The last bull market has witnesses a massive craze in web3 venture investment activities, with a huge influx of new capital being deployed or committed to deploy in the space. Funds like a16z, Paradigm, Lightspeed, Multicoin, Animoca Brands, Pantera etc… are all raising huge rounds in the scale of hundreds of millions USD and even multiple billions USD. This is not to mention a few now-dissolved funds like ThreeArrow Capital and Alameda Research were investing big check size using borrowed money or users’ funds on their platform. How to deploy all these money in this market condition is still a big question that we are all waiting for the answer in the next few years.

Its has becoming extremely hard to get access to good deals for smaller venture capital funds like Kyber Ventures. In the bull market, projects were raising fast, and the good ones can close their fund raise in days (not even weeks) with multiple times oversubscription. They usually talk to the prime venture funds which can give them brand names, as a signaling, validation and free marketing. Its very rare that the prime and hot ones reach out to us directly or was referred to us by other funds (since they were also competing for allocations).

In addition, the web3 investment crazy has created a very unhealthy environment. Most funds didn’t do enough due diligence (since they just didn’t have enough time), invested at crazy high valuation (since they had less negotiation power and others were also ready to pay that price), and chased after most hyped up projects but not the ones with the most fundamentals. Its creating a fragile ecosystem where the money invested in the ecosystem didn’t actually benefit or were not spent properly to improve the ecosystem itself, but might be wasted due to misused of funds (FTX/ Alameda), incompetency (hacking incidents) or other external exploits that just extracted the money out of the ecosystem.

Looking at the investments that we have made in 2021 & 2022, the ones that did well for us were the ones we actually spent a lot of time working with the team and spending time on the projects ourselves (Sipher, Pegaxy). There were also several that we had a long history of communicating and knowing them before the bull market (Avantgarde Finance, Mystiko, Defi Alliance). They were actually the deals that we didn’t have to rush or were comfortable enough to commit the investment given the time and interactions that we had had with the founders. Its not to say all the deals we were getting through this approach were investable or successful, but obviously there were a significantly higher success rates than others.

Recently when the market has turned bearish, we were doing well in a few investments that we liked and pushed for better valuations than others including previous round investors. Though we have to be honest with ourselves that the macro market sentiment did most of the work for us, since the negotiation power has been shifted to the investor side. Nontheless, it does show that we did try to optimise for a more fair price even though we like the team & the product, and not rushing for an investment that isn’t realistic to the market market condition.

On the other hand, most of our investments during the bull market are not returning much money. For example, 95% of the gamefi projects are not making it, since they were rushing for the bull run without proper thinking of product market fit, go to market strategy and so were we. Many of our investments weren’t made because we actually spent enough time with the projects, understanding the team well and knowing their thinking, go to market approaches, talking to other core team members. They were made because we THOUGHT they were good and better that the ones that we have seen, because we didn’t have any exposure in that sector and its good to have some exposure here and there. Or sometimes they were just made because we saw some prime investors co-invested in them.

In retrospective, the entire web3 venture investment industry were doing spray and pray strategy to some certain extent; some just did more aggressively than others. Even the most prestigious and top tier ones were investing at least 20-30 deals per year, which is surprising and shockingly high for most web2 investment funds. The typical amount of work to handle such a long list of portfolio companies is huge and most crypto funds weren’t ready to take on such amount of work.

Moving forwards, i would like to encourage everyone to be optimizing for more conviction in every conviction that we will make, and pay less attention on the amount of investments that we will do. In general, we should only invest when there is a strong conviction from at least one team member who will champion for the deal, study enough about the deal, work with the founders and their core team members to understand their strengths/ weakness to even build up the conviction stronger. If there is a consensus within the team, thats great, but we shouldn’t try too much to get one. If one of us really likes and understands the deal so much, we should try to invest.

That said, having a conviction is hard. It requires work, communication, research and sometimes even a huge leaf of faith. A lot of background work needs to be done to actually understand the deal, the founding team, go to market strategy, their competitiveness. Having a conviction means you have to believe in the product that the team is building, and in their ability to build such a product and you wish to be part of their journey for the next couple of years. It doesn’t mean that the deal is 100% guaranteed successful or investable by other VCs, and sometimes even looks very random or strange to others. However, these are not real concerns because people don’t actually spend enough time to understand about the deal like you do. And even if the deal fails in the future, it fails for the right reason, so there is nothing wrong about it.

I expect there will be deals that have no consensus in the team, but strong conviction from one or a few team members. The role of the ones with conviction is not to convince everyone else in the team that the deal is great, but to communicate on the reasoning, on the research that has been done and the ground work that has been done with the founders to back up their conviction, so that everyone in the team understands why such a strong conviction. If we can do that professionally, we will have a great team & portfolio companies in 2023.

To conclude, 2023 will be tougher for crypto, given what has happened in 2022. To stay relevant and actually make good return, we have to do a lot more compared to what we have done in the last years. I hope all of us will build up our convictions in every deal that we committed & invested.