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Dialogue OP Crypto founder: to avoid the serial thunder of the Asian market, holding full funds to meet the first level investment dividend period

23-02-21 14:31

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Dialogue with the founder of OP Crypto: Avoiding serial Thunderstorms in Asian markets, holding sufficient funds to meet the dividend period of Tier 1 investment

Interviewer: flowie, ChainCatcher

Guest: David Gan, founder of OP Crypto

Committed to being a link between the Western and Asian Web3 ecosystems, David Gan, founder of Web3 venture capital fund OP Crypto, has visited more than 30 countries during the pandemic alone and is active in Web3 centers in Africa, South America, Europe and Asia.

David Gan said the lack of institutional funds with a relative Asian background in the U.S. and other Western markets has been a pain point for them to connect innovative project resources in the West to the Asian market with its large user base.

Before founding OP Crypto in 2021, David Gan was the head of the Overseas investment Department of Huobi, during which he led the investment in a number of projects with a book return of over 100 times, and helped Algorand, Polkadot and other projects enter the Chinese market. Together with his previous investment experience in Qiming Venture Capital, a traditional head fund in China, and three years of experience in Internet entrepreneurship, David Gan has accumulated the advantages of project and institutional resources in Western markets such as Asia and the United States.

Compared with traditional VC, most of the first-level investment opportunities of Web3 are in the early stage of the project, so how to reach the high-quality project source earlier is one of the key core capabilities of Web3 VC. And OP Crypto's approach is the investors of the linkage fund and its parent fund.

OP Crypto raised $50 million in 2021. In order to ensure the introduction of more well-known institutions in the region, David Gan limited the investment amount of each investor to $3 million. It received funding from Animoca Brands, Huobi Venture Capital, Galaxy Digital's Vision Hill, and Bybit's Mirana Ventures, among more than 30 well-known institutions or projects in different regions of the world.

At the same time, OP Crypto in June last year also set up a $100 million scale of the mother fund to invest in early funds, so as to improve the project access ability and risk avoidance ability.

With the advantage of ensuring certain project resources, OP Crypto has invested in more than 20 projects such as Scroll, Merit Circle, Connext, reNFT and Spectral Finance, mainly covering infrastructure, gaming, NFT and other fields. In addition to game infrastructure, David Gan, a professional Dota player, sees opportunities in niche markets such as game Coaching.

David Gan believes that looking at the overall quality of investment projects in this round of bear market in 2018 and 2019, after the turbulent 2022, the primary market investment will usher in a dividend period, and 80% of the fund of OP Crypto is used to capture the opportunities in this cycle. Recently, ChainCatcher caught up with David Gan to talk about OP Crypto's investment logic and his judgment on Web3 primary market investments this year.

1. ChainCatcher: What is the opportunity to invest in Web3? You can share important career experiences.

David Gan:I worked as an investment banker at Morgan Stanley for two years before I started investing. Then I saw some opportunities in event networking and started a project of my own. I have three years of Internet experience.

In 2017, I switched to investment. In Qiming Venture Capital, I focused on some popular tracks such as video social networking, animation and education. However, at this stage of investment in Qiming Venture Capital, I gradually realized that the Internet had reached a relatively late stage and needed to find a new direction.

At that time, I saw the gradual rise of Web3. Since I went to the United States at the age of 9, I was exposed to bitcoin and other transactions through online Texas and other games in college, so I began to turn to the study of blockchain and Web3, so as to explore opportunities in the primary market. However, large funds like Qiming are relatively conservative and cautious in Web3 investment, which is not quite in line with my personal expectations.

Therefore, I joined Huobi in 2018 as the head of the overseas investment Department, during which I led many projects with a book return of over 100 times.

Many people may invest well in investment, but not necessarily return well. We had a very good exit. One of the most profitable projects we ever invested in was Terra, the Grand Public chain, which we exited when it was booming. blockfolio was also the first to be invested, and when it was replaced by FTX, it withdrew from FTT at the highest point.

In addition, I also invested in a lot of infrastructure projects, such as public chain Oasis, Conflux, Nervos, etc. Although some of them did not come out completely, the total book return was still relatively high.

2. ChainCatcher: What's the difference between traditional VC investment and Web3 investment?

David Gan:Most big funds, especially late-stage ones, need to look at a lot of data to gauge valuations, to predict whether the track is big enough, and some future revenue.

However, the Web3 industry itself is very early, Web3 projects will not do multiple rounds of financing like traditional Web2 projects, and it is not known whether the second round will be financing, so most of the investment opportunities are in the early stage, if you miss the first round, you may have missed a lot of projects.

Secondly, many traditional VC or large organizations like to invest in some more certain models in the short term, such as the expansion of SaaS in Web2, payment and other models in the field of Web3, but I think these are not particularly potential track in the long term, so we invest very little in this. We prefer some innovative, on-chain models.

