The New Cycle and Old Rules of Crypto VC

Chainfeeds Guide:

When mergers and acquisitions and IPOs become the mainstream exit paths, and as LP types diversify and fund cycles extend, will crypto VCs—especially Asian VCs—see a rebound at the bottom of the new cycle?

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Author:

ChainCatcher

Opinions:

ChainCatcher: In the same macro environment, Asian VCs are unable to compete with European and American VCs. According to some interviewees, this is mainly due to various reasons such as fund structure, LP types, and internal ecosystems. Jocy Lin, founder of IOSG Ventures, believes that this is partly due to the severe lack of a mature LP group in Asia. As a result, fundraising for many Asian VC funds mainly comes from high-net-worth individuals and entrepreneurs from traditional industries, as well as some idealistic OGs from the crypto industry. Compared to the US and the West, the lack of support from long-term institutional LPs and endowment funds has led Asian VCs, under LP exit pressure, to favor theme-based speculative investments in the Asian market rather than systematic risk management and exit design. The life cycle of a single fund is relatively short, so the pressure is more pronounced when the market contracts. Crisis breeds change, and a major reshuffle in the crypto VC landscape has become inevitable. If 2016-2018 was the rise of the first generation of crypto VCs, and 2020-2021 was the rise of the second generation, then now is likely the beginning of the third generation of crypto VC cycles. In this cycle, in addition to the aforementioned renewed focus on USD equity investment, some VCs will pay more attention to the more liquid secondary market and related OTC fields. For example, LD Capital has completely shifted to the secondary market in the past year, making heavy investments in tokens such as ETH and UNI, which has sparked much discussion and attention, and it has become one of the most active players in the Asian secondary market. Jocy Lin stated that IOSG will not only place greater emphasis on primary market equity and protocol investments, but will also extend its research and investment capabilities, considering future strategies such as OTC or passive investment opportunities and structured products to better balance risk and return. However, IOSG will still remain active in the primary market. "In terms of investment preferences, we will focus more on projects with real revenue, stable cash flow, and clear user demand in the future, rather than relying solely on narrative-driven investments. We hope to invest in targets that have intrinsic growth momentum and sustainable business models even in environments lacking macro liquidity," said Jocy Lin. Speaking of cash flow and revenue, the most high-profile project in this cycle is undoubtedly Hyperliquid, which, according to DeFillama data, has generated over $100 million in revenue in the past 30 days. However, Hyperliquid has never received VC investment, and this VC-independent, community-driven project development model has set a new path for many projects. So, will more and more high-quality projects follow Hyperliquid's example, further diminishing the role of crypto VCs? In addition, with the increasing prevalence of KOL rounds and community rounds, to what extent will they replace the role of VCs? Anthony believes that for certain types of DeFi projects such as Perp, due to the small team size required and strong profit effects, models similar to Hyperliquid may always exist, but this may not apply to other types of projects. In the long run, VCs are still an important force in promoting the large-scale development of the crypto industry and connecting institutional capital with early-stage projects.