Animoca launches a fierce offensive during the crypto winter, aiming for a valuation of $20 billion

Original Title: 《What crypto winter? This investor is on a buying spree》

Source: Zheping Huang & Sarah Zheng, Financial Review

Translation: Biscuit, Chain Catcher

Since last November, the so-called "crypto winter" has caused the market value of digital currencies to evaporate by $2 trillion, and many investors have entered hibernation. However, Yat Siu, founder of Hong Kong's Animoca Brands, is ramping up his efforts.

Asia's largest blockchain venture capital firm, Animoca, is building a massive group in finance, gaming, and social media, totaling over 340 companies. Siu says the company's goal is to give people ownership of their virtual assets and to break the empires of Meta Platforms and Microsoft. Siu describes it as "digital dictatorship."

Animoca's Yat Siu says now is the time to deploy more capital. Image from Bloomberg

Siu got involved in the industry during the 2018 cryptocurrency crash when he transformed his small video game studio into a crypto investment firm. The startup purchased shares in the developer of CryptoKitties, a Pokémon-like game featuring virtual cats that can be traded with cryptocurrency. Just four years later, Animoca has become one of the most influential investors in the crypto industry, backed by Sequoia Capital and George Soros.

"If people say this is a crypto winter, then 2018 was a crypto ice age," Siu said. "Now is the time to deploy more capital, not less."

If successful, Siu could become another leading figure in crypto. Animoca's investment business is akin to venture capital firms like Andreessen Horowitz (a16z) or FTX.US, led by Sam Bankman-Fried, seen as legitimate Asian crypto startups whose absence is a worrying sign. Since Animoca is one of the few organizations preserving investment strength, Siu's funding is more like a powerful weapon—but if the crypto downturn doesn't develop like it did in 2018, this increased investment strategy could backfire.

"Animoca can invest at any stage, at any time," said Brian Lu, founding partner of Infinity Ventures Crypto, which sees Animoca as one of its supporters. "People say, 'They're everywhere, so if Animoca hasn't invested in you, you might have some problems?'"

Siu's entrepreneurial career began in the 1990s when he founded several software companies, one of which required him to use his personal credit card to stay afloat. This startup, Outblaze, sold its cloud messaging business to International Business Machines during the global economic recession in 2009, allowing Siu to co-found Animoca in 2011 with others and explore his passion for video games. The studio helped produce hundreds of mobile games but unfortunately failed to achieve sustained profitability. During the company's darkest days, Siu laid off half of the staff and sold equity at a discount to raise funds.

CryptoKitties provided a new lifeline for Animoca. The company's understanding of the Chinese gaming market helped it secure the distribution rights for CryptoKitties in the region. At the peak in late 2017, some CryptoKitties were trading for over $100,000. When the market cooled the following year, Animoca purchased shares in game developer Dapper Labs, which proved to be a successful investment. (Dapper is now valued at $7 billion.)

Since then, Animoca acquired a metaverse developer called Sandbox for $5 million and helped Sandbox persuade SoftBank Group and other supporters to invest $93 million last year, marking SoftBank Vision Fund 2's first crypto deal. Animoca has also backed another popular crypto game, Axie Infinity, as well as OpenSea, which is set to become the mainstream market for NFTs.

However, the business models of these games have yet to prove sustainable. In CryptoKitties, over time, the most valuable virtual cats became concentrated in the hands of a few players, while those unwilling to spend money on popular breeds hoped for the game's decline and stopped playing. Siu said that as the game's popularity waned, Animoca offered some discount marketing strategies, but ultimately, the market wasn't ready. The company largely abandoned the game.

More Aggressive Moves

"Animoca wants to be the most successful startup. I don't think that's bad, but it doesn't make those who supported in the past feel good," said Benny Giang, founder of CryptoKitties, who established another blockchain company after leaving. "That's what Yat is still doing today, making many deals with various crypto projects. It's just more aggressive now."

Axie Infinity is showing signs of a similar boom-bust cycle. The game's economy became so overheated that wealthy players created a form of online exploitation, acquiring profitable crypto assets and renting them out to people in developing countries, who worked hard all day for digital currency. The cryptocurrency crash hit Axie Infinity hard; its daily users dropped from a peak of 2 million at the end of last year to 250,000.

