Dialogue with Vessel Capital Co-founder: Why are we establishing a Web3 venture capital fund without LPs?

*Interview: flowie, *bayemon.eth,ChainCatcher

Guest: Mirza Uddin, Business Director of Injective Labs, Co-founder of Vessel Capital

Recently, the Web3 venture capital fund Vessel Capital announced the launch of a $55 million fund focused on investing in Web3 infrastructure and applications. Vessel Capital was co-founded by Mirza Uddin, Business Director of Injective Labs, alongside Injective Labs CEO Eric Chen and Burnt co-founder Anthony Anzalone.

Although Vessel Capital was officially announced recently, it was actually "secretly" established as early as 2021. The fund pool of Vessel Capital is entirely sourced from the personal funds of the three partners. Mirza Uddin mentioned that this investment business initially started as a side project for them until the subsequent investment returns allowed them to operate without needing to raise funds from LPs (Limited Partners), leading to the birth of Vessel Capital.

Vessel Capital co-founders Anthony Anzalone, Eric Chen, and Mirza Uddin.

Currently, Vessel Capital is more focused on infrastructure investments and has participated in projects such as Coin98, Astar Network, Galxe, and Omni.

As one of the co-founders of Vessel Capital, Mirza Uddin graduated from Harvard University. Before officially joining Injective Labs as Business Director in 2020, he worked in venture capital at East Ventures, Index Ventures, and Two Sigma, where he was responsible for the crypto venture capital business.

Why did Mirza Uddin and the other two partners decide to establish a Web3 fund, Vessel Capital, that does not plan to raise funds from LPs outside of their work at Injective? What is the connection between Vessel Capital and Injective's investment business? What is their investment philosophy? How does Mirza Uddin view the current cycle of the crypto market and the development of infrastructure? Around these questions, Mirza Uddin shared in-depth insights through an interview with ChainCatcher.

1. ChainCatcher: Can you introduce yourself first? How did you first get into crypto and develop an interest in it? What work experiences did you have before founding Vessel Capital?

Mirza Uddin: I really started getting into cryptocurrency around 2012. Initially, I played with Bitcoin with friends, but unfortunately, Bitcoin rose quickly at that time, and we didn't hold on completely; we sold a lot in 2014. In 2015, I joined an investment firm called East Ventures. East Ventures was an early investor in many Ethereum, other Altcoin projects, and Bitcoin. My experience at this investment firm brought me back to the crypto space.

After that, I worked in large venture capital firms like Index Ventures and large hedge funds like Two Sigma, where I led the venture capital fund's investments in the crypto space. At that time, we invested in many interesting companies and became one of the LPs of the well-known venture capital firm Placeholder.

Around 2018, I met Eric Chen, CEO & co-founder of Injective Labs, while he was preparing the white paper for Injective. After Injective completed its seed round financing in 2020, I officially joined Injective Labs as the first person engaged in business activities (similar to sales, marketing, BD, etc.).

Currently, Injective is one of the largest blockchain networks in the cryptocurrency space, with a team of over 40 people and having raised over $56 million from many well-known investors, including Pantera Capital and Mark Cuban. I am currently responsible for managing the entire business team at Injective, including marketing, business development, partnerships, etc.

Why did we start a crypto fund, Vessel Capital, in 2021? Because we realized that many venture capital firms in the crypto space did not truly understand the industry. Most venture capital firms just give you some money and a logo to put on their website without having done any operational work.

But both Eric and I have gone through the entrepreneurial process, so we have a more practical understanding of crypto entrepreneurship operations, such as how to get listed on exchanges, how to handle market-making, and how to properly build and grow a community. I believe our investments can provide not only funding but also operational assistance.

So starting in 2021, the investment business was secretly launched as a side project. In addition to focusing on our work at Injective, we also incubated some projects to help them grow, such as the blockchain projects Burnt and Omni. They have raised over $30 million from well-known investment firms like Spartan Group and Multicoin Capital.

We are also early investors in Coin98, Astar Network, Galxe, and we hope to continue leveraging our strengths in this way to help more project founding teams grow.

2. ChainCatcher: Can you share more specifically about the process of Vessel Capital's "secret" formation to its official operation? Were there any memorable events during this time?

Mirza Uddin: As mentioned earlier, we initially treated investment as a side business out of interest. But later we found that our investment returns were already sufficient for us not to need to raise funds from LPs; we could fully invest in projects using our own fund pool, which was a significant opportunity for the birth of Vessel.

So in the following years, we invested this money very successfully, and the fund pool grew larger, allowing us to increase our investment and incubation efforts, forming a virtuous cycle.

