactive Community equals strong product so Community is a major part of any project even B2B projects they should realize that receiving feedback from from users from from Partners is crucial uh of course we use different tools like Twitter audit Twitter score there are many of them uh and we go through different qualitative and quantitative metrics including followers engage engagement rate and many other even the uh sentiment in the comments uh on on the post is truly important so we we can see if people are really excited about this project and obviously every analyst spends a lot of time going through Discord channels Twitter channels just to understand if the community is alive cuz it's really easy to uh to buy uh fake accounts or cheap accounts in order to to have this follower amount so probably I will be focusing on on engagement and on bringing more ambassadors to to the community that can lead to to the growth yeah just echoing that that while we follow certain metrics on chain specifically from a community angle it's more anecdotal about you going to the Discord and telegram channels and do you see a couple of people interacting or is it a masses of people interacting and is it more of a marketing channel where the team post signals or is it users interacting with each other and giving also feedback to the team uh thank you and as well uh because we are still not on those levels of funding as it was back in 2021 and 2022 uh when it was some kind of super cycle and a lot of uh macroeconomic factors influencing that uh so uh how do macroeconomic factors uh uh influence your investment strategy and uh we see as well inflationary pressure and change in regulatory landscape uh so how do this factors influence well yeah we definitely take into account microeconomic factors um when setting our investment strategy um but it is I mean as a venture capital fund um we have a long-term strategy so very likely that by our first investment to our last exit last exits will go through several Cycles um that being said you know definitely digital assets VCS are more seen as or labeled as risky assets um and so in terms of you know assets location that are very related to interest rates or um inflationary pleasure um that being said you know I think especially in a in a changing regulatory environment for us what's key that will be looking for project that can try to anticipate those changes and that lean towards you know adaptability and maybe more compliance um and but at the end of the day to be honest it's about looking at those um macroeconomic um events and you know trying to assess risk and opportunities into our strategy Ian yeah I will just add that we try to adjust our strategies based on different uh factors that are external from the market obviously during this type of periods it's more reasonable to provide the liquidity to different protocols and ecosystems where you can basically earn uh rewards and have some returns during this turbulence and obviously when the market is on hype like we saw in 2021 um all valuations were um over overv valuated so during this period of time uh it's Pro probably uh great time to exit but no to to buy more uh chips uh in in in the companies and tokens uh so I can say that there is a significant um influence uh by micro factors on on our investment strategies yeah at chit and liquid we pay less attention to inflation but follow the interest rates and so the 50 bips uh interest rate cut was we we see as a favorable signal for the market um and then uh then we also track the us elections as partially because our team is based in the US and also because we send we think it sends a signal for how one of the biggest economies in the world is thinking about crypto at the market and how the SEC is approving uh crypto ETFs for example uh thank you and uh the last question uh maybe you can answer briefly what advice do you have for the founders which are currently raising funds um I think maybe so yeah raising fund is a is a long process I would say so be sure to plan for that carefully um make sure maybe to reach out to some connections have some warm introduction um try and you know anticipate for the next Cycles raise enough money so that you'll be able to actually take advantage of the next Bible um and reach key Milestone um there are so many advices we can provide um it's always hard to execute uh but uh the personal small brand uh is something that will help you with your first startup or fifth startup it doesn't matter so I will definitely suggest to uh to work on it and also focus on relationships with your investors with ambassadors it can help you a lot uh in the growth in your first or second round it doesn't matter but relationships matters of course with with your reputation with your skills you will be able to succeed it's just just a matter of time and how you will be able to uh adopt and adjust your ideas so uh I would say be genuine be transparent have good documentation and also rehearse your pitch a lot of times there's a lot of key elements that people forget when they're doing their elevator pitch or their three-minute pitch you need to cover all the bases of Team business model Tam everything like that and I would study hundreds of others pitches to understand how to do that really well and also know be able to answer any question that an investor asks that includes competitors that includes Market that includes prediction so you need to be studying that constantly about your business all the time to prepare yourself for conversations uh thank you for such great advices to you our VC panelist and thank you for interesting discussion thank you so much thank Youk you thank you thank you