The Role and Challenges of Venture Capital in the Crypto Assets Sector

Recently, there has been much discussion in the Crypto Assets industry about the role of venture capital (VC). On one hand, there are critical voices within the community regarding the so-called "VC coin"; on the other hand, there have also been numerous reports about VC rights protection and closures. In fact, the venture capital industry has always had a high elimination rate, and this is not a phenomenon that has only recently emerged.

The VC Phenomenon in the ICO Boom

2017 was the inaugural year for Crypto Assets VC, with over 100 VCs established in the Shanghai area alone. The entry barrier was extremely low; one only needed an offshore entity capable of signing, stamping, and making external payments to claim the title of Token Fund. Nationwide, the number of VCs could reach several hundred. However, just a few years later, many VCs are no longer active. This rapid rise and fall reflects the harshness of the industry.

Common Misunderstandings About VC

Retail investors' views on VC are often polarized. When a hot project has VC involvement, people tend to think that cryptocurrency VCs are very profitable. However, in reality, the VC portfolio also includes many failed projects that are often overlooked by the market. It is precisely due to the high failure rate that individual projects are required to have high profit expectations.

On the other hand, when VC invests in failed projects, the community often criticizes VC for "harvesting leeks" together with the project parties, ignoring that VC may be the bigger victim, as their losses could exceed those of retail investors.

Criteria for Evaluating VC

To evaluate whether a VC is excellent, two key criteria should be considered:

1. Performance: The primary task of a VC is to generate returns for limited partners. Interestingly, some smaller funds may outperform well-known large funds.

2. Industry Contribution: In addition to financial returns, attention should also be paid to whether the VC investment projects have technological innovation and whether they promote industry development. Institutions that rely solely on investing in air projects to make money cannot be considered excellent, and similarly, institutions that invest in star projects at high valuations but do not provide substantial help also cannot be considered excellent.

Challenges Faced by Crypto Assets VC

1. Overvaluation: Some projects launched by well-capitalized institutions have excessively high valuations, resulting in limited opportunities for retail investors to enter and constrained upside potential.

2. Investment Strategy Adjustment: As the industry matures and various sectors are gradually occupied by giants, traditional cash-burning investment may become ineffective. VCs need to collaborate more closely with project parties and move towards a more specialized approach.

3. Decentralization Trend: Ideally, as the Crypto Assets industry develops, the role of VCs may gradually diminish. A more decentralized ecosystem is the long-term goal of the industry.

In the future, Crypto Assets VCs need to find a balance between protecting investors' interests, promoting industry innovation, and adapting to the trend of decentralization in order to cope with the constantly changing market environment.