One memorable story is our experience with the project Burnt, whose co-founder is currently one of Vessel's partners. At that time, we burned a Banksy artwork and minted it as an NFT. Through this, we also helped Burnt raise funds, which was a very interesting experience that received coverage from CNN and BBC. We could use this to announce to the world that perhaps real-world artworks can indeed enter the virtual world.

This is also why I really like Vessel, because it is our own investment company, allowing us to experiment with many interesting things that traditional venture capital cannot do. I believe we will be more innovative and adventurous than traditional investment firms.

3. ChainCatcher: Why did you name the fund "Vessel"? What does this name signify?

Mirza Uddin: Our inspiration comes from a place in New York called "Hudson Yards," which has a very famous sculpture called "Vessel" that attracts many tourists. The word Vessel also means "ship." We hope to sail together with founders, working diligently alongside them to achieve success, rather than just being bystanders.

4. ChainCatcher: Do you currently have set goals for Vessel Capital? What is the general investment rhythm? How large is the Vessel Capital team?

Mirza Uddin: The team size is the easiest question to answer. We do not plan to significantly expand the team. Ultimately, it will still be just the three of us: me, Eric Chen, and Anzalone, because we want to keep it lean to ensure we have a different investment timeline compared to traditional venture capital.

We hope to be very selective, typically making no more than one or two investments a month. But once we do invest, we will be very involved in that project. Our goal is to see the companies we invest in and incubate launch their tokens, survive, and continue to grow. The previously mentioned Burnt and Omni have been operating for over two years and are continually strengthening.

During the bear market phase, when most venture capital firms have almost stopped investing, we are actively investing and operating, hoping to invest in as many companies as possible before the bear market ends. Because we bet on founders and participate in the early stages of projects.

5. ChainCatcher: As the Business Development Director of Injective Labs, and with Eric Chen also involved in leading Vessel Capital, we know that Injective Labs established a $150 million ecosystem fund earlier this year. What business connections will there be between Vessel Capital and Injective Labs?

Mirza Uddin: That's a good question. We are working hard to keep the two as separate as possible, so they are completely independent entities with no relationship. However, Eric Chen and I are indeed both working full-time at Injective, where we have access to many projects, which is also beneficial for Vessel Capital's investments, and there may be some overlap. For example, some early projects that Vessel Capital invests in may collaborate with Injective, or some projects that Injective collaborates with may also become potential investment targets for us.

6. ChainCatcher: The initial funding for Vessel Capital mainly comes from the three of you partners? Why did you decide to establish a venture capital fund with zero external funding? What are the downsides of the traditional venture capital fund financing model?

Mirza Uddin: A simple distinction is that investing your own money versus investing other people's money comes with a different mindset. I believe that when you have to pay for something, you will do better. Investing your own hard-earned money makes you value it more.

Traditional venture capital firms typically raise funds from high-net-worth individuals or large companies, which is what is known as investing with LPs' money. VCs generally automatically charge around 2% management fees; if you raise $100 million, you automatically earn $2 million a year. This means that basically, even if the venture capital firm loses money, it doesn't matter; their annual salary is still $2 million. But if they make money on certain investments, they will receive 20% of the profits. However, this incentive mechanism is misaligned because you are using other people's money and not taking any risks with your own money, so there are no consequences.

This also leads to the investment philosophy that expects 95% of companies to fail but bets on finding the next Facebook or Google. So they invest aggressively, feeling like they are playing the lottery, and this mindset leads them to make many poor bets. After investing, they rarely have deeper communication with the companies they invest in.

But we use our own funds, hoping to ensure that the money we invest does not lose value and yields returns, so we will also collaborate more closely with founders to ensure the company does well and grows.

7. ChainCatcher: From your recent interview, you mentioned that Vessel has already invested in "dozens" of companies, including Burnt and Omni. What is Vessel's current investment focus?

Mirza Uddin: Injective focuses on infrastructure, so infrastructure is the area we understand best. Therefore, Vessel mainly invests in infrastructure, with a target of one to two projects per month. Besides infrastructure, we will also focus on some applications, such as gaming.

Currently, in the infrastructure space, we are most interested in trends related to Rollups, but there are currently too many Rollups and zk solutions. Most are still based on the current hype narrative, so I am not actively investing in zk. I believe that ultimately this market will be a winner-takes-all, which is why so many people like Polygon and zkSync, while the other twenty or thirty zk products may not perform well.

Overall, we hope to focus on understanding the core developments in certain areas, rather than simply following trends.

Having been in the crypto space for many years, I have learned one thing: do not easily follow hype narratives; usually, when something is overly hyped, it means it will also fade away quickly. For example, in 2021, almost all crypto users were chasing the trend of Play-to-Earn model games. But this economic model doesn't make much sense to me, so I never really invested in it. Now, two years later, most of these projects have died, even the top one, Axie, is barely surviving.

