Faced with multiple difficulties, this generation of VCs in the cryptocurrency circle has begun to defend their rights

I talked with some colleagues these days, and this round of VC in the cryptocurrency circle is basically dead. Fortunately, we did not invest much in the primary market, but turned to the secondary market.

“I talked to a market maker, and he felt very sorry for us VCs. In the first year after the project went online, VCs couldn’t get the coins. Only market makers, projects, and exchanges had the coins. But when the price dropped, it was the VCs who took the blame and were even ridiculed as VC coins.”

At a cryptocurrency event in Hong Kong, LD Capital founder Yi Lihua spoke up for cryptocurrency VCs. In his opinion, VCs are the biggest scapegoats in this round of cryptocurrency cycle. Not only have they lost money, but they have also been scolded by others.

As 2024 begins, many senior crypto VC practitioners have resigned and joined project developers or the secondary market for one reason only: they are not making money.

Nowadays, VCs in the cryptocurrency industry are facing multiple difficulties: they cannot 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 suffer book losses of 50%-90% as soon as they go online; even if they are lucky enough to invest in a good project and extend the token lock-up for many years, everything is unknown by then...

Many VCs in the cryptocurrency circle rely on external LP capital injection and require brand packaging. Even if their business is already half-dead, they still have to pretend to be doing well to the outside world.

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

This generation of VCs in the cryptocurrency circle are already on the road to defending their rights.

VC rights protection in progress

“Do you know what despair is? It was the day when ZKX went online,” said investor DAVID, expressing his 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 was not the end. ZKX continued to fall thereafter, once falling to 0.000618, almost zero.

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

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 struck by a bolt from the blue and were caught off guard.

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

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

At Jin Kang’s call, many ZKX investors decided to work together to defend their rights. 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 in the hope of providing investors with subsidies.

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

ZKX is just one of the many VC rights protection cases at present. 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 conducting rights protection for projects that have no operational progress, applying 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. They are under the banner of concepts such as the metaverse, but have now lost their popularity, and social media has also stopped operating...

However, defending rights is not easy...

It is difficult to protect rights in the cryptocurrency circle

Protecting rights in the cryptocurrency circle is extremely difficult.

Yi Lihua, who has many years of experience in defending rights in the cryptocurrency circle, also said that he had defended rights in many projects in the cryptocurrency 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 other investors to jointly put pressure on the project party, appealing to their emotions and reasoning, but the initiative is still in the hands of the project party.

Yi Lihua said that in most cases of rights protection, the project founders will simply ignore you and there is nothing you can do about it. Some founders are more respectful and willing to give up half, which is already very good.

A VC partner who participated in the ZKX rights protection movement admitted that even though they have a common need for rights protection, the interests and demands of different institutions are too dispersed, and some VC investment amounts are not particularly large, so they will not all in and try their best to do this.

Another reason is that most VCs want to maintain basic decency, so they are unwilling to break off relations with the project party unless it is absolutely necessary.

On the contrary, individual investors who can cast aside the constraints of face, defend their rights boldly and persevere have a higher success rate in defending their rights. The rights protection in the cryptocurrency circle has evolved from a game of who is more reasonable at the beginning to a game of who is more shameless and who can persist longer in the end.

Not only VCs, but many KOLs in the cryptocurrency circle are also on the road to defending their rights.

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

When ALEX found the project and expressed his wish for a refund, otherwise he would mobilize KOLs to FUD the project. The project party happily expressed their welcome to join forces with KOLs to FUD the project, which would bring attention and popularity to the project.

Cryptocurrency VC, a vulnerable group?

Leo Tolstoy said that happy families are all alike, but every unhappy family is unhappy in its own way.

In the crypto industry, happy VCs are almost identical, but unfortunate VCs all have their own ways of losing money.

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

Projects like ZKX that fell below their IPO price as soon as they went online and subsequently officially announced the cessation of operations are called “Rug factions”.

The second category is the bad-ass group, which regards Listing as the end point and then lets the coin price plummet to the center of the earth. Investors have not yet obtained any tokens, but have already suffered a book loss of more than 90%.

At this time, the project party often claims that the market is not good, but we are still working on it. Investors want to protect their rights but cannot find a suitable reason and are left with nothing to cry about.

The third category is the zombie faction. The project parties choose to hide for a long time after financing. They have gone through rounds of bull and bear markets and remain silent, which makes people wonder whether the project parties just want to come to the crypto industry to witness history.

Although some of these projects will continue to update and operate on social media to tell everyone that they are still alive, they are like zombies in terms of narrative, operation, and technological development. Although they still have a breath, 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 make profits.

However, in the cryptocurrency world, even if VCs invest in “good projects”, they don’t make as much money as everyone imagines.

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

Although the current book value is still in profit, it cannot withstand the decline of the copycat market. It has fallen by more than 80% from its highest point since its launch. When the tokens are unlocked in the future, what the market situation will be like is still unknown. The partner complained that VC lock-up is now stricter than A-shares and US stocks.

LI XI, partner of LD Capital, also said in July, “The portfolios that LD Capital has launched this year are all profitable on paper, but they are all paper values with 0 unlocking. Don’t say VCs make money anymore. The money has all been earned by the project owners and exchanges. Except for the VCs who organized the game, most VCs are just big leeks who take over. The primary market in this cycle is already as difficult as hell.”

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

Therefore, in the eyes of many VC practitioners, they are the disadvantaged group in this industry. To use a more pretentious term, in the four-party game between project parties, VCs, exchanges, and retail investors, VCs lack a handle, have no say, 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 is only 31%, even lower than KOL recommendations.

For project owners, most VCs lack unique value added, and even lack 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 state of 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 jumping VC; some VCs simply give up the primary market and turn to the secondary market...

But all the complaints can perhaps be attributed to one thing: the market is not good, and a big bull market can solve most of the conflicts.

The market needs a copycat season to save the trapped cryptocurrency VCs.

It’s good to come, but what if you don’t come?

The crypto market is changing rapidly, and in addition to project owners, perhaps VCs in the cryptocurrency circle also need to actively seek change.