Folius Ventures: Web3 Chinese Developer Special Report

Authors: Chris Lu, Kenny Dong, Jason Kam

summary

In the past 30 years, the Chinese Internet industry has nurtured countless technology giants and super applications, and has accumulated huge number of engineers, technology entrepreneurs, and Internet talents who are good at consumer-oriented (2C) applications, which constitutes the basic foundation andBackground color.We estimate that there are currently about 2-3 million Chinese Web2 practitioners who have the awareness and potential to start a business in Web3 and will end up in Web3 in the next three years.This means that at least 200-300 potential top Chinese background projects will appear in the market at a rate of 1-2 per week in the next three years.

In recent years, the combined combination of multiple macro negative factors such as the slowdown in China’s Internet growth, the peak of traffic dividends, and the shrinking financing and exit opportunities in the Web2 field, the Web3 industry is an emerging blue ocean market with a positive environment, abundant liquidity and great room for growth.It forms a sharp contrast.Therefore, we expect more Chinese-speaking Web2 people to accelerate their transfer to Web3 in the future.For those Chinese Internet people who are full of competitive innovation, executive learning ability and sufficient background conditions, we believe that Web3 is just like the A-shares in the 1990s, H-shares in the 2000s, and Nasdaq in the 100s,Their next stop in this era and will go hand in hand with AI, thus opening up a new wave of Internet entrepreneurship and innovation in China.At the same time, we believe that the Web3 industry has accumulated and precipitated infrastructure for several years, which has given the industry a soil to carry super applications, and will allow the pendulum that will develop from “strong infrastructure, weak applications” to “strong applications., weak infrastructure” end.History shows that technology follows the development law of application-infrastructure: applications appear before infrastructure and promote its iterative upgrades, and the improvement of infrastructure promotes the emergence of new application paradigms.All signs such as the significant reduction in on-chain interaction costs, the popularity of customized solutions, the reduction of friction in fiat currency interaction, the improvement of data and middleware, and the update and iteration of financial gameplay, all indicate that Web3 is currently on the eve of the application dividend period, the turning point will arrive within the next 12-18 months.

Chinese Internet entrepreneurs should make good use of the Web2 methodology to form differentiated advantages, focus on the scenario of Web2 migration to Web3, and expand the incremental market.Chinese Internet practitioners in the Web2 era have made great achievements in the fields of C-end applications such as social, entertainment, and e-commerce. They have rich cognition and methodology, and are well versed in user psychology, product design and operation.However, Web2’s cognition is a double-edged sword in Web3: these experiences are both wealth and constraints.Web3’s smaller user base, different product strategies, financialization, and cultural differences are all new challenges for Chinese entrepreneurs.But we believe that the methodology of Chinese Internet entrepreneurs in Web2 can still be reused. In the projects that Folius has already laid out (StepN, Matr1x, SleeplessAI, Memeland, Metacene, Myshell, etc). We have observed the full potential of this group.We encourage Chinese teams to give full play to their advantages in Web2, especially differentiate with overseas teams in terms of user growth, community construction, business model innovation, products and operations, and should focus on exploring scenarios that promote Web2 to migrate to Web3.At the same time, we should also attach importance to cross-cultural exchanges and cooperation, broaden our international horizons, and better adapt to the international environment of Web3.

1. Three elements of the explosion of Chinese entrepreneurs this cycle

The huge dividends of consumer engineers, the strong catalysis of internal and external factors, and the turning point of Web3 infrastructure.Its advantages and disadvantages are equally prominent.

China’s engineer dividend for consumer-oriented Internet products over the past 2000 years has laid a base of about 15-20 million potential entrepreneurs for the entire Web3 Chinese.

Total base of potential entrepreneurship for Chinese people in Web3: 15-20 million people

China’s Internet industry has accumulated 15-20 million employees in just 30 years, and has accumulated a large number of reserve talents for consumers and applications during the rapid take-off stage of the mobile Internet in 2008.This number of people determines the basic foundation for Chinese entrepreneurs to start businesses in Web3.

