Dialogue with EthSign Founder: After talking to 250 investors, how did EthSign find new scenarios?

Speaker: Yan Xin, Founder and CEO of EthSign

Organizer: Wanwu Island

On July 22, during the fourth module of the Wanwu Creation Camp, Yan Xin, the Founder and CEO of EthSign, shared his personal experiences in a two-hour dialogue with 66 entrepreneurs from the Wanwu Creation Camp S1. As a Web3 project backed by HashKey Capital, Circle, and Sequoia Capital in the US, Yan discussed how to develop a small tool into a comprehensive solution and protocol for contract fulfillment and asset management, starting from a vertical scenario like signatures, during interactions with 250 investors. Below are some highlights from the Q&A session:

Wanwu Island: What insights do you have from different stages of entrepreneurship?

Today, I will talk about my journey and insights from the past two and a half years of entrepreneurship, sharing the stages of product development, my positioning at each stage, the challenges faced in moving to the next stage, and finally summarizing my specific reflections from these two and a half years.

I am the CEO of EthSign, and we have been operating for two and a half years. Before this, I was a hardware engineer who entered the blockchain industry through mining. I started working on EthSign in 2019 and became a full-time entrepreneur in 2021.

First of all, entrepreneurship is an independent discipline. When I transitioned from being an investor to an entrepreneur, I thought I had a clear understanding of how to create value in something. Now, I just needed to make it happen. However, after starting my entrepreneurial journey, I realized it was a completely different matter, such as how to manage a team, ensure everyone’s ideas and philosophies align, how to develop meaningful products and markets, and how to achieve profitability. It is a complex discipline, not a linear solvable mathematical problem.

In summary, I believe entrepreneurship can be divided into several stages. First, you need to generate an idea based on a thorough understanding of a market. Then, you take this idea to find many experts to help realize it, who may be responsible for various aspects like product, market, front-end, and back-end. Together, you present a prototype to potential supporters, such as VCs. The second stage is to actually bring the product to market to realize its commercial value and find people willing to pay for it. Finally, you give back the realized commercial value to those who once believed in and supported you. This process can be replicated, and to some extent, exploring such a methodology can be universal, regardless of the industry.

The second point is that entrepreneurship needs to be driven by passion. When starting something new, especially in a situation where resources differ greatly from other companies, we are often required to grow rapidly while bearing various pressures from real life and business interests. This can lead to frequent changes in your ideas, so you will continuously question what results you are pursuing in entrepreneurship. For example, if you think entrepreneurship is the best way to achieve financial freedom, you may quickly realize that it is not necessarily the case. In a bull market, while others are spending money on investments, you might be spending time on product development and team management, which can delay your ability to make money. However, on the flip side, entrepreneurship is actually the best way to identify problems in the world and propose solutions to change it. This is the core reason I believe passion is essential for driving entrepreneurship.

The third point I find interesting is that while preparing my PPT yesterday, I thought of entrepreneurship as a form of smuggling. You only have a vague conceptual understanding of the destination you are about to reach. You know the endpoint is beautiful, but you do not know the specific path to get there, and this place is one that no one else around you has been to. Even if others have experience, it cannot be fully replicated; you still need to rely on yourself to find a few brothers willing to charge forward with you and explore. You might capsize midway, you might reach the initially envisioned destination, or you might end up in a completely different place. This process is very much like smuggling.

Wanwu Island: How did EthSign discover market opportunities? How did you find the right product positioning?

Returning to our entrepreneurial process, the first stage was purely a tool. We created this project during a hackathon in 2019 when everyone was still part-time. I was also working in VC, and my partner was pursuing a master's degree. We gathered about five engineers to participate in the hackathon. At that time, we wanted to verify whether decentralized storage could be used, so we came up with many ideas based on that, one of which was EthSign. We defined it as a pure tool. I really like this type of tool. The interesting point is that, to some extent, it is a single function; you have a clear function to solve a specific problem, and you should be able to describe it in one sentence, such as "we are a decentralized electronic signature platform."

At the same time, I believe that in the very early stages of a project, finding reliable infrastructure and community is crucial for most entrepreneurs. We are using new infrastructure rather than creating new infrastructure, as the latter is too difficult. So, we should find ways to stand on the shoulders of others to leverage their strengths. The reason you have opportunities in entrepreneurship is that new infrastructures are constantly emerging. They need sufficient applications and user-friendly interfaces to capture value, and these opportunities are available for many entrepreneurs. For example, Ethereum is a stable, fair, and censorship-resistant chain; it is a powerful infrastructure upon which you can innovate. Similarly, OpenAI has become a foundational infrastructure for AI, with many people developing businesses on top of it.

Additionally, you need to identify your target community, which is where your product will have the most audience once it is developed. You can even join this community from the beginning to co-create with its members and validate your needs, which can save you a lot of costs and avoid reinventing the wheel.

