During the Hong Kong Web3 Conference last week, I had exchanges with many project founders and industry friends, and summarized ten ideas as follows.
I recently listened to Mr. Zhu Xiaohu of Jinshajiang Venture Capital's views on the differences in investment opportunities in the AI field between China and the United States, and I resonated with them. I recommend everyone to listen to Zhang Xiaojun's podcast in Xiaoyuzhou.
1. We continue to focus on the Chinese team, which is where we have certain accumulation and knowledge, and where we can exert some strength after investment.
We have observed that the systematic assistance received by Web3 Chinese startup teams is far less than that received by Web2 and Web1 startup teams. This is why we strive to establish the RPC Cat Friends Club, the main goal and core interest of the Web3 Chinese Entrepreneurs Club.
We hope that Cat Friends Club will be a place where we can build relationships, create links, and exchange information and resources. It will be an open resource network. Whether we have made an investment or not, VCs will naturally find value if we serve project owners and entrepreneurial teams in an open way. We also welcome other VC peers to join us to serve, build and use this network together.
2. We only invest in projects that we believe have long-term value (of course we may be wrong or miss out).
Everyone knows whether a project is valuable or not. It has nothing to do with whether the project is Web3, Web2, Web1, or Web0. Bitcoin, Ethereum, Solana, and even Dogecoin are valuable, and it has nothing to do with whether they are Web3. It’s just that traditional investors need time to understand these new assets and study new methods of value assessment.
Sometimes, a project can be started and developed in a way that is unique to Web3, but in the long run, there should be actual income/profit or value, and there should be a positive economic effect. A project can be launched as a Ponzi scheme, but it cannot stay as a Ponzi scheme forever after it is launched. In Web2, there was a money-burning war between Didi and Kuaidi, and people in Web1 could not understand it, but in the end, Didi also had to answer the question of how to realize income. In Web3, this income sometimes falls on the protocol and community level.
Consensus is indeed a kind of value. For example, meme is a kind of cultural gene transmission, so of course it has value. Biological genes are also replicated and transmitted by carriers such as humans. Doesn’t DNA have value? Without DNA, there would be no great organisms such as humans. Web3 technology can help memes realize their value in the process of transmission for the first time. However, project owners cannot use the banner of consensus and meme to act as dealers or engage in pyramid schemes. If the original intention and methods are deteriorated, the results will certainly be different.
3. Based on the knowledge and scope, try to lead more investments, and at the same time go a little further and do some incubation. We pay special attention to projects at the application level, because in our opinion, Web3 technology is already sufficient to support large-scale applications in some fields.
Some applications can only grow on the soil of China's Internet. We have seen the data model and value realization of Web3 sprout in the Chinese and Asian markets, which is not seen in the United States. We believe that at the application layer, China's project teams and market opportunities are much better.
Starbucks has stopped the Odyssey project, and the Blackbird project was able to raise $25 million in the United States after implementing a membership system for 13 restaurants in New York. We see several areas in China and Asia that are more promising than in the United States:
1) New ways of data distribution and data value realization;
2) New advertising model;
3) Applications that can effectively change the current economic distribution status of creators. Innovative projects in these areas serve a large number of Web2 Internet users.
4. We are looking for various projects that are dedicated to accumulating and sedimenting private domain traffic data and realizing value, such as the management of various clubs and the various new business models brought about by this.
We believe that Web3 technology can achieve Mass Adoption the fastest through these projects. This is not the future, this is what is happening now.
The data in private traffic, on-chain data, and distributed storage facilities are data that traditional Internet giants or AI giants cannot monopolize and effectively obtain. Web3 technology can work well with AI technology in these areas. We said at the beginning of last year that the breakthrough in AI large model technology provides a key "productivity pump" for the large-scale application of Web3. The value of Web3 data can be better used by AI applications, thereby better realizing the value closed loop of Web3.
We wrote in a report to our investors earlier this year: We are seeing the rapid convergence of AI and Web3 technologies.
We are entering the era of personal Internet. When we say “personal Internet”, we mean two things:
a. The Internet is changing with each person empowered by various AI assistants;
b. Data ownership returns to individuals.
This personal Internet requires the support of two major technologies: AI and Web3, neither of which can be missing.