Even the concept of ownership within the game is questionable. In March, after failing to renew its brand license with the organizers of Formula 1, Animoca shut down its three-year-old racing game F1 Delta Time. Players who spent hundreds of dollars on drivers and car parts suddenly received worthless crypto tokens. Siu said Animoca abandoned assets for other racing games as compensation, and a studio supported by Animoca called 99Starz plans to create a racing game without a Formula 1 license that will support NFT versions of the old game. He said this demonstrates the lasting value of blockchain-based assets.

The debate over whether these are games or financial speculation tools has long existed. An anonymous host said that during a private pitch with the company's investment team, NFT game manufacturers were asked to skip slides about game mechanics and instead focus on their token economics.

In another instance, a representative from Animoca requested crypto projects to provide free tokens in exchange for recognition and business advice. Animoca spokesperson Ibrahim El-Mouelhy stated that the company does not comment on individual startups, "Our long-term reputation needs to be evaluated from a historical perspective."

As Siu describes, his ideal world is built on some form of moral free market. "As an organization, we do believe in the incentives of capitalism," he said, "It's not that everything's distribution must be equal, but whatever you ultimately produce must generate more net benefits for others in the community."

Siu views investment as a means to an end, considering himself essentially a gamer. His office looks like it was designed for Twitch streaming, complete with a chair specifically made for playing PC games. The 49-year-old Siu has a long-distance runner's physique and often wears athletic gear. Based in Cyberport, Hong Kong, about 150 of the company's 800 global employees reside there.

For Siu, a normal workday can last until 3 a.m., with two-thirds of his waking hours spent on Zoom calls. In recent months, this father of three has been shuttling between Hong Kong, Japan, San Francisco, and Zurich, meeting with regulators and industry heavyweights while passionately discussing the path to digital property rights. "I draw energy from the work I do, so I don't feel tired," he said.

Billionaire Club

The crypto investment business has brought substantial returns to Animoca. Last year, Animoca recorded nearly $300 million in NFT and cryptocurrency sales, up from $5 million in total revenue in 2017 when it was just a game developer. In July, investors valued the company at $6 billion.

However, securing this funding wasn't easy. Siu said negotiations lasted for months. Bloomberg reported that some potential backers, including acquisition giant KKR, were scared off by the collapse of TerraUSD, a so-called stablecoin that turned out to be anything but. Siu declined to comment on specific situations. "Everything in the crypto market ultimately became a bit scary," he said.

Insiders say that even after the financing deal in July, some Animoca shareholders bought shares at a discount of 30% to 50% below the company's current valuation. Spokesperson El-Mouelhy stated that such secondary transactions are small in scale and do not represent the company's outlook.

Animoca's current focus is to transition everything it is involved in onto the blockchain. This includes an educational content platform called TinyTap, which it acquired for $40 million this summer. Meanwhile, Animoca's subsidiary NWay is developing a game based on the famous NFT art collection Bored Ape Yacht Club. Animoca holds shares in Bored Ape's developer Yuga Labs and possesses a significant amount of ApeCoin tokens, which have voting rights on the future direction of Bored Ape.

According to minutes from a shareholder meeting last December, Siu owns 7% of Animoca and is guiding the business toward its next valuation targets of $10 billion and $20 billion. If he succeeds, investors have agreed to nearly double Siu's ownership, which would catapult him into the billionaire club.

Animoca aims to go public, possibly within the next two to three years. Siu said this will depend on the market's acceptance of its core business of selling NFTs and cryptocurrencies and sharing in secondary trading. The feasibility of this approach will depend on the extent of crypto recovery, or whether recovery will happen at all.

In the crypto industry, the company will be hard to ignore. Matthew Kanterman, research director at Ball Metaverse Research Partners, stated, "Companies like Animoca that raised funds before the crash will have significant power in shaping the future direction of this technology." "They can decide who lives and who dies."

Siu has a different perspective. "I don't think we want to be a kingmaker," he said, "I don't believe we can completely change the crypto market through financial power."

On the windowsill next to Siu's workstation sits a small CryptoKitties figurine, a clear reminder of the company's growth journey. Siu insists that as Animoca continues to accumulate influence and power, everyone will share in the benefits. "If the ecosystem grows, we will grow too," he said, "It's a happy and harmonious family relationship."