Interviewer: flowie, ChainCatcher
Guest: David Gan, Founder of OP Crypto
Committed to becoming a connector between the Western and Asian Web3 ecosystems, David Gan, founder of Web3 venture capital fund OP Crypto, visited more than 30 countries during the epidemic alone and was active in Web3 centers in Africa, South America, Europe, and Asia.
David Gan said that Western markets such as the United States lack institutional funds with a relatively Asian background, and how to connect Western innovative project resources with the Asian market with a large user base has always been their pain point.
Before founding OP Crypto in 2021, David Gan was the head of Huobi's overseas investment department, during which he led investments in multiple projects with book returns exceeding 100 times, and helped projects such as Algorand and Polkadot enter the Chinese market. Combined with his previous investment experience at Qiming Venture Partners, a traditional leading fund in China, and three years of experience in Internet entrepreneurship, David Gan has accumulated project and institutional resource advantages in Western markets such as Asia and the United States.
Compared with traditional VC, most of Web3's primary investment opportunities are in the early stages of projects, so how to reach high-quality project sources earlier is one of the key core capabilities of Web3 VC. OP Crypto's approach is to link the fund's investors and its parent fund.
OP Crypto raised US$50 million in 2021. In order to ensure that more well-known institutions from more regions could be introduced, David Gan set the investment amount for each investor at US$3 million. In the end, it obtained investments from more than 30 well-known institutions or projects in various regions around the world, including Animoca Brands, Huobi Ventures, Vision Hill under Galaxy Digital, and Mirana Ventures, the investment department of Bybit.
At the same time, OP Crypto also established a $100 million master fund in June last year to invest in early-stage funds to improve project reach and risk avoidance capabilities.
With the advantage of ensuring certain project resources, OP Crypto has currently invested in more than 20 projects including Scroll, Merit Circle, Connext, reNFT, Spectral Finance, etc., mainly covering infrastructure, games, NFT and other fields. In addition to game infrastructure, David Gan, as a professional Dota player, is also optimistic about opportunities in market segments such as game coaching.
David Gan believes that looking at the overall quality of investment projects in the bear market of 2018 and 2019, after the turbulent 2022, primary market investment will usher in a bonus period, and OP Crypto Fund still has 80% of its funds to capture opportunities in this cycle. Recently, ChainCatcher interviewed David Gan to talk about OP Crypto's investment logic and his judgment on Web3 primary market investment this year.
1. ChainCatcher: What was the opportunity that led you to invest in Web3? Can you share some important work experiences?
David Gan: Before I started investing, I worked in investment banking at Morgan Stanley for two years. After that, I saw some opportunities in event and social networking, so I started my own project. I have three years of experience in the Internet industry.
In 2017, I switched to investment and focused on some popular sectors at the time, such as video social networking, animation, and education, at Qiming Venture Partners. However, during this period of investment at Qiming Venture Partners, I gradually realized that the Internet had reached a relatively late stage and needed to find a new direction.
At this time, I saw that Web3 was gradually rising. I went to the United States at the age of 9. When I was in college, I played online Texas Hold'em and other games, which exposed me to Bitcoin transactions. So I began to study blockchain and Web3, and then explore opportunities in the primary market. However, large funds like Qiming are relatively conservative and cautious in their investment in Web3, which does not meet my personal expectations.
So I joined Huobi in 2018 as the head of the overseas investment department, during which time I led the investment in many projects with book returns of over 100 times.
Many people may invest well, but they may not necessarily have a good exit. At that time, our exit was very good. The most profitable project we invested in was the public chain Terra. We exited when it was booming. Blockfolio was also the first to invest in it, and we exited at the highest point when it was acquired by FTX and replaced with FTT.
In addition, it has also invested in many infrastructure projects, such as the public chains Oasis, Conflux, Nervos, etc. Although some of them have not been fully successful, the overall book return is still relatively high.
2. ChainCatcher: What is the difference between traditional VC investment and Web3 investment?
David Gan: Most large funds, especially those that invest in later stages, need to look at a lot of data to measure valuations, predict whether the track is big enough, and future revenues.
But the Web3 industry itself is still in its early stages. Web3 projects will not go through multiple rounds of financing like traditional Web2 projects, and it is not even known whether they will raise a second round. Therefore, most investment opportunities are in the early stages. If you miss the first round, you may have missed out on many projects.
Secondly, many traditional VCs or large institutions like to invest in models that are more certain in the short term, such as the expansion of SaaS and payment models in Web2 in the Web3 field, but I think these are not particularly promising tracks in the long run, so we invest very little in this area. We still prefer some innovative, on-chain models.
3. ChainCatcher: Why do you plan to set up your own fund in 2021? Why is OP Crypto positioned to connect Asia and the West?