From the name, EthSign indicates what we do. In the initial stage, our goal was also to pursue product completeness. We wanted our product to be simple, with clear boundaries, and have enough openness and integrability so that everyone could integrate and use it. This way, we could fit into the ecosystem's joy. At that time, we built a completely decentralized application based on many underlying and middleware solutions. We had no servers at all, and even our code ran on decentralized storage. Our product was relatively simple. In 2020, we attempted to raise funds with a valuation of 3 million, but we failed repeatedly, perhaps because Web3 was not very popular at that time, and people were not willing to pay for it. However, even now, our positioning has not changed; we still hope it is a very clear tool for managing your protocols and assets.

At that time, investors thought our product had a broad horizontal scope. Although it seemed like just a signature protocol, it could be used in various scenarios like financial lending, housing leasing, and personnel hiring. It required consideration of which angle to take to go to market and whether to provide services for all scenarios on one platform or to choose a few vertical scenarios. It was also necessary to think about how to establish a moat and how to capture greater value through the powerful infrastructure we rely on.

In fact, many early investors said that they could create something like ours in one or two months. I think they were not wrong; after all, we were an immature startup and could not compete with companies that had mature engineering and R&D capabilities. So, I thought about how to capture more value in the Web3 world, or in other words, how to secure funding under such competitive conditions. My thought process shifted here. I realized that the most powerful aspect of blockchain lies in its public-private key accounts and smart contract system. We utilized the account part well for signatures, so could we also use smart contracts to execute the terms in contracts? We found this idea very promising. Although contracts are often customized for each individual, they can still be templated behind the scenes. Once we identified the scenario, we started from there to create a clearer, more transparent, and efficient market.

Therefore, since last year, we have been transforming the entire process of signing and managing contracts into a product with EthSign. This year, we are considering the next steps, such as how to move towards actual business and a larger market. For instance, I have been troubled by the question of what our business model is and how we achieve profitability. This is a headache for early-stage startups, and you might even think we don’t need revenue because we are creating a protocol, just like TCP/IP doesn’t have a business model, right? But is that really the case? The second question is whether to serve people outside the circle or just focus on those within it. It’s not my concern how outsiders come in; that’s something Vitalik needs to consider. Another idea is that outsiders haven’t come in yet because the infrastructure isn’t mature enough and isn’t ready for mass adoption, so we just keep doing our thing and wait for the technology to mature over the next two to three years, and they will come to use it. But is that really the case?

For most of us, we are a startup with our own products and value capture channels. If there is no revenue, a billion-dollar valuation will become a significant bottleneck for you because we see that companies valued over a billion in the last round have very clear revenue. If a very complex and ingenious design lacks a business model, it can only be considered an artwork rather than a product.

The second question is whether to serve outsiders. Recently, I attended Zuzalu in Montenegro and communicated with many people. I suddenly realized that after working full-time in Web3 for so many years, my language system had become completely different from theirs, making it difficult to communicate. I find meaningful things, whether it’s account abstraction or zkEVM, but it’s hard to explain to others. I wonder if anyone else feels this way; it’s challenging to explain the value of your technology to outsiders. This is also our problem. For example, in biotechnology for anti-aging or AI large models, their value is very clear and simple, and you can explain it to anyone. However, many people think mass adoption isn’t their concern; they just need to do their current tasks well, and naturally, people will come in later. I want to say this idea is somewhat naive because there is competition for talent and capital between industries. For example, when AI becomes popular, many people will go into AI and invest in AI, naturally creating more value. Web3 will definitely enter a bear market, and this bear market will not only come from capital outflow but also from talent outflow. If everyone in an industry continues to think only about doing their current tasks well, that industry might die. We still need to pursue a more straightforward and intuitive value of technology and strive to bring outsiders and their money in.

Therefore, this year we will also undertake some practical tasks that we previously didn’t want to do. For example, we collaborated with Cooley, a top global law firm, to launch a contract library that covers most of the protocol templates needed by an early-stage startup team. We also have a very clear product development path. The protocols everyone is currently using are highly customized. We first provide universally acceptable paper templates to help everyone gradually get used to these fixed rules, and then we only change the parameters inside. In the future, when a protocol is used enough and has a high degree of templating, we can convert it into a smart contract for execution. So, in the long run, I believe all paper agreements will disappear. We need to make this product more useful and practically solve people’s problems rather than just being perceived as cool.

How do we reach out to serve more people? We initially grew up with Ethereum, but that doesn’t mean we only serve Ethereum. We strive to serve more ecosystems, such as different chains and private key formats. We have also submitted EIPs to support the use of DIDs as identity signatures, not just your private key. We have also developed features related to password storage to help users better safeguard their accounts and contract data. Therefore, we will do many things to assist users rather than forcing them to learn and cross thresholds on their own.

