Original author: Lao Bai (X: @Wuhuoqiu)
As a former VC investor, what do you think about the current discourse on CT that "VC is dead"?
Regarding the paid question, I will answer seriously. I actually have quite a few thoughts on this discourse.
Let me start with the conclusion -
1. It is an undeniable fact that some VCs are dead.
2. Overall, VCs will not die; they will continue to exist and push the industry forward.
3. VCs are actually entering a phase of "clearing out" and "survival of the fittest," similar to the internet bubble in 2000. This is the "debt" of the last bull market, and after a few years of repayment, we will enter a new phase of healthy growth, but the threshold will be much higher than before.
Next, I will elaborate on each point.
1. Some VCs are dead
Asian VCs are probably the hardest hit in this round. Starting this year, several leading firms have shut down or dissolved, and the remaining few may not make any moves for months, focusing instead on exiting their current portfolios. Raising new funds has also become quite difficult.
In Europe and the US, mid-tier VCs have been relatively okay in the first half of the year, which is related to their LP structure and fund size. However, in the second half of the year, especially in the last month or two, there has been a noticeable decline in the activity of Asian VCs, with some simply not investing anymore or transitioning to pure Liquid Funds. Some investment managers/partners have started telling me on TG, "It's too hard; it's difficult to exit." The impact of the 1011 disaster on the liquidity of clones is fatal, and this is now starting to affect VC confidence.
The top VCs in Europe and the US seem to be less affected, at least on the surface.
In fact, the "bear market" for VCs this round is a "delayed effect" following the Luna crash in 2022. At that time, the secondary market was bearish, but the primary market, whether in terms of project valuations or the amount of funds raised by VCs, was not significantly affected. Many new VCs were established after the Luna crash (for example, ABCDE). The thinking at that time was not wrong; several star projects in DeFi Summer, like MakerDAO and Uniswap, were built during the bear market of 18-19. The VCs from that wave made a fortune during the bull market of 21. Doing VC during a bear market, investing in good projects, and then enjoying the bull market was the plan!
But ideals are rich, and reality is thin, for three reasons.
First, the narrative and liquidity in 21 were too crazy. The difference between good and bad projects for VCs in 18-19 was not significant; everything was skyrocketing, and any project could see dozens or even hundreds of times returns. This has led to the valuations and financing amounts of new projects in the primary market remaining relatively high even during the bear market due to anchoring effects, which is what I referred to as the "delayed effect" of the primary market bear market.
Second, the four-year cycle has been broken. There has been no so-called "clone season" in 25. This is due to macro reasons, an excess of clones, insufficient liquidity, a gradual disenchantment with narratives, and a refusal to pay for PPTs and VC endorsements, as well as the AI explosion and the siphoning effect of "true value investing" in the US stock market on crypto funds… Anyway, the previous pattern is no longer repeating, and it is impossible to replicate the dream of investing in good projects in 19 and exiting with hundreds of times returns in 21.
Third, even if the four-year cycle were to repeat, the terms for VCs this round are completely different from the last round. Some of our portfolios invested in early 23 still haven't issued tokens after 2-3 years. Even if there is a TGE, there is still a one-year lock-up, followed by a release over two to three years. A project invested in 23 might not see the final batch of tokens until 28-29, directly crossing over a full market cycle. In the crypto space, how many projects can survive a cycle and still do well? Very few.
2. VCs overall will not die
There is really nothing to worry about here; as long as the industry doesn't die, VCs won't die either. Otherwise, who will provide resources to realize new ideas, new technologies, and new directions? We can't rely entirely on ICOs or KOL rounds, can we?
ICOs are more about bringing some retail investors and communities on board and creating momentum, while KOL rounds are mainly responsible for dissemination. These are things that happen in the later stages of a project. In the very early stages, when there are only one or two founders and a PPT, only VCs can truly understand and provide funding. In my two-plus years at ABCDE, I have discussed over 1,000 projects and ultimately invested in only 40. Out of these carefully selected 40, probably 20-30 will still fail. Many of the projects you see in the market that you consider "garbage" have already been filtered multiple times to be relatively "premium"; otherwise, would all these 1,000 projects be able to launch ICOs and KOL rounds, and could retail investors, including KOLs, discern them?
