jakiro
Author: Lao Bai; Source: X, @Wuhuoqiu
As a former VC investor, what do you think of the current “VC is dead” argument in CT?
Let me answer the question of payment seriously. I originally had a lot of thoughts on this argument.
Let’s talk about the conclusion first:
-
It is an undeniable fact that some VCs are dead;
-
On the whole, VC will not die, but will continue to live and push the industry forward;
-
In fact, VC, like projects and talents, has entered a stage of “clearing out” and “big waves washing away the sand”, which is somewhat similar to the Internet bubble in 2000.This is the “debt” of the last round of mad cows. After paying it off in a few years, it will enter a new round of healthy growth stage, but the threshold is much higher than before.
Next, let’s expand on each one.
1. Some VCs are dead
Asian VC should be the worst in this round. Starting from this year, the first few companies have basically been shut down and disbanded. The remaining few months may not see a single move. Focusing on the exit of the current portfolio, it is also difficult to raise new funds.
The European and American second and third line companies were relatively good in the first half of the year, which is related to their LP structure and capital size. However, in the second half of the year, especially in the past month or two, some momentum from Asian VCs has been evident. The frequency of investments has been decreasing, and some have simply stopped investing, or have transformed into pure Liquid Funds.Some investment managers/partners started telling me on TG that “it’s too difficult to quit.”The impact of the 1011 tragedy on the liquidity of Shanzhai was fatal, and now it is beginning to be transmitted to the confidence of VCs.
Those first-tier companies in Europe and the United States don’t seem to have much influence, at least on the surface it seems like this.
In fact, this round of VC’s “bear market” is the “delayed effect” after the Luna thunderstorm in 2022. The secondary market was bearish at that time, but the primary market was not affected much in terms of project valuations or the amount of funds raised by VCs. There are also many new VCs that were established after the Luna thunderstorm (such as ABCDE).There was nothing wrong with the thinking at the time. Several star projects in Defi Summer, such as MakerDAO and Uniswap, were all built in the bear market of 18-19. The wave of VCs in 18-19 also made a lot of money in the mad cow of 21. If you do VC in a bear market and invest in good projects, you will be happy when the bull market comes!
But the ideal is very full, and the reality is very skinny. There are three reasons
First, the wave of narrative superposition and release in 2021 was so crazy, there is actually not much difference between the 18-19 VC investment in good projects and bad projects. At that time, the investment in any project was dozens or even hundreds of times.This also allows the valuation and financing amount of new projects in the primary market in 22-23, even in the bear market, to remain at a relatively high level due to the anchoring effect, without receiving much impact from the secondary market. This is the “delayed effect” of the primary market bear market I mentioned above.
Second, the four-year cycle has been broken., there has been no so-called “copycat season” in 25 years. There are macro reasons, there are too many copycats, lack of liquidity, there is the reason why people are gradually disenchanted with narratives and no longer pay for PPT and VC endorsements, there is the explosion of AI, and the reason why the “real value investment” of US stocks has a siphoning effect on the currency circle… Anyway, the previous pattern will not be repeated. It is impossible to replicate the dream of investing in good projects in 19 years and exiting 100 times in 21 years.
Third, even if the four-year cycle repeats, the terms of this round of VC are completely different from the previous round., some of our portfolios invested in early 2023 have not issued tokens after 2 or 3 years. Even if TGE is locked for one year, it will be released for another two or three years. For a project invested in 23 years, it may be 28-29 years to get the last batch of tokens, directly passing through a cycle and a half.In the currency circle, how many projects can survive through cycles?Very rare
2. VC as a whole will not die
In fact, there is nothing to worry about. If the industry cannot die, VC will not die either.Otherwise, who will provide the resources to implement new ideas, new technologies, and new directions?It can’t be said that it relies entirely on ICO or KOL rounds, right?
The ICO is more about bringing some retail investors and communities on board + building momentum, and the KOL round is mainly responsible for spreading the word. These are things that happen in the middle and later stages of the project.In the earliest stage of one or two Founders + PPT, only VCs can really understand it and actually give money.I talked about more than 1,000 projects in ABCDE for more than two years, but in the end I only invested in 40 projects.It is estimated that twenty or thirty more of these 40 carefully selected people will die.Many of the projects you see in the market that you think are “junk” have been screened many times and become relatively “high-quality” projects. Otherwise, if more than 1,000 projects had launched ICOs and KOL rounds, would retail investors and even KOLs be able to see and distinguish them?