The above are some changes and progress we have made up to today. However, for the future, my dream is to become a true protocol. We need to realize its network value through protocols to cover more scenarios and users. Essentially, the foundation of many businesses is traffic. For example, our current matching business is a traffic business between investors and project parties. The problem with any traffic business is that it cannot serve everyone. The internet is not flat; it still has independent circles and traffic platforms due to different countries, languages, and cultures. We hope to become the public infrastructure for these traffic platforms. The benefit of being a protocol is that it will have strong interoperability. This is the Holy Grail of the crypto field or smart contract platforms primarily based on Ethereum. You only need to write a few verified smart contracts, and they can be used in any related scenario. Therefore, this smart safe can also be applied to scenarios like family trusts. This is why we must protocolize; we need to open up our capabilities sufficiently so that others with demand in different scenarios can integrate our services at a low cost. We will accelerate our exploration in this area in the future.

Wanwu Island: From a senior's perspective, what advice do founders have during the track and business validation process?

Finally, regarding my insights, first, do not get too entangled in the idea stage. To be honest, there aren’t many choices at the beginning of entrepreneurship. First, look at what cards we have, what we are familiar with, and what we are suitable for doing. Then, find a specific problem within the corresponding market. Don’t think from the start about finding a big problem, as if solving this problem could capture hundreds of millions of dollars in value. Such problems do exist, but they may not be suitable for you. So, just focus on solving a small problem well at the beginning. The second point is that ideas are not worth much. Investors receive many ideas every day; what they want is execution. It’s about truly bringing this idea to the market.

Many people get too caught up in ideas at the beginning, just like designing a logo and hoping it can carry all our dreams. But that’s impossible; just choose one casually. People’s fondness for that logo actually comes from your continuous investment in the project, not from whether the logo itself is good-looking or meaningful enough.

At the beginning, to be honest, we also wanted to create a Web3 version of DocuSign. However, adding a private key signature to DocuSign isn’t that difficult, but they can’t do it because it’s too new and could significantly impact their core business model and regulations. As a publicly traded company, management often prioritizes preserving current revenue over innovation. This is also why traditional companies like BMW cannot produce something like Tesla. I also don’t encourage defining ourselves as something from Web2 in Web3. Although this makes it easier for others to understand, such definitions can overlook many valuable things and limit your vision. What is truly valuable is original, not just replicating what others have already done in a field.

You need to start low and move fast. As mentioned earlier, start with small things at the bottom, but you must do it quickly, rather than thinking about grand ideas from the beginning, trying to raise a large sum of money, and hiring many engineers to realize those ideas. Everyone should quickly implement a very small idea to create its MVP and validate the market, then rapidly iterate and update based on feedback. So, do not overcomplicate what you want to do at the beginning. After putting in a lot of effort, you might find that the market doesn’t need something so complex, leading to a significant waste of resources. We can now complete the process from idea to MVP within a month. In addition to our engineering team, we also have a prototyping team specifically for MVP validation.

Finally, I recommend that everyone spend time in places outside of China and the US because our infrastructure has become too mature in these regions, making it difficult to understand the market needs of truly developing countries.

Wanwu Island: Everyone thinks your fundraising was very successful. What experiences can you share with us?

Investors typically do not invest during the rising phase of a bull market; they start investing heavily during the declining phase because there is a lag effect between the primary and secondary markets, which can be about six months to a year. For example, when a bull market arrives, LPs only start giving money to GPs, and once GPs have funds, they will invest in projects. Our fundraising journey has been very challenging; it took us three months to secure our first funding, and we subsequently raised a total of $600,000, supplemented by our own funds to sustain us for eight months until the bull market arrived. However, at the peak of the bull market, there was no time to trade cryptocurrencies, so we had to use our own money to sustain ourselves for another five months before finally securing investment from Sequoia. This process was very arduous. I can say that I have probably met more investors than any other institution, having met over 250 investors, averaging at least 2 to 3 meetings a day for a full six months.

This process was torturous but also rewarding. On one hand, you can treat it as a free opportunity to learn English. After meeting 100 investors, your English will become very fluent. Secondly, investors will provide you with a lot of feedback. You need to prove that your product has value. Investors can be the bad guys who deny you, and you have to battle with them. Therefore, in the process of defending your position, you are also deeply thinking about how to solve the problems raised by investors. It is crucial to maintain communication with investors. They may not invest in you, but you need to ask them why. Don’t just stop asking because most investors say they will think about it. It’s important to keep asking until you get feedback, and don’t be afraid of losing face. If there are any new developments in your product or business, you should also keep previous investors updated.

Finally, do not overly respect investors’ opinions. Many investors from traditional industries have successfully run publicly traded companies, and their advice is valuable experience. However, many Web3 investors have not successfully executed projects that can be considered truly successful. Their opinions are more from an investment perspective. So, do not take their suggestions too seriously. What’s most important is to keep doing what you truly want until you achieve results.