As the world’s largest single user market, China has emerged in the past golden decade of mobile Internet, many innovative application categories that have led the world, including social media (such as WeChat), mobile payment (such as WeChat Pay, Alipay), and entertainment platforms (Such as Bigo, Huya, Douyu), content sharing platforms (such as Xiaohongshu, Douyin), and e-commerce retail (such as Alibaba, Pinduoduo, Meituan).These fields each have developed innovative models and product forms that are completely different from those of the overseas market, and have their own characteristics in terms of interaction methods and gameplay.The team behind the top products stand out after full market competition, and has accumulated rich and proven methodologies in user insight, product design, operation strategy, traffic acquisition, growth fission, and commercialization.This group of Internet talents is the most competitive group (volume).We have observed that many Internet people have begun to invest in the crypto industry and expect this trend to continue to accelerate in the future.

Under this base, we believe that there are 2-3 million potential core tribe groups, which have initially established the foundation for entrepreneurship and the ability to successfully obtain financing.

The core top Chinese tribe group: 2 – 3 million people (10-15%)

Many well-known Web2 Internet manufacturers are not only the cradle of technological innovation, but also an important source of the Web3 talent ecosystem.In our preliminary evaluation of talents in China’s top factories, even conservative estimates indicate that there are more than hundreds of thousands of product technology elites with high quality, rich experience and outstanding innovation capabilities.These talents not only include a wide range of grassroots developers, but also many executives from the top of the industry. Their levels are equivalent to or exceed ByteDance’s 3-2 level and Alibaba’s P-9 level.They have devoted themselves to the Web3 field. The projects they have created not only demonstrate the efficient execution of the large factory team, but also demonstrate the ultimate pursuit of fine polishing and perfecting of products.

In addition to the top Internet manufacturers, China’s game talents are worth developing separately: China has 1.5 million game industry practitioners, of which R&D personnel account for about 70%. China has shown top development since the Shanda/Giant Times game companies.And commercial innovation capabilities, especially the new production pipeline innovation and changes brought about by the mobile game era, have the ability to iterate products quickly in a short period of time, maintain the development rhythm of fine-tuning while playing the market, listen deeply to user feedback and improvements, and try multi-product matrixBy waiting for the wrong method, a group of developers with super strong execution have been trained, and this group of game developers are naturally more adaptable to Crypto’s development.

Therefore, we believe that among the 15-20 million practitioners in the entire industry, about 15%, or 2-3 million, there are already initially the vision, ability and background to start a business and successfully obtain financing and attention.This group of people is also the group that Web3 needs to strive for the most.

Under this base, we believe that the current Web2 -> Web3 conversion rate is about 1% in three years.In the next three years, the Chinese Web2 industry will deliver 200-300 top teams to Web3, with an average of 1.5-2 high-quality teams a week.

Web3 enthusiasts: 200,000 – 300,000 (10%)

In the head circle, we believe that there is currently 10 people who are not too prejudiced about Web3, are very curious, and have a passion for learning, and finally have a deeper understanding of the industry and have conducted on-chain interactions (non-pure hype).There are about 1 person in the market.This ratio will change with the cycle.

Meet the conditions and are willing to start a business within the next 3 years: 20,000 – 30,000 people (10%)

Among enthusiasts, we believe that we are willing to go overseas in the end. Our personality, wealth accumulation, industry accumulation, and family background are suitable for entering the Web3 industry to start a business in the next three years without the macro environment. 10 enthusiasts may not exceed 101 person.In other words, we believe that within the core Web2 circle, the conversion rate for Web3 entrepreneurship is about 1%.

On average, 5 people founding teams: 4-6,000 teams emerge in a three-year cycle.Head 5% Teams: 200 – 300 Teams, an average of 65 – 100 per year, 1.5 – 2 Teams per week

Given the relatively irregular industry and the uneven team level, we believe that we have both polygonal combat effectiveness, long-term values, business models and insights, culture and language have the ability to go overseas, and a team with a relatively understanding of Web3 finance.There will be more chances to run out and become the head.This ratio may be 1 out of 20 teams.

