The dismal performance of VCs in this round is due to changes in exit rules, with power shifting from VCs and token issuance groups to exchanges and on-chain memes.
1. In the previous round, due to the explosive development of the industry, the user base grew from tens of millions to hundreds of millions, resulting in a significant information gap and longer transmission chains. The industrial chain from the upstream to the downstream could all benefit.
For example, during that time, project parties' investment valuations were all in the tens of millions of dollars, and top projects raised no more than 1 billion USD FDV, while leading VCs could directly resell the sought-after quotas to other small and medium VCs at higher prices, recovering their investments or even making several times profit before TGE. Small and medium VCs could also directly sell quotas to community leaders and retail investors for profit.
Many popular ICO projects, such as Polkadot, were hyped by VCs, with prices increasing layer by layer until they were listed. Retail investors who bought in at the opening could still make profits. Only the retail investors who bought at the last peak would suffer losses.
This round has gradually leveled the information gap, shortening the chain. Large VCs lead with high FDV VC tokens; small and medium VCs are unable to take on the burden, and the unlocking conditions are even more stringent, making exits difficult.
2. In the previous round, there were hundreds of exchanges competing simultaneously, and major exchanges needed to rely on professional managers to expand territory, delegating real powers in core businesses such as investment and token listing. VCs only needed to deal with professional managers and executives to complete the 'investment-listing' exit channel.
In this round, due to the established landscape of exchanges, most small and medium exchanges have closed or seen a decline in market share, with Binance occupying over 40% of the market share, becoming the main CEX exit channel. At the same time, exchange users have exceeded 300 million, and the mission of professional managers to expand territory is already complete, with powers such as investment and token listing returning to the hands of exchange founders and co-founders. VCs must directly deal with interest groups to exit.
For example, it is said that many employees in Binance's listing team change jobs every six months. Most VCs building relationships with these professional managers are essentially futile; relationships built over several months can vanish as people leave.
3. In this round, the rise of meme tokens on the Solana public chain has allowed conspiracy groups to open exit channels beyond listing on CEXs. Due to various restrictions, VCs who did not participate in the meme wave in time can only watch helplessly.
4. In the previous round, many bosses were simultaneously co-founders/executives of exchanges, VC bosses, and participated in project incubation and promotion, thus having smooth exit channels. In this round, most have lost their exit channels.
Take Du Jun from ABCDE as an example. He is a co-founder of the top three exchanges, Huobi, and has been responsible for listing and market activities. He is also a well-known investor and a shareholder in several small and medium exchanges, the chief designer of the heco public chain and ecosystem, and the owner of the media outlet Jinse Finance. At that time, he influenced the complete discourse power from project issuance, investment, publicity, to token listing and exit.
In this round, Du Jun's main identity is only ABCDE (he has asset management and other project incubation businesses, but their proportion is small) and no longer influences the complete discourse power from project issuance, investment, publicity, to token listing and exit.
But ABCDE is already a very outstanding VC in Asia, and most projects are invested in during the seed and first rounds. Many VCs follow ABCDE's investment projects with a valuation that is 5 times higher; they face more difficulties.
5. In the previous round, project parties could raise funds through community leaders, KOLs, and other channels for ICOs, and there were dozens of major exchanges available for listing and exit.
In this round, for project parties, it's become more difficult to list on Binance, but everything else is still quite comfortable. They can raise funds through selling NFTs/nodes/hardware/miners/computing power (ICO), they can also sell tokens by air-dropping during TGE, and they can get assistance from market makers to sell and short tokens. In comparison, the exit methods for VCs are indeed very few, and the unlocking conditions are not good.
6. The influence of KOLs has become very important in this round. In the previous round, KOLs were still positioned downstream in the industrial chain, and many KOLs had to negotiate higher prices with VCs and project parties to get quotas.
In this round, whether it's the VC tokens of interest groups or the meme tokens of conspiracy groups, KOL participation is needed to shape consensus and attract buying pressure, which requires good unlocking conditions for chips to be given to KOLs for dissemination. Some leading KOLs can even participate in VC tokens during the seed round and even obtain advisory quotas. The prosperity of meme tokens has further pushed some leading KOLs to the industry height of 'on-chain kings'.
7. Retail investors have always been the most challenging. Especially retail investors participating in VC tokens and meme tokens in this round.
Finally, what do you think the exit logic will be like in the next round (next cycle)? Feel free to comment and exchange ideas. I will think about and summarize the exit logic for the next round.