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The difficulty of VC in the cryptocurrency circle is hellish. Is it better to trade in the secondary market than in the primary market?

The difficulty of VC in the cryptocurrency circle is hellish. Is it better to trade in the secondary market than in the primary market?

BlockBeatsBlockBeats2024/08/21 14:00
By:BlockBeats

According to research statistics, the influence of "well-known VC endorsement" in retail investors' investment decisions accounts for only 31%, even lower than KOL recommendations.

Original title: "This round of VCs in the cryptocurrency circle have begun to defend their rights"
Original author: TechFlow


"I have been chatting with some colleagues in the past few days. This round of VCs in the cryptocurrency circle are basically dead. Fortunately, we did not invest much in the primary market, but turned to the secondary market."


"Chatting with the market maker, he sympathized with us VCs. In the first year after the project went online, VCs could not get any coins. Only market makers, projects and exchanges had coins. However, the price was smashed down and it was the VCs who took the blame. They were also ridiculed as VC coins."


At a cryptocurrency event in Hong Kong, LD Capital founder Yi Lihua stood up for the VCs in the cryptocurrency circle. In his opinion, VCs are the biggest scapegoats in this round of the cryptocurrency cycle. Not only did they lose money, but they were also chased and scolded.

In 2024, many senior crypto VC practitioners have left their jobs and joined the project side or the secondary market for only one reason: they can’t make money.


Today, VCs in the currency circle are facing multiple difficulties: they can’t find suitable investment projects, and the valuations of the projects they are interested in are extremely high; it is difficult to exit old projects, and the entire secondary market of altcoins is seriously lacking in liquidity. Some investment projects immediately lose 50%-90% of their book value as soon as they go online; even if they are lucky enough to invest in good projects and extend the token lock-up for many years, everything is unknown at that time...


Many VCs in the currency circle rely on external LPs to inject capital and need "brand packaging". Even if they are already half cold, they still have to pretend to be alive and well.


When the project side cannot obtain liquidity from the secondary market, then VC becomes exit liquidity.


This generation of VCs in the currency circle is already on the road to rights protection.


VC rights protection in progress


"Do you know what despair is? It was the day when ZKX went online", investor DAVID expressed shame for having participated in such a project.


The ZKX Token, with an investment cost of $1, fell directly from the opening price of $0.6 to $0.2 on the first day of listing on the exchange, with a direct book loss of 80%. However, this is not the end. Since then, ZKX has continued to fall, once falling to 0.000618, almost zero.


A few months ago, ZKX was also a well-known star project, StarkNet's leading derivatives platform, and received investments from well-known institutions such as GCR, Amber Group, Crypto.com, Hashkey, StarkWare, OrangeDAO, etc., with a cumulative financing amount of 7.6 million US dollars.


On July 31, ZKX founder Eduard directly announced that he chose to shut down the platform because he could not find a viable economic path.


All investors were caught off guard.


Perlone Capital partner Jin Kang denounced ZKX as a scam on X.


The team closed the project 6 weeks after TGE; the token unlocking plan was suddenly modified during TGE; the actual circulating tokens during TGE exceeded the official documents... Jin Kang said, "If this is not a scam, then what is this?"


Under Jin Kang's call, many ZKX investors decided to defend their rights together. So far, the rights protection group has gathered 42 relevant personnel, and everyone has offered suggestions.


Some investors are well aware that it is difficult for investors to get their funds back under the existing SAFT agreement framework, so they proposed to put pressure on the Starknet Foundation, hoping to give investors subsidies.


During the rights protection process, external teams also contacted investors, expressing their desire to take over and restart the ZKX platform to provide a new trading method for the existing ZKX community.


ZKX is just a microcosm of many current VC rights protection cases. Some investors told TechFlow that they have currently suspended primary investment and shifted their focus to "post-investment management", inquiring about the development status of invested projects, and will "protect rights" for projects that have no operational progress, and apply for the return of investment funds. Most of them are old projects that participated in the investment in 2022, including investments from well-known institutions such as Coinbase Ventures. Under the banner of concepts such as the metaverse, they have now lost their popularity, and social media has also stopped operating...


However, rights protection is not easy...


It is difficult to protect rights in the currency circle


It is more difficult to protect rights in the currency circle than to ascend to heaven.


Yi Lihua, who has many years of experience in protecting rights in the currency circle, also said that he had protected rights for multiple projects in the currency circle, but rarely succeeded.


Primary market investment requires a willingness to accept defeat, not to mention that most primary crypto investments adopt SAFT/SAFE contracts, and the investment subjects are offshore organizations such as BVI, which have legal flaws. Investment institutions are spread across various countries, and it is very difficult to rely on legal means to protect rights. For VCs, rights protection often involves concentrated actions, and they join forces with other investors to put pressure on the project party, appeal to their emotions, and explain things to them, but the initiative is still in the hands of the project party.


