Interviewer: Arain , ChainCatcher
Guest: Emma Cui, Founder of Longhash Ventures
Compiled by: Arain , ChainCatcher
LongHash Ventures was founded in 2017. According to Rootdata data, the fund has invested in hundreds of projects, including well-known projects such as Polkadot, Acala, ICP, Manta, and Safe. Benefiting from the DeFi Summer, LongHash Ventures ushered in a period of growth, growing from "on the verge of bankruptcy" to a fund manager worth hundreds of millions of dollars.
On the evening of September 10, Emma Cui, founder and CEO of Longhash, was a guest speaker at the "Dialogue with LongHash: Changes and Opportunities in Current Investment Logic" Space hosted by RootData. At the Space, she said that the cryptocurrency industry is becoming more mature, and Longhash has now completed the transformation from scattershot investment to heavy betting style. The current market valuation is high, but the bull market has not yet begun.
"Q4 of this year and Q1 of next year are worth paying attention to, mainly focusing on whether there are truly innovative projects coming out. Secondly, we need to pay attention to the US election in November and the release of the Federal Reserve's interest rate cut signal, the market may change." Emma Cui said.
Before entering the cryptocurrency industry, Emma Cui worked at McKinsey. In 2016, she was inspired by a Netflix documentary and accidentally came into contact with the cryptocurrency industry. She joined full-time at the end of 2017 and received early investment from Hashkey and Distributed Capital in 2018 to establish LongHash Ventures.
The following is the main content of Space:
From being on the verge of bankruptcy to managing assets worth hundreds of millions of dollars
Arain: Could you please briefly introduce yourself and Ventures.
Emma Cui: Long Hash was founded at the end of 2017, and I personally came into contact with cryptocurrency in 2016. After coming into contact with Ethereum, I became interested in this area and conducted some research. In 2018, I cooperated with well-known OGs in the circle to establish the accelerator LonghashX, and received seed round investment from Distributed Capital and HashKey. We started with the accelerator, and it has been about six years to date. Now there are two businesses: one is the accelerator, which mainly cooperates with some basic protocols at the head to help them build an ecosystem. The second is the fund. We now have two funds. The first is a fund established in 2021 to invest in DeFi, and the second is a fund established in 2022 to invest in multi-chain infrastructure. The fund currently manages approximately US$150 million and has invested in hundreds of projects.
Arain: When did you first start investing?
Emma Cui : Before I entered the cryptocurrency circle, I worked in management consulting at McKinsey. Before that, I worked in several banks in the investment banking and stock trading fields. I was exposed to finance very early and bought some stocks, but I didn’t invest in a very systematic way. The first cryptocurrency I came into contact with was Ethereum, and the first cryptocurrency I bought was also Ethereum.
Arain: You entered this industry with Ethereum as an opportunity. Let me ask, when you knew Ethereum, did you know about Bitcoin?
Emma Cui : In my opinion, the valuation logic of the two is different. I did read the Bitcoin white paper, but many people around me were engaged in traditional finance at that time. If I had been able to communicate with some people who understand technology when I first started to get involved in cryptocurrency, my understanding of Bitcoin might be different. At that time, my understanding was that the idea of Bitcoin was to replace the central bank or the government's right to issue currency, which was very difficult to achieve. As a result, today it is this feature that constitutes the reason for its existence. I think Ethereum is a technology company, and the concept of a decentralized world computer it proposed at the time impressed me more.
Arain: You said that you were influenced by Vitalik to enter this industry and start your own business. Is there any specific opportunity that motivated you to start your own business?
Emma Cui: At first, I saw a documentary in 2016. There was a miner on Netflix. When Bitcoin fell from 1500 to 200, he continued to mine at home. He said he thought it would return to more than 1000. I thought this thing was very interesting at the time, so I started to study it. It was also because of this that I discovered Ethereum. It happened that I returned to Singapore from Australia with my bank job at that time. I was looking for any crypto-enterprise activities around Singapore. One of the founders invited me to attend Vitalik’s meet. At that time, there were only 30 to 40 people in the whole place, and Wanxiang’s CEO Xiao also went.
This circle is very small, and a few months later, I got to know Distributed Capital through a friend's introduction. I think these two are the earliest institutions in Asia to do encryption, so I am lucky to have the opportunity to enter the circle.