Our strategy is to choose more wisely and cautiously, paying attention to valuable areas that others have not focused on, so that we can ultimately achieve higher valuations and returns.

8. ChainCatcher: So you believe that many Rollup and zk solutions are somewhat homogenized. How do you view their performance in the next cycle?

Mirza Uddin: I don't have a conclusion yet because the only real zk Rollup or zk Layer 2 I have used is zkSync, and we haven't seen any token airdrop performance yet. Currently, solutions like zkSync are very hot, mainly due to airdrop expectations.

But I am skeptical about the authenticity of this hype. Many of us like to exaggerate it as the decisive "next big event." But what happens after the airdrop? We know that many users leave after receiving airdrops. How many real users and transaction volumes can the project retain is also a question.

Currently, many zk solutions are facing this reality. For example, Polygon, such a large project, has had its zk solution running for nearly a year, but its TVL is less than $50 million, which means it hasn't gained much market demand. If Polygon is like this, how can other zk Rollups gain traction?

9. ChainCatcher: The concept of infrastructure is very broad. Can you share which areas or characteristics of infrastructure you will focus on investing in? Besides Rollups, what recent infrastructure trends have you been paying attention to?

Mirza Uddin: First, I am more interested in industry-specific blockchains, rather than just general public chains.** For example, blockchains focused on industry-specific applications like gaming. Having a focus means you have the potential to do it more thoroughly and ultimately gain the ability to dominate that vertical industry. Traditional Web2 was like this; Facebook started with a very simple idea and didn't try to do dozens of different things from the beginning. But currently, most infrastructure projects seem to be trying to do too many things.

Secondly, liquid staking is important. If you can release significant liquidity, it can naturally become a protocol worth billions of dollars.

In the Ethereum community, currently, only Lido can be considered a large-scale LSD protocol. However, there are no large-scale LSD protocols in major public chain ecosystems like Avalanche, Near, and Polygon.

In liquid staking, we hope to see more experiments and innovations, such as cross-chain LSD protocols, which I think are very interesting. This means you can release liquidity not only from Ethereum but also from other chains.

Next is account abstraction; wallets are also a direction we are very interested in. How can we abstract important things? I believe applications and chains themselves need to be abstracted, and the experience of using crypto applications is currently very complex. For example, our parents' generation doesn't even know what MetaMask is or how to use a wallet address.

If there isn't a good user experience, forcing users to use it harms consumers. Improving user experience at wallet entry points is important, such as whether people can sign in using email or Face ID on an iPhone, which would automatically link to the backend wallet without users needing to know that their private keys have already been created in the background. I believe true account abstraction, even if it doesn't happen in this cycle, will definitely occur before 2030.

10. ChainCatcher: Besides Layer 1 and wallets, what other niche areas are you interested in?

Mirza Uddin: First, I believe Layer 1 will always dominate. Looking at previous cycles, the best-performing tokens or those that continue to perform well are often Layer 1.

You may have heard of the "fat protocol" thesis, which states that for every dollar of value captured at the DApp layer, the protocol layer can capture at least the same dollar, so Layer 1 is very attractive.

But the interesting thing about cryptocurrency is that each cycle has a new generation of Layer 1. I don't believe that in the next cycle, the Layer 1s that dominated the previous cycle, like Solana or Polygon, will still provide the best choices and returns for users. While they remain in the Top 50 tokens, only new protocols can offer more exciting innovations and returns.

Layer 2 is still relatively early. In my view, Arbitrum and Optimism are still the most noteworthy. Additionally, I find Layer 2 networks launched by some leading crypto companies interesting, such as Linea developed by the ConsenSys team and Base incubated by Coinbase. I believe Base will not have a token because Coinbase is a publicly traded company, but Linea might.

They will receive a lot of usage and ecosystem applications, and even some top projects will participate. However, I am somewhat bearish on OP stack Rollups. Because Coinbase used OP stack, many projects have recently followed suit, but I believe this is likely the current hype narrative, and this trend will soon fade. Most of these applications do not have enough users to require such large-scale expansion.

I believe that in the upcoming cycle, RWA (Real World Assets) is a huge narrative that cannot be ignored. RWA will tokenize real-world assets like government bonds and even stocks. I believe that building quality infrastructure for any RWA will do very well.

I hold a cautious attitude towards some sectors, such as NFTFi, as it heavily relies on the price of NFTs themselves, and NFTs are positioned as niche market products, so I don't believe it can break into the top 100 by market cap.

11. ChainCatcher: Do you have any clear plans regarding investment stages, investment regions, etc.?

Mirza Uddin: I don't limit the investment stage but hope to enter at the early stage as much as possible. We also do not have a clear preference in terms of geography and have invested in many different regions, including Japan and Vietnam.