Yi Lihua said that in most rights protection cases, the founders of the project parties simply ignored you and there was nothing you could do about it. Some founders were more willing to give up half of their money, which was already very good.


A VC partner who participated in the ZKX rights protection admitted that even if there were common rights protection needs, the interests and demands of different institutions were too scattered, and some VCs did not invest a particularly large amount of money, so they would not "all in" and do their best to do this.


In addition, most VCs wanted to maintain basic dignity, so they were actually unwilling to break up with the project parties unless it was absolutely necessary.


On the contrary, individual investors who could throw away the constraints of face, boldly defend their rights, and persevere had a higher success rate in rights protection. The rights protection in the currency circle changed from who was more reasonable at the beginning to "who was more shameless and who could persist" in the end.


Not only VC, now many KOLs in the cryptocurrency circle are also on the road of rights protection.


ALEX, a practitioner in the crypto industry, once joined forces with multiple KOLs to participate in the KOL round of a crypto project.


When ALEX found the project and expressed the hope of refunding, otherwise it would mobilize KOLs to FUD you, the project party happily expressed that they welcome the joint KOLs to FUD the project, which can bring attention and heat to the project.


VC in the cryptocurrency circle, a vulnerable group?


Leo Tolstoy said that happy families are almost the same, and unhappy families have their own misfortunes.


In the crypto industry, happy VCs are almost the same, and unfortunate VCs have their own ways of losing money.


According to the description of some VC practitioners, the projects to be protected can be classified into three major factions.


ZKX, which broke the issue price as soon as it went online and then officially announced the suspension of operations, is called the "Rug faction".


The second category is the "bad faction", which takes Listing as the end point and then allows the coin price to plummet and penetrate the center of the earth. Investors have not yet obtained any tokens, but have already reaped more than 90% of the book losses.

At this time, the project party often says to the outside world that "the market is not good, we are still doing things". Investors want to protect their rights, but they can't find a suitable "reason" and want to cry without tears.


The third category, the "zombie faction", the project party chooses to shrink for a long time after financing, and has gone through rounds of bull and bear markets, but is still silent, which makes people wonder whether the project party just wants to come to the crypto industry to witness history.

Some of these projects will keep their social media updated to let everyone know they are still alive, but in terms of narrative, operation, and technological development, they are like zombies. Although they are still alive, they are no different from being dead.


Whether it is traditional VC or crypto VC, they all follow the 80/20 rule. A large number of projects will fail, and they need to rely on 20% of successful projects to cover costs and gain profits.


However, in the currency circle, even if VC invests in "good projects", they don't make as much money as everyone imagines.


A VC partner said that he had invested in a game project in the seed round, which had a good development momentum. Later, the T1 trading platform was launched. Unexpectedly, before the Token was launched, the project party requested to modify the contract, saying that it would meet the requirements of the exchange and extend the token lock-up period.


Although the current book value is still floating profit, it can't withstand the decline of the cottage. It has fallen by more than 80% from the highest point of the launch. When the token is unlocked in the future, what will the market look like? Everything is unknown. The partner complained that the VC lock-up is now stricter than A-shares and US stocks.


LD Capital  Partner LI XI also said in July, "The portfolios that LD Capital has launched this year are profitable on paper, but they are all Paper Value, with 0 unlocking. Don't say VCs make money anymore. The money is all earned by project parties and exchanges. Except for the VCs who are organizing the game, most VCs are big leeks who take over. The primary market in this cycle is already hellish."


Not only will the lock-up conditions be modified, some project parties will also modify the cost price of VC investment tokens to forcibly increase the cost; some project parties will repurchase the previous quota midway. If they exit according to the latest round of valuation, it is conscientious, and some will require a discounted repurchase...


Therefore, in the eyes of many VC practitioners, they are the disadvantaged group in this industry. To use a more pretentious word, in the four-party game between project parties, VCs, exchanges, and retail investors, VCs are the weak group. Lacking a "handle", they have no voice and can only passively compromise.


For retail investors, VC coin has now become a derogatory term, and investors' attitude towards VC has changed from following to disenchantment and even disgust.


According to a previous survey conducted by TechFlow, the influence of "well-known VC endorsement" in investment decisions accounts for only 31%, even lower than KOL recommendations.


For project parties, most VCs lack unique Value Added, and do not even have the ability to make independent decisions. They dare not lead the investment, but only ask "Which other institutions have invested in you? If xx has invested, then we will also participate a little."


This year, the primary market is in a hellish difficulty, and many crypto VCs have begun to transform: some try to deeply participate in the incubation and construction of a project, increase their voice in the project, and become a VC; some VCs simply give up the primary market and switch to the secondary market...


But all the complaints may be attributed to one point: the market is not good, and a big bull market can solve most of the contradictions.


The market needs a "copycat season" to save the VCs in the coin circle who are trapped.


It's good to come, but what if they don't come?


The crypto market is changing rapidly, and in addition to the project parties, there may also be VCs in the coin circle who need to actively seek change.


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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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