When we first wanted to set up an accelerator, we received support from Distributed Capital and Wanxiang because they felt that this was a very good thing for the industry and could provide early support.
But we entered the industry at the end of 2017, followed by the big bear market in 2018 and 2019. At that time, many industry veterans left. We invested a lot of money in Polkadot at that time, and later we did accelerators to catch up with the DeFi Summer. After waves after waves, this industry gave me hope every time I was desperate, so I enjoyed the dividends of its rising period, and LongHash Ventures has developed to today.
Arain: You are so lucky. Of course, I think it is also important that you can persevere. You must have a lot of painful memories in the process of persevering. Can you share some of the most profound painful memories?
Emma Cui: There are too many painful memories. When we first started the accelerator, the funds were very tight. At the beginning, the total funds were more than one million, but we had to support a team of several people and invest in projects, which was stretched to the limit. Therefore, in the first stage, we could only invest 50,000 or 100,000. Some promising projects might not be able to be invested, which was painful. Another thing is that before DeFi Summer came, there were only 4 months of salary left in the account. At that time, I was thinking about how to support my team. During this process, colleagues who entered the circle with me in the early stage left because the opportunity was not right.
Whenever I feel the darkest moment, I just need to hold on and get through it. After several rounds of bear markets, my mentality is more peaceful. I think even if there is no new narrative or innovation in this wave of the market, if we look at the long-term trend, it is a miracle that crypto assets can reach the current height in just over a decade.
From scatter-net investment to bet-based investment
Arain: How do you think your style has changed since you first started investing? How will this change affect Longhash Ventures' investment style ?
Emma Cui: The change is that when we were doing accelerators, the investment amount was relatively small, 50,000 or 100,000 yuan was invested in an early team, which might only have one or two founders. Later, during the DeFi Summer, we increased the frequency of investment, but the scale of investment was still relatively small. When we raised our second fund, we began to refer to the "80/20 rule" of the traditional industry, that is, 20% of the investment portfolio produced 80% of the investment return. During this stage, our average investment amount reached 1-1.5 million US dollars, and we also paid more attention to examining the original intention of entrepreneurs. The investment style has changed significantly.
From an industry perspective, there were many benefits in 2017. In 2018 and 2019, investors could invest in seed-round projects with their eyes closed. As long as the project worked a little harder, investors would basically not lose money, and could make 10, 100, or even 1,000 times the money. But now the industry is maturing rapidly, and the early dividends are disappearing. Investors need to invest systematically and focus more on the original intention of entrepreneurs and the business model of the project.
Arain: Are there any sufficient reasons to invest in a project now?
Emma Cui: The first thing to consider is the original intention and team experience, which refers to what problem he wants to solve and whether he has relevant experience. The second point is, how big is the problem he wants to solve? How much profit can this problem bring after it is solved? The third point is, how is his way of solving the problem different from other competitors? Is there anything new or faster? Now we are looking for a balance point from these three aspects to find the best combination.
There are no specific indicators for our early-stage investments. Many are seed rounds, and at most Series A, and there are no quantitative indicators to refer to.
Arain: What do you think is your most failed investment and your most successful investment?
Emma Cui: The most failed investment is the one that was not invested in, because the maximum loss is 100%, but the missed investment may be hundreds or thousands of times. Over the years, there have been many investments that we have missed, mainly because we should have invested more aggressively in the early stages of the industry, instead of considering what to do if we lose money, which is the risk that VCs should bear. The most successful investment, such as Polkadot, has an exit return of almost ten times, and the DeFi projects we invested in early, such as DODO and Astar, are relatively successful.
Arain: From the perspective of the fund, do you have any benchmarks (or goals)? Do you personally have any idols in the investment field?
Emma Cui: I think there are many excellent funds in this market, each with its own play style and advantages, such as HashKey and early Distributed Capital, IOSG, etc., all of which are very excellent. We will learn from different funds and their characteristics. Our ideal is to become the first echelon of Asian crypto digital currency funds. In terms of infrastructure, the West has more advantages because there are many universities and talents, but I believe that in the era of application layer as the development center, the Asian market will have great potential.
There are many extremely smart people in this industry, and there are many people I admire, including Xiao Feng of Wanxiang, who always plans the industry from a very high level.
The real bull market has not started to focus on innovation opportunities, especially AI and GameFi
Arain: How would you define the current market stage?
