The role of a VC in crypto. What have we been jerking off to in 2017–2018? Look at Basis...

The role of a VC in crypto. What have we been jerking off to in 2017–2018? Look at Basis...

Blockchain Lobsters

There is already another good article on this, have a look at it. I will restate some of the misconceptions and hopium doses people usually take when they see big VCs.

Русская версия здесь.

Let’s understand what a VC is. A high-risk investment arm investing in early stage startups to find the next gem and profit from that. Out of 10 investments 7 will die, 2 will stay ok-stable, and 1 will outperform everything. Their model is to give money to teams and make them burn-burn-burn to exhaust themselves completely. For VCs that is normal: they have LPs, they need to make money. Don’t confuse yourselves. Again: they need to MAKE MONEY.

Don’t go against nature and call an apple - a pear. It’s what they do. 

Crypto VCs are different. First of all, they are not being managed by really experienced people. It’s because being experienced in blockchain is hardly possible, it started not long time ago. These people just mooned on some coins and decided they know evetything. Ask any project how VC calls go: those guys never did anything around IT probably, complete misunderstading. "What is your TPS" - is a normal question there. Any developer would fok you in the eye if he heard such a thing.

Secondly, it's time to liquidity. You don’t have to wait 5 years to IPO, you wait just 1 month. You don’t need to work with the project and bring adoption there. You unlock and sell. Because again… VCs are here to MAKE MONEY.

So the usual VC approach of ‘extract all potential asap’ in a normal world, which is already very toxic - gets multiplied by quick time to liquidity. So here is what you end up with.

VCs make pools and kill investment interest

VCs manage big money, so if they make even 20% it’s already good. They just resell allocations to hedge their risks. A reputable top-3 Asian fund literally said ”We get in at seed for 2 million, how do you think we can liquidiate that on the open market?! We give allocations with a fee to our friends at private sale rates”. This kills investment interest on the secondary market because everyone who wanted to get in - already holds a bag. Not because pools themselves are bad, but because people know that when this happens - the destiny is one way: down the candlestick. They buy to flip.

Polychain is no exception. I guess only A16z does not OTC, but maybe even that is wrong. If you see a pool, it’s not the project’s fault, but it’s the crypto VC who did it.

So what can a VC potentially help with? 

#1: resell your bags to lower food chain VCs. There are VC chats where they just FOMO each other in, a pretty standard procedure: ‘big team, they have good MM, we went in big’ — done. DD is unheard of there, kinda.

#2: make crypto events. 99% of the time those events are useless because nothing happens at events, except #1. Clients and integrators don’t go there.

#3: introduce to exchanges. This is pointless because an intro can be made by anybody. But ‘good’ exchanges cannot list 10 projects those VCs invest in monthly, so these introductions became rather useless.

#4: introduce to influencers (by giving them a part of their bags). But influencers are now managing things themselves, so not like this is important.

There are some legit VCs though, but very few. Most are US based. CoinFund does cool research: like what a VC can do that is helpful to projects: that is generalized mining, for instance, but that might not be possible actually. Anyway, the interests of someone who believes in the project or who does not want to flip, probably do not align with the interests of a typical crypto VC. It also depends on WHY they back up a project: if they would not want to get in with no bonus or a longer lock-up, then they are backing it up just to flip and not because they actually believe in a project’s growth.

If Sequoia invested, but at a price 20 times lower than yours - it's probably a red flag rather than a green one.

Now about Basis. raised 133M USD. For an algorithmic stablecoin. From all huge VCs, including even the traditional ones. And then it got shut down and returned the remaining money to investors, while the design flaws have been obvious from the start.

There is no ‘big smart money’ even in the real world. Look at how they FOMO in for huge valuations whenever anyone says they are ex-FAANG (Facebook, Apple, Amazon, Netflix and Google).

Imagine you would be investing in a strartup because they have all-star team, since Balina is ex-IBM 😆 Investing in teams can be a good thing, because people are very important - but not based on their logo’s. You have to spend time with them, stress test that - which no one obviously does. Oasis, Thunder… pools are everywhere, valuations are insane. Starkware 30M series A - this starts to look like a “Valley donation club”. 

Always DYOR and don’t jerk off to big flashy names.

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