David Gan: In 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 now it seems that the projects we invested in at that time have earned hundreds of millions of dollars in revenue, but before the exit stage, it was just an expenditure without any return, and the group may not have much confidence.
When the epidemic was at its worst in 2021, expanding overseas business was very important for Huobi. However, compared with Huobi's exchange business, the investment business certainly does not make money as fast, so the group's investment in the investment business is still lower than I expected, and the project is more difficult to advance.
During this period, I also discovered some pain points in Western markets such as the United States. They really need Asian resources, such as exchange resources, user growth channels, market promotion, etc. However, at the beginning of 2021, the epidemic policy was very strict, and all the Chinese who should return to China went back, so this demand was difficult to meet.
I think we have an advantage in meeting these needs. Western markets such as the United States do not yet have institutional funds with an Asian background. As for my own resume, my four years of investment experience have allowed me to accumulate some resources in China and across Asia, and I can bring these resources to the United States. At the same time, during my time at Huobi, I also connected with many large American institutions, and I can help Asian entrepreneurs connect with appropriate overseas resources.
4. ChainCatcher: China’s policies have always been very strict. How do the United States and other mainstream Western markets now view the development of Web3 in the Chinese market?
David Gan: Although China is temporarily closed, Southeast Asian countries are still relatively active, and the mainstream Western market is still very optimistic about the development of the Asian market.
The closure of the Chinese market is not permanent. As the economy grows slowly, a balance will be found.
When I first started my business and raised funds in 2021, the market was pretty good. There were a lot of retail investors in China, with a lot of money and a large user base. The Chinese market was actually very promising.
On the other hand, the Asian market as a whole has not stepped on too many landmines, unlike the United States, which has basically stepped on all the landmines. China's policies still help retail investors and prevent too much aggressive behavior, so a lot of money is still in Asia, waiting for the arrival of the next bull market, and there will be good projects sprouting in Asia in the future. After all, the cost of the Asian market is only about 1/5 or 1/4 of that of the United States, which is relatively low.
5. ChainCatcher: According to the official website, OP Crypto has invested in more than 20 projects, mainly in infrastructure, games, and NFT. What is OP Crypto's current investment logic? What are its strategic priorities?
David Gan: First of all, our investment principle is not to invest in just what is popular, but to stick to investing in the track that the team is best at and can understand best.
I am a professional gamer, so I have invested in many related projects in the gaming field. I also accumulated relevant resources from my previous entrepreneurial social projects. During my investment period at Huobi, I mainly invested in infrastructure projects, so I am relatively experienced. The COO is a very early NFT player, so he mainly focuses on innovation in the NFT track.
Secondly, we hope to be one of the earliest investors in high-quality projects. If we don’t invest early enough, we may miss the investment opportunities in the primary market or the cost may be too high.
We were Scroll's first investor. When they were raising their first round of funding, we basically made two or three phone calls a week to help them with their suggestions on various investor configurations, modifying terms, etc. We repeatedly reviewed their ideas. It also developed very quickly afterwards, and if we entered in the later rounds, we would have to pay a higher price.
We were also one of the first-round investors of the gaming guild Merit Circle. After raising $3 million in the first round, Merit Circle (MC) quickly raised more than $200 million on Balancer and then listed on Binance. If you didn’t invest in that round, you could only buy its coins in the secondary market.
6. ChainCatcher: If you want to find high-quality project sources and invest in them as early as possible, it will also require higher capabilities in expanding resources and making decisions. Can you share how you build the ability to expand projects, and whether there are some hard and soft indicators in investment decisions?
David Gan: I can share with you the source of the project. We maintain linkage through OP crypto’s investors and the funds invested by OP crypto’s parent fund.
When we raised funds for the fund in 2021, all investors were limited to a maximum investment of US$3 million, and the investments were relatively dispersed so as to connect as many investors as possible from mainstream countries, major institutions and projects in the circle, so that we can exchange resources on investment projects.
Last June, OP Crypto launched a $100 million fund of funds to support some early-stage funds. The most direct help this fund provides us is in terms of project resources.
First of all, the more funds we invest, the more projects we can access.
Second, the parent fund also helps our investors reduce some risks.
Not good, but if you invest in more than a dozen funds, it is hard to say that all of them performed poorly.
Third, investing through this fund will also be of great help to the industry. When the secondary market is experiencing a bear market, the primary market is actually a very good entry point, so this year and next year will be a big bonus period for the primary market, just as the projects invested at the end of 2018 and throughout 2019 have performed very well overall.
7. ChainCatcher: There is not much data reference when investing in early-stage projects, and "investing in people" is also critical. What is your logic for investing in people?
David Gan: It depends on how long you have been in the industry. I have been in the industry for six or seven years, and most of the project teams are either known to me or to people around me. Moreover, compared with Web2 projects, due diligence on Web3 is actually easier. It is easy to verify what he has done and what code he has written, unlike investigating an entrepreneur of a traditional enterprise, where many contents are vague.