5. We are optimistic about DePin projects that rely on the supply chain in Hong Kong and the Greater Bay Area, have a clear business model, and can eventually see actual business revenue.
But there are not many such projects at present. In our opinion, some projects just use Web3 as a financing theme or a way to make money quickly. Web3's Tokenomics can often add icing on the cake, but in most cases, it cannot solve the original unsolvable problems (except Hellium, etc.). We like projects that can answer the core question of where the income comes from. Some teams feel that they started out by thinking about it, but as they went along, they just wanted to issue coins.
In fact, we don’t like the term DePin-Decentralized Physical Infrastructure. We prefer to say Internet of Things 3.0. A better grasp of the concept will actually affect the framework and methodology of our project search. In our opinion, many valuable projects are not necessarily "infrastructure" and are not "decentralized" at the beginning. In particular, the emphasis on "physical" is even more meaningless. On the contrary, the Internet of Things 3.0 of IOT+Web3.0 can better summarize the projects we are looking for.
When we reviewed the situation, we found that the number of DePin projects we invested in was much less than we expected last year. In fact, we recently led the investment in two DePin projects, one of which will start in the Japanese market and the other is for dog walking. These two projects have one thing in common, which is that they will have solid income and even profits.
6. Like many Web3 projects and meme coins, community KOLs are more powerful than VCs in terms of community promotion. We encourage project owners to cooperate more with KOLs.
Instead of taking VC money again, it might be better to do a round of KOL financing. This is also a feature of Web3.
7. There are many infrastructure and protocol projects in the United States, which are all great. But this may not be our opportunity, and the valuation is often high.
We are not good at financing models such as party rounds. We still have to make investments based on our limited capabilities.
8. There are many "inscription" and "on-chain meme" projects in Asia, many of which are suspected of hype and market manipulation.
We need to stay away from the noise, especially those projects that simply emphasize "consensus" and are like the Wudang Ladder to the Clouds.
We do not deny that inscriptions are great innovations, just like the issuance of coins during the ICO period. Everyone felt very excited and made sense at the time, but only a few projects with actual value support have survived to this day. Web3 cannot just stay at the continuous issuance of new projects and new assets. The basic value logic must still be followed and sought. The mutual pledge of network assets and various restaking may only be done on one layer. Will repeated use have the flavor of MBS and CDS in the traditional financial world? In the end, Lehman's bankers did not know who was living in the real estate they were selling. You can go and watch the movie "The Big Short".
The rise in asset prices has brought about technological innovation and application opportunities, but do we need to ask how much new value the continuous nesting and superimposed "security output" has created and how much new systemic risks it has brought?
9. Issuing assets is a powerful tool that Web3 technology gives to Web3 entrepreneurial projects, but we hope to see viable business logic behind it to support it.
Some projects issue a large amount of assets to gather funds and attention, then attract exchanges to complete the listing, and then "repay" the previous "capital debt". This is a unique model of Web3. However, this capital game may have inherent risks. If it fails to become the Didi of Web2, it will become a project that cuts the leeks of retail investors in the secondary market. The exchange may abandon such projects after a while, because this is bound to hurt the most valuable asset of the exchange - users. Projects that continue to adopt this development model may find that the road behind is blocked halfway through, and the previous "debt" cannot be repaid. What should they do? The realization of value still depends on the project itself, not on the secondary market price.
10. We need to strive to be ahead of the exchanges’ “preferences” rather than “to the exchanges”.
If the exchange invests in whatever projects it likes, it may not be able to achieve alpha in the long run, and it will also lose the essence of our VC work. In the final analysis, the exchange still hopes to see truly valuable projects get better development through listing, and at the same time bring returns to investors in the secondary market. Only in this way can the closed loop of Web3's value be realized, and the capital value of Web3's "right to use" can eventually exceed the "ownership" value of Web2.
We certainly hope that the projects we invest in can be recognized by the exchange, so as to achieve better returns on investment. But we need to work hard to invest according to our own value logic, rather than trying to figure out the tastes of the exchange, otherwise we would be putting the cart before the horse.
The most amazing thing about Web3 is that it has equalized the "generation and realization of value", but this has also brought more noise, bubbles, and sometimes even ugliness. Currently, global supervision has not caught up, so the volatility of the entire market will be very large in the foreseeable future. There are already signs that the speed of capital inflow cannot keep up with the speed of asset issuance.