3. ChainCatcher: Why do you plan to start a fund by yourself in 2021? Why is OP Crypto positioned to connect Asia and the West?

David Gan:At the stage of 2020, the market was relatively low and the group began to tighten its investment business, which made it difficult to promote many subsequent projects within the Group. Although from the current perspective, the project we invested at that time gained hundreds of millions of dollars of income, the group may not have great confidence in the fact that it was only spending without any return when it was still in the stage of withdrawal.

When the epidemic is at its worst in 2021, it is very important for Huobi to expand overseas business. However, compared with Huobi trading platform business, the investment business certainly does not make money that fast. Therefore, the investment of the group in the investment business is still lower than my expectation, and it is difficult to promote the project.

At this stage, I also found some pain points in western markets such as the United States, which were in great need of Asian resources, such as trading platform resources, user growth channels, market promotion and so on. However, at the beginning of 2021, the epidemic policy was very strict, and all the Chinese who should return to China returned, which made it difficult to meet the demand.

For those needs, I think we have an advantage. There are no Asian-backed institutional funds in western markets, such as the US, and on my own record, four years of investment experience has given me resources at home and across Asia that I can bring to the US. While at Huobi, I also worked with a lot of big American organizations, and I was able to help Asian entrepreneurs connect with the right resources overseas.

4. ChainCatcher: China's policies have always been very strict. How do western mainstream markets like the United States view the development of Web3 in the Chinese market?

David Gan: Although China is temporarily closed, Southeast Asian countries are still relatively active. Western mainstream markets are very optimistic about the development of Asian markets.

China's closed market is not permanent. As the economy grows, a balance will be found.

In 2021, when I first started my business and raised funds, the market was quite good. There were a lot of Chinese retail investors with a lot of money and a large number of users. In fact, the Chinese market was very promising.

On the other hand, Asian markets as a whole haven't had too many bumps in the road, unlike the U.S., which has had almost every bump in the road. China's policies have helped retail investors to prevent too much aggressive behavior, so a lot of money is still in Asia, waiting for the next bull market, and there will be good projects budding in Asia in the future. After all, the cost of the Asian market is only about a fifth or a quarter of that of the United States, so the cost is relatively low.

5. ChainCatcher: OP Crypto has invested more than 20 projects on the official website, mainly distributed in infrastructure, games and NFT. What is the investment logic of OP Crypto at present? What are the strategic priorities?

David Gan:First of all, our investment principle is not to invest in what is hot, or stick to the team is best at and best understand the track.

I am a professional game player, so I have invested in a lot of corresponding projects in games. I also accumulated corresponding resources in social projects before starting my own business. During my investment in Huobi, I mainly invested in infrastructure projects, so I am relatively experienced. COO was an early NFT player, so focused on NFT track innovation.

Secondly, we want to be one of the earliest investors in quality projects as much as possible. If you don't invest early enough, you may miss the investment opportunity in the primary market or the cost will be too high.

We were the first investor in Scroll. At the time of their first round of financing, they made two or three phone calls every week to help him suggest the allocation of various investors, modify the terms and so on, and kept repeating the idea. It also develops very quickly in the back, if it is a later round into the means to bear a higher price.

Including Merit Circle, a gaming guild where we were an initial investor. After raising $3 million in its first round, Merit Circle (MC) quickly raised more than $200 million on balancer before adding Binance. If you don't put in that round, you have to go to the secondary market to buy its coins.

6. ChainCatcher: If you want to find and invest in high-quality project sources as early as possible, it requires higher requirements for your expansion resources and decision-making ability. Could you please share with me how you build the ability of expansion projects and whether there are some hard and soft indicators in your voting?

David Gan:Find the project source can share, we through the investors of OP crypto and OP crypto's mother fund investment fund, to maintain linkage.

When we raise funds in 2021, the maximum investment limit of all investors can only be 3 million US dollars, and it is relatively dispersed, so as to connect investors from mainstream countries, large institutions and projects in the circle as much as possible, so that we can exchange resources in investment projects.

Last June OP Crypto launched another $100m fund to back some of its early funds. The most direct help of this fund is reflected in the project resources.

First of all, the more funds we invest, the more project sources we have access to.

Second, the parent fund also helps our investors to reduce some risks. Investing in a fund might do well

No, but if you invest in a dozen funds, it's hard to argue that everyone is doing badly.

Third, through this fund investment, also has great help to the industry. When the secondary market experiences a bear market, the primary market is a very good entry point, so this year and next year is a big bonus period for the primary market, just as the projects invested in the end of 2018 and 2019, overall performance is very good.

7. ChainCatcher: Early projects don't have much data to refer to, "casting" is also very important, what is your logic of casting?