8. ChainCatcher: As a professional gamer, what profound impact will it have on your investment decisions? Which Web3 game segment opportunities do you think are more promising?
David Gan: Real game enthusiasts are more sensitive to some functional pain points, and because of their passion, they are willing to invest more time.
We first invest in some underlying gaming infrastructure, focusing on how to make future gaming experiences better and the ecosystem more powerful, such as the interoperability of game assets, cross-chain bridges, and gaming guilds.
In terms of niche opportunities, game coaching is a big track. There are relatively few coaches in the niche game category. This coach does not teach us how to play, but more like we have a coach, how can he maximize the strategic advantages of our team of 5 people and how to maximize profits.
For example, when P2E first started, many people wanted to take advantage of it, but they didn’t have the methodology, so they needed the gaming guild to provide them with the corresponding assets and guidance.
In addition, the virtualization of real-life sports games is also a good opportunity for segmentation. For example, we can play basketball, horse racing, football, etc. in the virtual world, participate in gambling and other bets, and the chain can provide a better anti-cheating mechanism.
9. ChainCatcher: As traditional games are already very mature, what do you think is the greatest value that blockchain or Web3 brings to games? What do you think of the current growth bottleneck of Web3 game users?
David Gan: In a sense, the traditional game you play does not represent you in the game, and nothing in the game belongs to you. Web3 games can create another subjective world, allowing us to do some extreme sports that we cannot experience in the real world, such as jumping off a building, putting out a fire, etc., and we can ensure that the achievements obtained in the game also belong to you.
Web3 games are too crude in terms of combining fun and money-making systems. But in terms of gaming experience, I bet it will be at least 10 times better than it is now in the next 5 years. If it is 10 times better, will everyone be willing to play it? If 10 times is not enough, how about 100 times better?
This kind of construction can only move forward, not backward. If you keep moving forward, you will eventually reach a point where everyone accepts Internet mobile games, even though the mobile games that came out at the beginning were pretty cliché and no one played them. So we also invest in many infrastructure projects with a 3-5 year cycle that can create the future.
As for krypton gold, the current Web3 games are not fun enough and cannot make everyone earn money, so it is naturally difficult to sustain.
10. ChainCatcher: Last year, many well-known VCs suffered heavy losses in assets and reputation in the crash. What reflections should Web3 VCs have? What specific impacts does it have on your investment strategy?
David Gan: Even FTX projects that have raised funds at a very late stage can still go to zero. So don’t think that the later the investment, the safer it is. In this industry, the probability of going to zero is not much different between late-stage and early-stage investments. So for us, we are more determined to invest in the early stage. On the one hand, the upside is higher, and on the other hand, the cost is lower.
11. ChainCatcher: Recently, a16z has received a bad reputation in the Uniswap proposal vote. What do you think of VC’s participation in the governance of Web3 projects? In addition to financial support, what other roles should VC play for Portfolio?
David Gan: Any voting mechanism has its pros and cons. Everyone has more opinions about their own interests. It is normal for investors and project parties to have a certain degree of conflict.
Therefore, it is very important for entrepreneurs to find an investor who understands the purpose and future direction of your project very well and can stand on the same team with you.
In addition to financial support, VCs also need to work hard on post-investment management of their portfolios. During my tenure at OP Crypto and Huobi, I helped many projects expand their user channels and worked on brand enhancement in the Asian market.
12. ChainCatcher: What are your expectations for the Web3 primary investment market in 2023?
David Gan: This year is a bonus period for primary market investment. Similar to the end of 2018, when people did not have much confidence in the secondary market, including the entire industry, the first to come out were often not entrepreneurs who were just trying to get the wool, but entrepreneurs who were really willing to stick to this industry, so the quality of entrepreneurs would be much higher.
The second is that the valuation that investors will see will be much lower, basically 25% to 80% off compared to the bull market.
Third, when many other people are unwilling to enter the market, the competition is not very fierce.
Therefore, in 2023, there will be many good investment opportunities in the primary market. From 2021 to 2022, we only invested 20% of the funds, and retained 80% of the funds to capture opportunities in 2023 and better times later.
13. ChainCatcher: In this cycle, as an investor and serial entrepreneur, what experiences or suggestions do you have for Chinese Web3 entrepreneurs or investors?
David Gan: I don’t dare to say that I have any suggestions, but I still encourage everyone to go abroad more often. During the epidemic, I went to more than 30 countries, stayed in Africa for two months, went to South America for two months, and stayed in Europe for several months. Recently, I plan to stay in Asia for another two or three months.
The biggest problem for Chinese people at present is that they tend to be confined to the Chinese or Asian markets, but Web3 is a very international thing. If we don’t talk more with people overseas and pay more attention to information channels in various regions overseas, our thinking will be very limited.