Dialogue with Dragonfly partner: How to be a good Web3 VC?

The following are podcast notes made by GuildFi analyst Cloud on the Bankless podcast “How to be a Web3 VC with Haseeb Qureshi”, and authorized Deep Tide TechFlow to compile and publish.

Speaker: Haseeb Qureshi (Managing Partner of Dragonfly Capital)

Some fun facts:

  • Haseeb was a Texas Hold’em player.

     

  • Before joining Dragonfly Cap as a full-time MD at Web3, he learned how to code and became a software engineer at Airbnb.

bullish or bearish

There’s been a lot of good news about ETH mergers lately, but there’s also been a lot of bad news about macro and geopolitics, which is sure to be the main theme this year.

Haseeb believes that there is a narrative drying up in cryptocurrencies, but the fundamentals still look pretty good.

Earlier in January, Dragonfly received a slew of Pitch Decks for games and DAO infrastructure, most of which were duplicates, although now the pace is slowing as investors chase it.

Gaming: Is it possible to invest in the next P2E game in the next few years?

Haseeb’s Thought: It’s not enough to know that P2E games are popular right now, as an investor, you need to understand the future of the economy. We all need to ask ourselves a question: what do you think the market will look like in 3 years?

Haseeb is personally bearish on current generations of P2E games because it’s unsustainable, everyone who talks about Axie doesn’t mention it’s really interesting, and most of what’s been said about Axie is about how it makes money.

Cloud’s (analyst’s) take: It’s important to think about games from a first-principles perspective, and people play games because it’s fun. Most P2E games are short-term money-making tools, but it’s easier to build belief if you can predict that you’ll enjoy playing a certain game.

How does poker influence Haseeb’s decisions?

1. Poker and trading have a lot in common, such as risk management, emotional control, and understanding the uncertainty of outcomes.

2. Unlike poker, which prepares you to trade, venture capital is different.

3. Venture capital is driven by the law of power, it tends to be more relationship-driven and build a brand:

  • There are very few things that make you almost no money, and very few things that make a lot of money (the famous 80/20 Pare rule).

     

  • You make 100 investments, 3 of them will use up all the capital you have invested, and 1 will have a 1000x return.

Positive-sum games in venture capital firms

In the crypto VC space, you want to be really valuable and make people want to work with you: you want your portfolio companies to hold you in high regard and have strong relationships with co-investors.

Most of Dragonfly’s rounds have come from angels/co-investors who don’t want to take on the full funding deal. Therefore, maintaining relationships in this area is very valuable in the long run.

How to add value to your business

1. Help with recruiting, one of the hardest things to do for a startup.

2. Help it handle legal and compliance matters.

3. Many cryptocurrency startups need help with auditing, but auditors often have a large backlog. There is value in using your relationships to help speed up the process.

4. Help with PR – such as posting information on Coindesk.

5. In more professional aspects, such as:

  • GTM strategy
  • Tokenomics design

6. Venture capital firms like a16z, Paradigm, Dragonfly, etc. tend to invest in top projects because they provide added value that money cannot buy , i.e. professionalism for the above purposes:

(1) There are tons of Web3 VCs popping up every day, and you need to figure out where your strengths lie so you can bundle your capital together and make you more valuable than other VCs.

(2) Cloud’s point of view: I appreciate Darren Lau & Not3LauCapital. Compared to other big VC firms, they are still able to find their edge through Darren’s connections in this space. His TG channel has a 43k+ native cryptocurrency audience.

Haseeb’s pitch to startups

1. Share his previous successful investment experience. For example: seed round investment in AVAX/NEAR/Dune Analytics, etc.

2. Help design Tokenomics, protocols, and inform other projects of the pitfalls and how to avoid them.

3. Top networks in the cryptocurrency space, relationships with other VC firms, auditors, and media.

4. Dragonfly also has some business in Asia that VCs don’t have, which is important to attract communities outside the US.

When will VCs dump tokens?

First of all, Dragonfly does not do transactions without any locks or short-term locks because they strongly believe in the consistency of the incentive mechanism. During the ICO boom of 2017, some founders launched projects without a lock-in and simply dumped them after gaining a wave of backer fortunes.

Generally, Dragonfly Cap will not be sold when the lock-up period expires because they believe that in the long run, big money can be made in this area, people get rich by buying BTC and ETH in a bear market and selling in a bull market, but The wealthy are those who buy early and hold for the long term.

Some of the situations where Dragonfly makes a sell operation are when the fundamentals change or they lose confidence in the project/founder, otherwise they would keep holding.

ETH compared to other copycats Layer1

1. Under the premise that ETH2.0 will not happen immediately, at the end of 2019, Haseeb believes that other L1s will be important.

2. This will be a multi-chain world, and ETH will not monopolize the L1 space.

3. Looking ahead from 2025 to 2030, Haseeb believes that ETH may have 50-60% market share, while the second L1 operator may have 20%, and the rest will be held by other L1s respectively.

About taking responsibility

On how to upgrade from a mere retail investor to a star player in the Web3 field:

1. Many people are reluctant to do dirty work.

2. Taking responsibility is the most valuable thing in the community you are a part of. For example: creating a helpful note/AMA digest for new members of the community, or offering to propose a moderation vote (versus many people just writing stuff or complaining on Discord without actually making a suggestion).

3. Actively taking responsibility allows you to be invited to other communities/DAOs and be part of a tight-knit circle.

About Airdrop

Although airdrops for some projects have been manipulated, airdrops are here to stay for a long time:

1. The suggestion not to do airdrops often creates fear/unnecessary anger within the community.

2. Airdrops have also become a sticky norm in the Web3 field.

Delivering on the promise of Web3

The reality is that no one knows where the Web3 revolution is going.

As a cryptocurrency investor, it is important to focus on the present and not particularly focus on the future. When Dragonfly invested in DeFi protocols and L1 (before DeFi summer and ETH got crowded), their reasoning was that there are now tons of entrepreneurs with reasonable new ideas on how to build the next generation of blockchains.

Cloud’s take: The question to ask yourself is —

(1) Does the idea make sense?

(2) Is this a new invention or just a fork of X on the Y chain?

(3) If both factors are validated and it attracts billions of TVLs, then great. Otherwise, you have to accept that many ideas are going to fail, but you only need 1-3 big wins to get the jump.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/dialogue-with-dragonfly-partner-how-to-be-a-good-web3-vc/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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