Dialogue with Animoca founder Yat Siu: Why are we re-investing in the NFT space in 2018?

Author: Steven Ehrlich

Original Title: 《How Animoca Brands Built A $5 Billion NFT Fortune》

Translated by: Gu Yu, Chain Catcher

Forbes: Can you tell me about the history of Animoca?

Siu: We actually started as a mobile gaming business. In 2012, before Apple unceremoniously took down our platform because they didn’t like how we cross-promoted the company’s apps, we were one of the largest mobile gaming companies in Asia. At that time, we had over 40 million installs and annual revenues of $20 million.

Forbes: What made you focus on cryptocurrency?

Siu: We entered the blockchain and NFT space at the end of 2017 through CryptoKitties. We were in the process of acquiring a Canadian studio called Fuel Powered, which shared an office with another company called Axiom Zen. They were jointly developing this little thing called CryptoKitties, which launched in November 2017.

The co-founder of Fuel Powered was invited to join Dapper Labs as a co-founder. In that context, we became shareholders of Dapper Labs and publishers of CryptoKitties in January 2018. When we saw the potential of NFTs, it represented digital ownership for us, and we basically went all in without looking back.

Forbes: How did you build your early portfolio?

Siu: We invested in Decentraland, OpenSea, and the developer of Axie Infinity, Sky Mavis. We also acquired The Sandbox. All of this happened between 2018 and 2019. Those were very, very early days, and we were somewhat of a maverick in this space. If you remember, in 2018, especially at the end of 2018, everyone was fleeing the NFT scene, while here we were talking about NFTs.

You can imagine how difficult it was for us (or anyone) at that time. We were one of the very few who were genuinely pursuing it. We knew about Bitcoin and understood that decentralization was a technology. But what really captured our imagination was not the fungible tokens, as they were more about money. What excited us was what NFTs represented. That’s basically why we decided to go all in, and I think we arrived when the market was really crushed—looking back in a broader crypto sense, it gave us a lot of opportunities.

Forbes: How did this affect your financing? How did you afford all these acquisitions?

Siu: Before this, we were a publicly listed company on the Australian Securities Exchange. We ultimately lost our listing status on that exchange because we delved deeply into NFTs and cryptocurrencies. It was a different kind of de-platforming. In 2018, when we saw the potential of NFTs, we were still a very small listed company in Australia. As chairman, I led the company in that direction, and we restructured the company with $500,000. At that time, our market cap was only $3 million.

When we were delisted in 2020 (even though we were suspended in 2019), our company was valued at about $100 million. We fought against the suspension for seven or eight months, so we didn’t trade during that time, and ultimately, we were expelled from the exchange, mainly for trading cryptocurrencies, as the Australian Securities Exchange was hostile to cryptocurrencies at that time.

Even so, we raised funds during the process, but these were all small fundraising activities. By the time we first reached unicorn status, we had only raised about $20 million. So, one of the ways we conducted transactions—which is part of what got us into trouble—was through a lot of stock swaps. This meant that for the deals with Sky Mavis and OpenSea, we became shareholders of each other. But our last formal financing was in October, when I think we raised $65 million at a $2.2 billion valuation. (Editor’s note: On January 18, Animoca completed a $350 million financing at a $5 billion valuation.)

Forbes: What has been your best choice in terms of investment scale?

Siu: In terms of funding resources, if needed, we certainly have the capacity to compete with the big players, but that’s not how we play. If you look at the venture capital firm Andreessen Horowitz, which we highly respect, they tend to come in later. For example, the firm led the last round of financing for Axie Infinity and entered OpenSea last year. A few years ago, we were doing these deals at seed round valuations. We ultimately invested less than $800,000 in Sky Mavis in 2019.

So, people like Andreessen paid a premium to get in. I don’t think they are irresponsible, but they have to pay more to enter. We are seed and Series A investors because we are operating capital, not financial capital.

Forbes: Let’s talk about how your investment approach has evolved over the past few years. I see you are expanding into infrastructure like custody and wallets and becoming network validators.

Siu: We are validators for many chains, including Flow. For us, broadly speaking, when considering all the investments we are making to help build the metaverse/Web3, each of them is aimed at deploying an emphasis on ownership in this metaverse, which for us is NFTs.

To facilitate this, we need to create something to help build the network effects of all these NFTs. For example, this means investing to make it easier for users to use. We invested in platforms like Kikitrade, which is essentially a very simple crypto entry point; for instance, we invest in projects like validators, where we hold tokens in the ecosystem.

This is what we call a hedging strategy. Due to our investment in Dapper Labs, we are major shareholders of FLOW; we are significant holders of AXS, and we have over 100 tokens in that space. For us, this is not just a way of investing; it’s a way to hedge ourselves and help grow the ecosystem. If we believe in the future of the metaverse, we need to own more and more currencies that grow in that space. It doesn’t make sense to cash out in the real world because going back to the real world is expensive.

Forbes: Sandbox has recently received a lot of attention, especially with partnerships with brands like Adidas and Budweiser. What does this partnership strategy look like? More generally, how do you handle partnerships?

Siu: We established digital brand relationships early on in areas like gaming, which helped us leverage those relationships to bring them into NFTs and blockchain. Sometimes they say to us, "Of course. Yes, we believe in you. We’ve been doing business for a long time. Let’s continue." But they are not very clear on what exactly is happening. Since then, we have ultimately brought some big brands into Sandbox, like F1, Care Bears, and the Smurfs. Today, we work with hundreds of brands, some announced and some not.

In the case of Adidas, it is particularly focused on Sandbox, which has itself become a platform. However, our other brand relationships are often top-down; we have licensing agreements, partnerships, or sometimes joint ventures, and then we work with all the companies. I would say that Sandbox itself has become unique because it has truly captured the idea of becoming a digital Manhattan. Everyone wants to own a piece of land.