Indeed, many large infrastructure projects currently come from the US and Europe, but I believe that in terms of talent distribution, Southeast Asia, East Asia, and the US dominate to some extent. Europe lags behind in innovation.

12. ChainCatcher: The Web3 scene and applications seem to have not made significant breakthroughs. What types or characteristics of applications do you think will break through the user growth bottleneck in the future? What application directions have you been paying more attention to recently?

Mirza Uddin: One of them is transforming DeFi into applications that are as easy to use as traditional fintech applications with low barriers. For example, if I can use a regular app on my phone to invest and earn returns without needing to understand cryptocurrency, I think that would be a huge use case.

I also believe that gaming may have great potential in attracting a large number of users (e.g., millions of users). Because it is certain that gaming is a unique track that can attract cryptocurrency applications.

So cryptocurrency is interesting; infrastructure projects can bring huge returns to users through airdrops, so no one cares more about their large-scale applications. Meanwhile, users of applications may not care whether the application is built on Arbitrum or Optimism; they only care about whether it is easy to use. Therefore, large-scale adoption does not come from infrastructure. It is the applications built on infrastructure that can achieve large-scale adoption.

13. ChainCatcher: What aspects will you consider when assessing the investment potential of project teams? What characteristics of founders and founding teams are you more interested in investing in?

Mirza Uddin: Generally, I will prioritize one thing—do they really understand cryptocurrency? Because cryptocurrency is very different from the traditional world. Even if you have members from Stanford or Goldman Sachs, it doesn't necessarily mean they understand cryptocurrency, as the crypto industry is very different from traditional startups.

Therefore, first, I try to assess how long the founders have been in the crypto industry and whether they know how to develop communities and other core topics. Some entrepreneurs may have great ideas and seem smart, but whether they really know how to acquire users, build communities, and secure funding needs to be evaluated.

Secondly, can they handle volatility? Because cryptocurrency is always unstable. The reason we like to invest in bear markets is that building in a bear market means they may be quite resilient entrepreneurs, increasing their chances of survival in a bull market.

Additionally, I also look for at least one technical founder in the founding team, because without one, subsequent development can be much more challenging. For example, you need to hire developers, but you have no idea how to evaluate them and cannot discuss key technical routes together.

14. ChainCatcher: You mentioned that the entrepreneurial backgrounds of the three partners at Vessel Capital can provide more practical guidance and advice to the companies you invest in. Can you share some examples of post-investment assistance?

Mirza Uddin: First, we may help them familiarize themselves with different exchanges, such as assisting with the listing process.

Secondly, we help them build communities and social media. Many founding teams come from technical backgrounds and may be very smart, but they do not know how to raise awareness of their projects among users.

Additionally, there are some general but important issues we will try to assist with. For example, in token economics, many projects simply provide large rewards and liquidity mining incentives, but once these incentives end, the tokens may face a zero value situation. As investors, you must try to prevent this from happening as soon as possible, allowing them to redesign their incentive mechanisms and token usage.

We also help with fundraising, introducing them to some investors we are familiar with. We even share experiences in team building, hiring employees, and constructing compensation plans.

15. ChainCatcher: Grayscale's victory over the SEC has made everyone excited about the arrival of Bitcoin ETFs and a bull market in the crypto space. What are your judgments about the timing of the next bull market?

Mirza Uddin: The main concern for many people is regulation, but I believe this is not something to be feared. After Ripple and Grayscale won their lawsuits, the SEC may not be as aggressive towards cryptocurrencies and will instead try to cooperate more. This will also allow more traditional financial capital to enter the crypto space without as much fear.

The entry of traditional financial institutions is also a way to signal the beginning of each new cycle. First, we are indeed seeing traditional financial institutions like BlackRock applying for Bitcoin spot ETFs, which means they consider Bitcoin a real asset. If this is approved, more users can purchase more Bitcoin through ETFs, and this money will gradually flow into retail and other channels, alleviating market fears and uncertainties, leading to a gradual recovery of the crypto market. While this won't happen immediately, I believe we will see more institutions getting involved and deploying funds in the coming months.

Most importantly, the emergence of Bitcoin ETFs will likely occur early next year or in a few months. It will again suppress supply and ideally increase demand for Bitcoin. Now the market has received a large influx of capital from traditional financial institutions, tightening supply. Bitcoin could rise to $35,000 or even $40,000.

Then the retail market will once again trigger speculation, and the market will gradually explode. After Bitcoin, institutions will easily study Ethereum. Once the theories about currency permeate all coins, that’s when you will see the entire bull market.

Clearly, I cannot predict when this will happen, but my expectation is that by the end of next year, we will see some very positive market trends. We still have a few months of sideways movement; the market is just moving sideways rather than going up or crashing hard, as there are no major catalysts or drivers to push the market up or down.