David Gan:It depends on how long you've been in the industry -- I've been in the industry for six or seven years, and I either know most of the project teams or people around me know them. Also, due diligence is actually easier for Web3 than it is for Web2 projects. What he did, some of the code he wrote, it's easy to verify, unlike research on a traditional business entrepreneur, a lot of content is vague.

8. ChainCatcher: What profound impact does being a professional gamer have on your investment decisions? Which niche opportunities for Web3 games do you see more favorably?

David Gan:True game lovers are more sensitive to functional pain points and are willing to spend more time because they love them.

We will first focus on some basic infrastructure of games, focusing on how to make the future game experience better and the ecology stronger, such as the intercommunication of game assets, cross-chain Bridges, game guilds, etc.

In terms of niche opportunities, game Coaching is a big field. There are still few coaches in the subdivision game category. This Coach does not preach us how to play, but more like we have a Coach, how to give full play to the strategic advantages of our five-member team and how to maximize profits.

For example, when P2E started, a lot of people wanted to pull the wool, but there was no methodology, so you needed the guild to give you the assets and guidance.

In addition, the virtualization of sports games in real life is also a good opportunity for segmentation. For example, we can play basketball, horse racing, football and so on in the virtual world, and participate in gambling and other bets, and the chain can provide a better anti-cheating mechanism.

9. ChainCatcher: What do you think is the biggest value that blockchain or Web3 can bring to games now that traditional games have matured? What do you think of the current growth bottleneck of Web3 game users?

David Gan:In a sense, the traditional game you play, the game you don't represent you, everything in the game doesn't belong to you. Web3 games can create another subjective world, allowing us to do extreme sports that we can't experience in the real world, such as jumping off buildings, putting out fires, etc., and ensuring that the results obtained in the games belong to you.

Web3 games are now too rough on the mix of fun and money. But in terms of gaming experience, I bet the next five years will be at least 10 times better than it is today. On the basis of 10 times stronger, is everyone willing to play? If 10 times doesn't work, how about 100 times better?

Such construction can only go forward, not backward. In the state of moving forward, you can always come to the point where it seems like everyone accepts mobile games on the Internet, even though the initial mobile games are quite vulgar and no one plays them. So we are also investing in a lot of infrastructure projects with a 3-5 year cycle that will create the future.

On the krypton side, the current Web3 games are not fun enough to make money for everyone, so it's not sustainable.

10. ChainCatcher: Last year, a lot of well-known VC suffered heavy losses in assets and reputation in thunder events. What reflections should Web3 VC have? How does it affect your investment strategy?

David Gan:Projects like FTX that are in the late stages of development can also be zeroed. Therefore, Web3 investment should not assume that the more late investment is more safe, and the probability of late investment and early investment in this industry is not very different. Therefore, for us to invest more firmly in the early stage, on the one hand, the upside (ceiling) is higher, on the other hand, the cost is lower.

11. ChainCatcher: Recently a16z got a bad review in uniswap proposal voting. What do you think about VC's participation in Web3 project side governance? Besides financial support, what role should VC play for Portfolio?

David Gan:Any voting system has advantages and disadvantages. Everyone has more claims about his own interests, and it is normal for investors and project parties to have conflicts to some extent.

So it's important for entrepreneurs to find an investor who knows your project's purpose and future direction well enough to be on your side.

VC pair In addition to some financial support, portfolio also needs to work on post-investment management. I am in OP Crypto and During his tenure, Huobi will help with user channel development for various projects, as well as focus on brand promotion in the Asian market.

12. ChainCatcher: What do you expect from the Web3 primary investment market in 2023?

David Gan:This year is a bonus period for primary market investment. Similarly, at the end of 2018, when people don't have much confidence in the secondary market, including the whole industry, the first entrepreneurs to come out are usually not those who collect the wool, but those who are really willing to persist in this industry, so the quality of the entrepreneurs will be much higher.

The second is that investors in the valuation will be much lower, basically compared to the bull market will be a discount of 75 to 20 percent.

Third, there is not much competition when many others are reluctant to enter.

So in 2023, there will be a lot of good opportunities in the primary market. We only have 20% of our portfolio in 2021 to 2022, leaving 80% of our portfolio for better opportunities in 2023 and beyond.

13. ChainCatcher: In this cycle, as an investor and serial entrepreneur, what experience or advice do you have for Chinese Web3 entrepreneurs or investors?

David Gan:I'm not sure what to recommend, but I would encourage anyone to go overseas. I've been to more than 30 countries during the pandemic, spending two months in Africa, two months in South America, many months in Europe, and recently planning to spend another two or three months in Asia.

At present, the biggest problem for Chinese is that they are easily confined to the Chinese or Asian market. However, Web3 is a very international thing. If we don't talk with overseas people and pay more attention to the information channels in overseas regions, our thinking will be very limited.