Emma Cui: I personally feel that we are currently at a stage where the real bull market has not yet begun. Of course, I know this is definitely not a consensus, and many people may think that this wave of bull market has ended.
But I think this wave of market, from Q4 last year to Q1 this year, may not be due to the innovation of the industry at the application level, but more to the approval of Bitcoin and Ethereum spot ETFs. This type of asset has been recognized by institutions, which has opened the floodgates and allowed more institutions to enter the industry. Looking back at 2019, DeFi Summer really produced a lot of very exciting innovations, like a bank that is open 24 hours a day, allowing you to mortgage and take out loans.
I think in this cycle, we may see some innovations at the end of this year or early next year, and then the real bull market will begin.
There are also some events that are recognized by the industry and may have a positive impact, such as the general election in November. Because Crypto can enter the US presidential election this time, it is a great progress and may bring benefits to related policies. Even if there is no benefit, it will not be too bad. In these aspects, we can pay attention to some DeFi projects. Due to regulatory restrictions, the income of some DeFi projects cannot be linked to the value of tokens. In addition, we may enter a cycle of interest rate cuts, and the market may fall at the beginning of the interest rate cuts. Overall, it should bring more liquidity and more benefits to our industry assets.
Arain: You said that you like to make investments in a bear market, but you also said that this round of bull market has not yet started. So can I assume that you think now is a good time to make investments?
Emma Cui: I think the real bull market has not started yet, but if you look at the projects, Bitcoin and Ethereum have risen three times from their lows, but some Altcoins have returned to the bear market. From the perspective of timing, if you want to make a layout, it may be in 2022 or 2023. After FTX falls, many earth-shaking events will happen in the industry, leading to the depletion of liquidity. That time point is more ideal. There may be some opportunities in the secondary market now. Of course, as a fund in the primary market, I can't say that I will not invest at this time. I will only invest at that time. I should always follow this market and keep looking at what kind of innovation, what kind of good investors, and what kind of good projects to support.
In terms of the market, I have discussed with others and believe that Q4 this year is worth paying attention to. As for our fund, we are more optimistic about AI and GamFi infrastructure.
Arain: Have we invested in GameFi and AI-related projects?
Emma Cui: Yes. We think AI has three aspects: Data, Model, and Compute. We can look at the decentralization angle from these three aspects, so all three aspects can be viewed from a decentralized perspective. We have invested in 0G, hyperbolic, Ionet, Theoriq, and Lumino, etc. GameFi is more focused on infrastructure, not specific games, because we are not a professional game investment fund, so we prefer infrastructure projects with distribution capabilities, such as YGG, SAGA, and Ronin.
In addition, we also invest in some other areas, but our main starting point is still infrastructure, such as MEV and Layer 2.
Arain: Now the market is not full of gold, we need to look more carefully. Talking about this topic, the relationship between institutional investors and retail investors seems to be getting more and more tense in recent times. VC calls it an original sin in cryptocurrencies - what do you think of this view?
Emma Cui: I think the spirit of crypto is "we are here for the small guys". When VCs can participate in a good project very early and then sell it at a high price, it gives retail investors a feeling of "zero-sum game", that is, "if I lose, you win", "if you win, I lose". This is a very convenient excuse in the current situation of relatively dry liquidity. Whether it is institutions or retail investors, or exchanges and market makers, they are all market players. Now there are many VC coins in the market with high FDV and low circulation. Maybe institutions have high returns on paper, but this round of lock-up period is very long. After these coins are listed on exchanges, investors have no coins, only exchanges and market makers have them.
In addition, institutions enter a project very early, although at a relatively low price, but this is proportional to the risk they take. When retail investors see it, the project may have some data and can exit at any time, so the price is relatively high.
Arain: Regarding the current problem of high FDV and low circulation of VC coins, does VC have any coping strategies?
Emma Cui: This is an abnormal market performance. From the perspective of the fund, we do not want projects to enter the market with very high FDV, because it is a false high, especially when there is no income. If there is a 5 billion or 10 billion FDV, the price will still fall if there is no fundamental support, which will have a bad impact on the community. We hope that projects will enter the market at a reasonable price. Of course, this is a game process.