Just think about the phenomenal projects from the last round to this round; aside from a few exceptional cases like Hyperliquid, which of them did not have VC backing? Whether it's Uniswap, AAVE, Solana, Opensea, or PolyMarket, Ethena… No matter how anti-VC the sentiment is, the industry still relies on the collaboration of founders and VCs to push forward.
A few days ago, I spoke with a prediction market project that is completely different from most Polymarket/Kalshi copycats, extremely differentiated. I shared it with some VCs and KOLs, and the feedback has been very positive, with many wanting to discuss further. You see, good projects won't die, and good VCs won't either.
3. The thresholds for VCs, projects, and talent will increase, trending towards Web2
VCs - Reputation, funding, and professionalism have clearly entered a phase where the strong get stronger.
The reputation and brand of a VC are not primarily measured by how famous they are among retail investors, but rather by whether developers or founders are willing to take their money. Why choose to take your money instead of another VC's? This is the true moat for VCs. This round has clearly seen VCs become similar to CEXs, shifting from a pyramid structure to a pin structure.
Projects - We have transitioned from looking at narratives and white papers (or even not looking at white papers, like when Li Xiaolai raised over a hundred million with just an idea in 17) to looking at TVL, VC endorsements, narratives, and transactions in the last round, and now to looking at real user numbers and protocol revenues… It feels like we are gradually getting closer to the direction of the US stock market.
Jeff from Hyperliquid once mentioned in an interview that the only business model for the vast majority of projects in the crypto space is selling tokens, because at the time of TGE, there is nothing—just a mainnet, no ecosystem, no users, no revenue… So they can only sell tokens. Imagine if a company in the US went public with only a corporate entity and a bunch of employees, maybe some factories and workshops, but no customers and no revenue; that would be a miracle to get listed on Nasdaq! Why can we in Web3 go directly to TGE or listing?
This round, Polymarket and Hyperliquid have set the best examples: one spent years building a large number of real users and revenue, even supporting a new track, before considering issuing tokens. One did indeed attract early users with token airdrop expectations, but their product is unbeatable, and after issuing tokens, everyone continues to use it. The project itself is a cash cow, and 99% of the revenue is used to buy back tokens. When a project has real users and real revenue beyond just farmers, then we can talk about TGE and listing, and our circle will truly be on the right track.
Talent - One of the main reasons I have always been confident in Web3 is that this industry attracts some of the smartest people in the world. I have previously written that among the over 1,000 projects I have discussed, nearly half of the founders and core teams are Ivy League graduates. Domestic founders are almost exclusively from Tsinghua and Peking University, with a few from Zhejiang University, Jiaotong University, and other 985 schools.
Of course, this is not just about academic credentials; I myself do not come from a prestigious school. But it is undeniable that from a statistical perspective, having so many high-IQ talents clustered here, even if just due to the wealth effect, will definitely lead to the creation of some useful and interesting things.
So, as I said before, although the market is bearish, the entrepreneurial directions this round are actually quite clear: stablecoins, Perp, everything on-chain, prediction markets, and Agent Economy all have definite PMF directions. Good founders and good VCs can definitely create truly great products. Polymarket and Hyperliquid have set the best examples, and I believe we will see more star products emerge in the coming years.
For ordinary people, Web3 remains the most promising place for you to transform from nobody to somebody—of course, this promise is in comparison to the hellish difficulty of Web2, which has become so competitive that it can’t be rolled any further. Compared to the previous rounds or the last cycle, this difficulty has changed from Easy to Hard. I remember seeing a tweet from a Web3 VC partner a few days ago, saying they received over 500 resumes for a junior intern position in just a few days, many from prestigious schools, which scared them into closing the job ad.
So in the end, it’s still that saying - pessimists are always right, and optimists always move forward.
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