Therefore, we believe that in the next three years, the Chinese Web2 industry will deliver 200 – 300 top teams to Web3, with an average of about 1.5 – 2 teams per week.We will be extremely looking forward to in-depth exchanges and cooperation with it in the earliest stages.

Since 2020, the new world pattern of confrontation between China and the United States has been formed, and the traditional Web2 Internet industry has formed a sharp contrast with the starry sky-high Web3, which will make the latter the best cradle for these excellent Web2 teams (especially Chinese teams).

Web2 to Web3 Singularity is revealed, and the gradual improvement of Crypto infrastructure has given the industry a soil to carry super applications.The pendulum of Web3 development is about to be transferred to the “strong application” end.

Looking back at the history of science and technology, the iteration cycle of App – Infra is like a pendulum: App always appears before Infra and inspires the latter to iterate and upgrade, and the improvement of Infra has prompted the new app paradigm to emerge.Email precedes TCP/IP, which prompted the emergence of early portals; portals prompted the emergence of browsers (Mosaic) and high-level programming languages, which brought about the prosperity of Web1.0; a high-speed network born to meet the needs of Web1.0(Broadband) and cloud service providers (AWS) make more complex social applications and streaming possible, which brings the prosperity of Web2.0, while better and faster demands drive further iteration of unlimited technologies and semiconductors, allowingThe application of AI/AR/VR has become possible.

We believe that Web3 also follows the above rules, and with the technological iterations over the past few cycles, the industry pendulum of cryptocurrencies is about to be transferred to the “strong application” end.

In the past cycle, the Web3 industry has developed infra components that can carry hot consumer applications. We are in the transition from accumulation period to dividend period, and we expect the turning point of the application explosion (LTV>=CAC) to be in the future 12-18Month is coming.

In the past cycle, the industry has developed infra components that can carry hot consumer applications, and we are in the transition from accumulating period to a bonus period.Drivers include: 1/The cost of on-chain interaction is greatly reduced, making user conversion possible; 2/The popularization of development and customized solutions allows most developers to try and make quick trials and errors; 3/The interaction friction of fiat currency is reduced, greatly increasing usersPay willingness; 4/The improvement of the financial and token model can boost ARPU in all aspects, improve retention, and reduce user acquisition costs.These factors greatly promote the unit economy (LTV/CAC) of dApp and can form a forward flywheel.We expect the turning point of the application outbreak (LTV>=CAC) to arrive in the next 12-18 months.

Seven advantages and seven disadvantages of Chinese entrepreneurs

But we are still optimistic and see many advantages from Chinese entrepreneurs, and these advantages will continue to shine in Web3 in the future:

Mechanism design for grasping and matching human nature: Chinese major manufacturers are good at cultivating excellent product managers with delicate human perception and aesthetic pursuits. They not only explore different interaction methods and gameplay strategies in the mobile era and Europe and the United States, but also extremely good at fissionGrowth, taking WeChat’s social interaction and Pinduoduo’s innovative shopping model as examples, these strategies not only accelerate the expansion of user base, but also enhance user activity and brand loyalty.These product strategies that have been tested in practice are particularly prominent in the current relatively monotonous and primary growth methods in the Web3 field.It is a general consensus that Web3 urgently needs excellent and high-quality consumer products and can be promoted to the public. How to identify the native needs of the web3 user group and the obstacles to web2 user migration is an important topic.
Comprehensive operational capabilities: China’s Web2 platform operational strength and commercial closed-loop capabilities facing ARPU are eye-catching. Whether it is the complex creator ecosystem, diversified profit distribution mechanism, or advanced algorithm-driven content recommendation system, it is allIt demonstrates its team’s deep skills in platform operation.The achievements of Chinese entrepreneurs in the field of platform operations such as cryptocurrency exchanges have proven their outstanding ability to build and manage complex platforms.Web3 content creation and operation are still in the exploration stage. The Chinese team should focus on measuring how to combine the incentive effect of token model on the original basis to further amplify the network effect on the creator and consumer side.
Core technical strength: The technical strength of the Chinese team is a key that people can easily forget. Chinese people have advanced technical accumulation and research in many future technical aspects such as ZK, ML, AI, etc., and Chinese scholars in related directions/Technical talents account for a considerable proportion, but the Chinese team is often the technology provider behind many front-line projects, and should focus on exploring key technical leaders-like talents standing in the center of the stage.
The methodology of rapid iteration: Chinese people are diligent and already versatile. They are not stupid and overtime work, but have the strong execution ability of fast delivery products. Faced with the dual blessings of China’s existing supply chain dividends and engineering dividends, abandon the big onesFactory thinking, in the future, the rapid growth needs to run PMF quickly, and give full play to the advantages of strong execution in the era of rapid trial and error of the Web3.
The insights and pursuits of Chinese entrepreneurs: a very valuable natural advantage. The growth rate of China’s mobile Internet in ten years is a miracle. Chinese entrepreneurs born in “high-speed systems” have a pursuit of system efficiency and strong learning ability.With the fastest reaction speed, being pragmatic in the face of demand, having experienced a large-scale, systematic and efficient business system, and having more practical experience in a high-speed environment is more important. This group of people are native globalized generations.
The understanding of the latest consumer application routines: Copy from China has proved in the past few years that it can succeed and continue to create new greatness. The time machine theory has been transferred to the host and guest, referring to the models and products that have been verified in the Chinese market,Business, seeking blue oceans in overseas markets, in the future, Chinese entrepreneurs are very likely to have the advantage of having strong copy from Web2 in 2C/game and other fields.
For the Web3 entrepreneur group that must and can only go overseas to start a business, another advantage is the Chinese group all over the world. Chinese people have had the spirit of adventure in the world since ancient times. The innate population base has led to gathering areas and fellow villagers all over the world.For example, Singapore/Hong Kong has gathered a large number of Web3 OGs from the previous era, and even Chinese people have the dominance in mining, exchanges and other fields. Give full play to the resource advantages of the race, it will achieve twice the result with half the effort.

2. The advantage track of Chinese developers

Large DAU base, creator economy, strong platform economic system, and business models that have been verified in Web2.

We believe that tracks with the following characteristics can unlock the greatest potential of Chinese entrepreneurs:

Big DAU base, strong social attributes: it can form a powerful network effect by combining token motivation and gamification gameplay.Compared with traditional marketing and customer acquisition, this model does not require close cooperation, does not require high costs and increasingly low efficiency, and can especially realize the potential of web3 decentralized marketing/distribution.
Creator Economy: China has a huge group of content creators and abundant human resources, and ai’s breakthrough further improves individual creativity.In such an environment, everyone has the possibility of becoming a traffic node or a creative node and becoming a “super individual/node”.
Strong operational platform economic system: a platform economic system that can make full use of China’s operating experts’ capabilities, especially through crypto, to provide new value exchange methods and incentive mechanisms to promote wider participation and collaboration.
Business model that has been verified in Web2: Business model has been successfully verified in Web2, especially the direction of having the characteristics of high ARPU, good cash flow and high profit margin potential.If the user behavior, user relationship chain, user data, etc. in the vertical direction can be superimposed, there is a possibility that the user can be assetized, and the scene can be embedded in transactions, and the probability gameplay modes such as blind boxes can be added, so the business potential can be further released..

At the same time, we believe that the entrepreneurial track screened through the above dimensions combined with web3 token playbook (wealth effect/revenue share) can greatly amplify this flywheel effect:

Lower customer acquisition costs;
Higher users ARPU and Retention;
Lower group operating costs, especially platform systems of multilateral networks;
More diversified business models bring more revenue possibilities, and the addition of off-market liquidity is further strengthened;

But it should be noted that different types of directions will be different. For example, high ARPU products are easier to promote user growth through revenue share, thereby getting rid of dependence on traditional channels.