In addition to our VC, there are also market makers, exchanges, and other participants in this market. There may be a process where bad money drives out good money. If good projects are unwilling to issue coins, projects without fundamentals will use this method to raise funds or issue coins. After issuing coins, the business model is to sell coins. In this case, there will be no buyers over time.
I think that investment institutions with a long-term investment orientation do not want projects to enter the market with a very high FDV, so as not to consume the market too early.
Arain: Our fund has also invested in many DeFi projects. In the process of decentralization, where do you think de-VC will take the VC industry?
Emma Cui: De-VC is a slogan in my opinion. Why? Because this industry is not transparent. We don’t know whether there are VCs involved in the industry. It is hard to judge. As for DeFi, we recognize DeFi because they provide a very low-cost and highly efficient financial service to more people. In the VC industry, for example, financing through DAO instead of VC or fund is an interesting attempt. It does have advantages in financing, but I don’t see what changes they will bring to the VC industry. Maybe it will take longer for it to develop.
Arain: From the data, we also see that LongHash has invested a lot in NFT, but in this cycle we see that the NFT market is bleak. What do you think about the current situation and future of NFT?
Emma Cui: The fund has not directly invested in any NFTs, but I have bought some personally. Our positions related to NFTs are actually very small. The fund invests in NFT infrastructure projects, such as NFT leasing and NFT lending in games. In addition, I do agree that compared to 2021, the market for NFTs is relatively bleak, and this wave has not brought any major opportunities for NFTs to rise until Q1 this year. There is a saying that Memecoin, which does not require NFTs, is more convenient for everyone to speculate because it is more replaceable and has better liquidity. However, I think NFTs are fundamentally different from use cases. In the long run, I am still optimistic about NFTs. Any innovative model requires several rounds of bull and bear markets to confirm or falsify. It is too early to draw conclusions now.
Moreover, the most popular thing in the last cycle was NFT, and many Web2 companies entered the market through NFT.
Current market valuations are high and investment profits are declining
Arain: Will more institutions entering this market lead to changes in the market valuation?
My question is, will the entry of institutions bring about changes in the logic of market valuations, or will the valuation itself change?
Emma Cui: There are many types of institutions. One is VC, which is currently criticized by many people; the other is liquidity funds, which only operate in the secondary market; there are also hedge funds and large funds such as fidelity and black rock that directly buy and sell ETFs. Some funds do not actually need to touch encrypted digital currencies, they only need a financial instrument. The valuation impact you mentioned is mostly caused by VC in the primary market.
In the traditional market, if the seed round and A round can reach 5-10 million US dollars, it is already at the inflation level. In the past few years, the normal seed round in the field of cryptocurrencies may reach 50 million US dollars, and the A round may reach 200 million US dollars. In the case that the project does not generate income, I think the valuation of many primary markets has been pushed up in the process of supply and demand.
Arain: You don’t agree with the current market valuation and think it is too high?
What you just said is that our institutions and funds are still dominated by VCs in the primary market, so the valuation will be a bit high. Do you personally agree with such a high valuation, right?
Emma Cui: The market happens for a reason. You either participate or not, or you participate selectively. Our second phase fund will be launched more aggressively in 2022-2023. We were very cautious at the beginning of this year. Even if we invested, we invested in a very small scale, and sometimes we just relied on relationships. I think the chances of success are higher if we make investments in a bear market.
The current situation is an inevitable stage in the development of the industry. New VCs may think that they will make money if they invest, but this logic may not be true in this cycle. If they cannot make money, they will not be able to raise the next fund. This is a self-regulating process of the market, and the adjustment period is 2-3 years.
There is another type of fund, which is a liquidity fund. It believes that buying in the secondary market is cheaper than in the primary market and has a shorter lock-up period. If there are more such funds, it may also push up the valuation of the secondary market. This is a dynamic balance process.
Arain: I heard that you established a $100 million fund last year. Can you talk about the current progress and future plans?
Emma Cui: We are still investing. This fund can recycle capital. This year we will wait and see if there is real innovation. We will mainly invest in innovative projects that can grow from 0 to 1.
Our next plan is to provide more support for the projects in our investment portfolio, such as advice, business resources, etc. We will consider the next fund next year. Of course, this depends on the market trend and the exit of the first two funds.
In terms of investment focus, with the improvement of infrastructure, for example, Layer2 has made the cost so cheap, and we can focus on some commercial applications next.
