Author: Marco Manoppo, Chain Venturer of China Catalyst; Translated by: Golden Finance 0xxz
Melody He is co-founder and partner at Spartan Group, a leading blockchain investment and advisory firm based in Singapore and Hong Kong. She also leads the group’s consulting business, Spartan Advisory.
Melody began her career at Goldman Sachs Investment Banking in Hong Kong, where she contributed significantly to numerous financing and M&A transactions, including the notable Baidu IPO.
With a decade of experience as an investment banker, Melody got involved in the forefront of early-stage investing, joining MOX/SOSV, a top global accelerator venture capital firm, as an investment partner.
Eventually, Melody founded Spartan in 2017. Through Spartan Group, Melody has worked extensively with notable crypto projects such as SweatCoin, Pintu, WilderWorld, BitDAO, Qredo, Dapper Labs/Flow, Solana, Blockfolio, Blockstack, Origin, and Deribit.
This is a conversation between me and Melody He.
Quick points:
Spartan Group has three unique divisions that enable the firm to capture the longer life journey of entrepreneurs.
Spartan Labs realizes that the best ideas don’t come from within, and the best founders aren’t hired CEOs.
The fast money associated with issuing tokens may actually lead to a faster crash because it may not be backed by deep market understanding.
Despite the open-source nature of cryptocurrencies, simply copying an existing product and adding a token is not enough to create a competitive and differentiated product.
The transparency and permissionless nature of tokens can accelerate network growth, making them more agile than traditional models.
What was the defining moment that drew you into crypto?
In 2012, Melody founded a startup in Beijing. For her startup, she hired graduates from top Chinese universities as engineers. Coincidentally, these engineers spent some time experimenting with Bitcoin early on, which was Melody's first exposure to cryptocurrency. However, she didn't pay much attention to it at the time because her attention was focused on the mobile technology revolution.
As the iPhone boomed, Melody and her team were working on developing innovative mobile experiences. They were exploring different ways users could interact with mobile-first products and experimenting with new business models. Because of this, they didn’t prioritize cryptocurrency or see its potential.
In late 2014, Melody moved to Singapore, where there was a small but growing startup community with a particular interest in fintech. Melody attended many fintech events and noticed an increase in startups using blockchain technology. However, these startups were primarily focused on blockchain technology, such as managing company shares and fundraising (cap table), rather than focusing on the tokens themselves.
Around the same time, Melody also came across a company that was trying to use Bitcoin as a global payment hub currency. This idea appealed to Melody because she had experienced high bank fees and exchange rates when sending money from China. As a result, Melody learned more about the potential applications of Bitcoin.
In 2017, Melody decided to invest in an ICO as a learning experience. This experience deepened Melody’s understanding of token sales and their potential to raise funds globally, as well as how to use tokens to build a user base.
Later that year, Melody and her team founded Spartan, an investment and advisory firm that aims to do more than just invest in crypto startups. With a background in investment banking, they also aim to help and advise companies on structuring their token issuance and distribution, especially in Asia.
Since its founding, Spartan has partnered with industry giants such as Solana, Flow, Dapper Labs, and Stacks.
What is Spartan Group?
Spartan Group is a blockchain consulting and asset management company. The company consists of three components.
Spartan Advisory: Spartan Group's consulting arm, which helps cryptocurrency companies with financing, mergers and acquisitions, and other advisory/transaction activities.
Spartan Capital: The asset management arm of Spartan Group, which owns hedge fund and venture fund vehicles.
Spartan Labs: Spartan Group’s venture studio arm that helps founders co-build companies.
What makes Spartan Group unique?
Spartan Advisory targets later-stage companies, Spartan Capital focuses on seed to Series A rounds, and Spartan Labs targets the pre-seed stage.
Through these three divisions, Spartan is able to capture the longer life cycle of entrepreneurs from pre-seed to late stage. The structure also provides Spartan with more potential revenue streams in different market cycles.
Spartan Labs is the newest entity of the Spartan Group, can you elaborate on the idea behind it?
Spartan realizes that infrastructure projects need a thriving ecosystem to attract developers to build applications. To address this, Spartan Group launched Spartan Labs, a venture studio that incubates projects to the MVP stage and then spins them out with the right CEO and external funding.
However, Spartan Labs subsequently realized that the most innovative ideas often come from external sources and that the most effective founders are not necessarily hired CEOs.
Spartan Labs is now shifting strategy to a co-building model, holding 15-20% equity in companies while actively participating in early-stage ideation, development, business strategy and marketing.
Why the “Rocket Internet” Venture Studio Model Didn’t Take Off in Crypto
Melody believes that the new Spartan Labs approach adds more value than previous strategies. She highlighted the shortcomings of the venture studio model similar to Rocket Internet in the crypto space, because the success of web3 startups often stems from unique insights and a deep understanding of the industry.
Simply copying an existing product and adding a token is not enough to create a competitive and differentiated product. This is why the Rocket Internet model did not work well even though the code bases of many popular products are open source.
Spartan’s experience also shows that the quick money associated with issuing a token can actually lead to a faster crash because it may not be backed by a real vision or deep market understanding. Melody pointed out that even an early-stage successful project like Sushiswap would have a hard time beating Uniswap in the competition.
What industries or types of projects is Spartan Group currently interested in?
Spartan Labs, for its part, is actively pursuing opportunities in the consumer crypto space.
The team is primarily composed of individuals with product and institutional backgrounds, and is keen to explore the integration of NFTs in consumer engagement, particularly in areas such as memberships, loyalty points, and engagement programs. The goal is to promote the development of highly relevant industries that directly impact consumers.
In terms of investments, Spartan Capital maintains a broad mission to explore a wide range of opportunities across the crypto space. However, Melody noted that the group does not focus on certain areas, including investments in exchanges, brokers, and market making teams.
Instead, Spartan operates three distinct funds, each with a specific focus:
Hedge Funds -> DeFi
Venture Fund -> Infrastructure
Venture Funds -> Metaverse, Games and NFTs
Regarding Uniswap UI fees, we are seeing debate about whether tokens and equity capture value, what are your thoughts?
Melody believes that the transparency and permissionless nature of tokens can accelerate network growth, making it more agile than traditional models.
Furthermore, tokens are jurisdiction agnostic. It provides flexibility and speed for global operations. This is much more difficult to achieve with equity due to its limited jurisdictional nature. Furthermore, tokens are also purely digital with smart contract integration.
However, while tokens can be an excellent tool for acquiring participants, revenue may still flow to equity parties. Challenges arise when there is a conflict of interest between token holders and equity holders, especially during market downturns when the fragility of the company's foundation becomes apparent. Such conflicts may expose flaws in the design of the investor base and equity structure.
Regarding Spartan’s investment strategy, Melody expressed a preference for a simple model: either investing directly in equity and using tokens as user rewards, or making pure token investments in infrastructure projects, where the main value is usually in the tokens.
Quick Questions and Answers
Which book should aspiring investment professionals read?
The Power Law: Venture Capital and the Creation of a New Future - Sebastian Mallaby.
What's the biggest investment you missed?
Missed OpenSea's first round of financing.
What is the most underrated use case for cryptocurrency?
Prioritize user experience and pragmatically choose less-than-fully decentralized applications in order to deliver high-quality, consumer-centric products.
What is your opposing view on cryptocurrencies right now?
The next wave of successful user-centric companies may build their own public chains, with infrastructure development driven by specific use cases.
What are the biggest risks facing the cryptocurrency space?
Pervasive cryptocurrency boom-bust cycles, frequent hacks, and negative publicity could hinder widespread adoption and drive users, applications, and regulators away from the technology.