23 March 2023, Aarif Kuang, Partner at Athena Ventures and Co-founder of HiBlock, joined the roundtable panel at FOMO Asia Genesis Conference in Hong Kong on March 23rd, 2023, during which he discussed Investment in Bear Market: What Still Gets into VC’s Radar?
Athena is a blockchain-focused venture fund and a pre-seed and seed round investor.
Besides investment, we’re also building HiBlock, an alliance that provides all-inclusive resources to users, aims to connect startup projects with valuable resources, namely VCs, exchanges, market makers, launchpads etc. We organize demo day periodically with 35 mentors and experts to help entrepreneurs and their businesses build their moats in a multi-dimensional, full-cycle manner.
1)Since the crash of Luna, we have seen a cascade of events like FTX and DCG, coupled with tightening macro driven by the Fed. Where do you see the market going broadly speaking? Where are the areas or verticals that still attract capital in bear market?
Aarif: The recent banking crisis including SVB, Signature and Silvergate has raised a lot of eyebrows. This is not because we can see how fragile the banking system is, but it also involves a lot of startups including web3 projects. And broadly speaking, a lot events happened associated with centralized mechanisms, and I think the market needs more transparency, and the market will go on a more decentralized environment.
But whether is bear or bull market, there is no stop for VCs to look for investment opportunities. And People said that we are in the crypto winter now, but as long as the builders keeps building what they are supposed to build, VCs are happy to learn more about the stories they’re telling.
So first of all I think infrastructure would always be the foundation of the entire industry. If we look back to 1999 Internet days, a lot of infrastructure had been built in order for next wave of internet users to come to market, ans we see the same wave of infrastructure build-out happening in crypto.
There are a lot of web3 events happening along this year. For example I was just at ETH Denver at the beginning of this month, and I have seen a lot of projects that focusing on infrastructure, gaming and developer tools and they are quite popular among VCs. And I think you need to have an interesting project to catch the public’s interest in any sector. And you also need to have interesting model with crypto compare with what those web2 projects have achieved.
2) How do you evaluate projects during the bear market as opposed to what happened during the bull market; What do you care about the most in projects in different verticals?
Aarf: If you look at the data, the total funding in 2021, the nearest bull market period, exceeded the amount of all prior years combined. There was a lot of money pumped into the industry, while a lot of chases for deals at unsustainable valuation. Now founders are a lot more grounded when they ask for fund based on their roadmap. And during the bear market, vcs are usually more cautious in terms of the due diligence process, analyzing the market outlook, and the feasibility of the project. We are fundamental investors so we are looking at the fundamentals such as revenues, adoptions, technology, customer numbers in order to invest. We are not afraid of short-term swings, as long as you are a fundamental project, you will generate revenue eventually. So as long as you invest fundamentally, it doesn’t really matter whether its bear or bull market.
3)What are the narratives or trends that get you most excited in the coming few months or say in the next bull run? What’s the reason behind that and have you made any investments on that front?
Aarif: I am seeing a lot of excitement around real-world assets. Last year, the investors got overly excited about unrealistic yields that volatile assets were producing, so this year everybody is a lot more grounded, real-world assets are picking up.
In terms of verticals, smart wallet as user flow inletcould will be interesting to keep an eye on. With the market sentiment and increasing interest of people, there are a lot of people like developers in Web2 willing to step into Web3. Under the situation, we have to lower the bar and improve the user experience and facilitate all the processes for people enter from web2 to web3. Besides, I think socialfi could be derived from it, traditional web2 social media companies own all your identities like in Twitter, Facebook or Instagram, if these web2 companies have cracked down, you basically lost all your IPs and user flows. If you are a KOL with millions of fans and rely on cash flow to make a living, you can imagine how disastrous this will be for you. Moreover, there are still some problematic issues that are not being solved in identity:
First, data from a single source cannot represent a user’s identity. The method in web2 doesn’t fit in the web3 scenario; The second problem is data privacy. User data is very sensitive. Some solutions like ZK are trying to enforce data privacy; the third problem is trust. Users cannot arbitrarily modify their identity attributes. But with DID, you can own all your identities in one which could be an exciting space to explore.
4)How do VCs evaluate projects with the valuation of the projects and current market outlook?
Aarif: The essence of investment is to invest in entrepreneurial teams. We attach great importance to full communication and due diligence with the team to understand their industry experience, attitude towards tasks, depth of market awareness, survey and understanding of competitors, and control of development planning to evaluate whether they are long-term continuous builders.
In the past few years, there have been a lot of chases for deals at unsustainable valuations. And that’s why we built Hi Block. We work closely with many industry friends to support startups such as fundraising, networking, market exposure, and advisory. We have helped them since the beginning so that we can dig out more early-stage startups with high potential.
5) How HK positions itself in the web3 market and how could VCs take advantage of it?
Aarif: Hong Kong has a unique geographical advantage, stable political environment, open-minded social values, and mature financial system. The Hong Kong government has recently promulgated a series of policies conducive to industrial development. The government currently has special funds to support the development of virtual assets. Team members who meet the requirements can apply for talent visas and subsidies in Hong Kong. A sound licensing system will also guide the industry towards compliance and maturity, regulating industry chaos.
Recently, we work closely with many local government institutions, VCs, family offices, and HK companies to help more overseas startups explore business here. We have actively held online, and offline activities and have successfully helped six high-quality startups land and expand their business in Hong Kong.
About HiBlock Alliance HiBlock Alliance is a demand-driven alliance focused on the blockchain industry, welcoming startups, investors, and partners to upload their profiles for information sharing, sorting, and partner matching. By connecting with a broader network of Investor, Exchange, Launchpad, Auditor, Market Maker, Ecosystem, Media, Community, Corporate partner, KOL and more value-added market participants, we help entrepreneurs and their businesses build their moats in a multi-dimensional, full-cycle manner.
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