Just think about the phenomenal projects from the previous round to this one. Except for a few cases like Hyperliquid, which one did not have a VC behind it?Whether it is Uniswap, AAVE, Solana, Opensea, PolyMarket, Ethena… No matter how anti-VC you are emotionally, this and the industry still have to rely on Founder+VC to work together to push forward.
A few days ago I talked about a prediction market project, which is completely different and extremely differentiated from most Polymarket/Kalshi Copycat on the market.I have recommended it to some VCs and KOLs in the past two days. Everyone’s feedback is very interesting and I want to make an appointment to chat.You see, good projects will never die, and neither will good VCs.
3. The threshold for VC, projects, and talents will increase, tending towards Web2
VC reputation, funding, and professionalism have clearly entered the stage where the strong will always be strong.
The most important thing about a VC’s reputation and brand is not how famous you are among retail investors, but whether the Developer or Founder is willing to take your money, and why they choose to take your money instead of another VC’s money. This is the real moat of VC.In this round, VC is obviously similar to CEX, shifting from the previous pyramid structure to a pushpin structure.
Project – We have transitioned from looking at narratives and white papers in the last round (not even looking at white papers, for example, in 2017 when Li Xiao came to an Idea to raise hundreds of millions), to looking at TVL, VC endorsement, narrative, transaction… to this round looking at the number of real users, looking at protocol revenue… I feel that we are finally getting closer to the direction of the US stock market.
Jeff from Hyperliquid once said in an interview that the only business model for most projects in the currency circle is to sell coins, because there was nothing at the time of TGE, just a mainnet, no ecosystem, no users, no revenue… so they could only sell coins.Just imagine that when a company goes public in the U.S. stock market, it only has one company body and a bunch of employees, maybe factories and workshops, but no customers and no revenue. It’s weird that you can be listed on Nasdaq!Why can we use TGE or Listing directly on Web3?!
In this round, Polymarket and Hyperliquid have set the best example. One will first spend a few years to achieve a large number of real users and revenue, and even support a new track, and then consider issuing coins.One company did use the expected token airdrop as an incentive to attract early users, but its product was invincible and everyone continued to use it after the tokens were issued. The project itself is a cash cow, and 99% of its income is used to repurchase tokens.When the project has non-Farmer real users + real income, let’s talk about TGE, and then talk about Listing, our circle will really be on the right track.
Talent – A big reason why I have always had confidence in Web3 is because this industry has gathered some of the smartest people in the world.I have written before that of the more than 1,000 projects I have talked about, nearly half of the founders and core teams graduated from Ivy League schools.Domestic founders are almost all from Qingbei, and occasionally there are a few 985 in the Jiaotong Building of Zhejiang University.
Of course, it’s not just about academic qualifications. I’m not from a prestigious school.But it is undeniable that from a statistical point of view, with so many highly intelligent talents gathered here, even if it is because of the wealth effect, they will definitely be able to produce some useful/fun things.
So I said before that although the market is bearish, the direction of this round of entrepreneurship is actually quite clear. Stablecoins, Perp, everything on the chain, prediction markets, and Agent Economy all have the direction of determining PMF. A good Founder + a good VC can definitely make really good things. Polymarket and Hyperliquid have set the best example. I believe we will see more star products appear in the next year.
For ordinary people, Web3 is still the most promising place for you to change from nobody to someone – of course, this most promising is compared with the purgatory difficulty of Web2 where you can’t roll anymore.In terms of keeping up with the previous round or cycle, the difficulty has changed from Easy to Hard.I remember reading a tweet from a Web3 VC partner two days ago, saying that he was recruiting a junior intern. In a few days, he received more than 500 resumes, many of which were graduates of prestigious schools. He was so frightened that he closed the recruitment advertisement directly.
So in the end it’s still the same sentence:The pessimist is always right and the optimist always moves forward.
