AllianceDAO Founder: How to Become an Excellent Cryptocurrency Founder?

Author｜Qiao Wang
Translator｜Kate, Mars Finance
Source｜medium
Note: This article is a personal essay by Qiao Wang, the founder of AllianceDAO, written in the first person.

I often hear this question from founders and VCs: "What selection criteria do you use when screening teams for AllianceDAO?" So I decided to write down my thoughts.

However, while writing this article, I realized that this is not only what we look for in the teams applying for our projects, but also what it takes to be an excellent crypto founder. The distinction between "what we look for" and "what is needed" is that the former is merely an assumption, while the latter is based on empirical evidence.

I do not delude myself into thinking I have the perfect answer to this question, but over the past three years, we have accelerated the growth of 200 startups, and some patterns have begun to emerge.

Insights

First, I will provide a practical alpha for potential applicants. One of the most important questions on our application form is, "What unique insights do you have about your users?" To my knowledge, having outstanding insights is one of the key factors that differentiate great crypto founders from mediocre ones. However, very few applicants can provide thoughtful answers to this question.

Deep insights about users often form the foundation upon which the entire business is built. For example, the initial idea behind Tensor was that, despite Opensea and Magic Eden dominating the market, there was still a significant user group: professional NFT traders. These professional traders need different tools, such as sweeping or advanced analytics. This is not much different from the world of fungible tokens, where professional traders need tools like perps or new ERC20 sniper tools. The entire product vision of Tensor is to serve these professional traders.

But great insights do not always have to be like that. They can also be unexpected observations that make us (the interviewers) say, "Wow, I had never thought of that before, but it makes sense." One example in this regard is when a member of StepN (ALL7) told us during an interview, "Many people spend money on gyms not because they need a coach or equipment, but because they need real engagement to hold them accountable." The fact is, we sift through thousands of applications every year, and there are very few new things we haven't heard before. Being able to teach us something new indicates that the founder can think independently, rather than just jumping into crypto after reading some "Why Web3 is important" articles from venture capital firms online.

Sometimes, great insights are entirely counterintuitive. When Ostium (ALL9) first met with us, they pitched "commodity RWA." The category of "RWA" was almost nonexistent at the time—no tokenized government bond projects had any real appeal—let alone "commodity RWA." So I countered, "No one in crypto cares about gold and oil. They are asset classes for the baby boomer generation." Kaledora responded, "r/wallstreetbet is obsessed with lean hogs and orange juice because they are very meme-able, and retail has no simple way to leverage trade them." I don't know if putting commodities on-chain will have significant development, but I love this counterintuitive observation.

Now, you might say that these insights seem trivial and could even prove to be completely wrong. That's true, but having insights alone is not the reason a founder might succeed. Instead, insightful thinking encompasses two crucial qualities.

First, I want to quote Ilja from Tensor: "If you don't think counterintuitively, you don't have a startup." It's not just investors who must make contrarian bets; founders must do so as well. In fact, when was the last time a crypto startup that ultimately succeeded was uncontroversial at the beginning? Do you remember how many people scoffed at Solana? Do you recall the CLOB vs. AMM debate surrounding Uniswap? By definition, entrepreneurship is about discovering a secret that others do not know or few agree upon. Otherwise, that company might already exist.

The second characteristic of insightful thinking is that the founder has spent a long time in their field, demonstrating perseverance, genuine passion, or both. I have written about this before, but I find that newcomers to crypto often need at least 1 to 2 years to form genuine insights. But why does it take so long? Well, I suspect it's because crypto is so counterintuitive and so different from the Web2 or TradFi backgrounds that most founders come from. Many times, founders give up on crypto before the critical moment arrives, often within less than 1 or 2 years.

Elite Schools or Elite Companies?

I want to explain this with a data nerd perspective. If you take all founders in the crypto space as a sample, you will find a correlation between attending elite schools or working at elite companies in Silicon Valley and their future success. However, if you select the top 1% subsample (which is the threshold for entering AllianceDAO), the correlation is essentially zero. When I look at the most successful companies we have incubated and the most successful crypto companies, very few come from elite backgrounds.

It needs to be clarified that a correlation of zero does not mean that elite degrees predict failure. Not at all. It just means that, at the highest level, it is no longer an independent predictor of success. But why is that?

Some founders have been taught from a young age that they must grow by 5% every week, or they will fail. However, the reality is that the growth trajectory of crypto products is rarely linear. Instead, most products, from centralized ones like Coinbase to protocols like Ethereum, grow in a stair-step manner. This is primarily due to the cyclical nature of the overall market. Therefore, these founders give up too quickly, often during stagnant bear markets.

Another reason is that many founders from elite backgrounds enter the crypto industry for the wrong reasons. They choose crypto because the influencers they follow on Twitter exaggerated that Web3 is the future of the internet at the peak of the bull market and fell into the trap of believing that rising prices empirically validated these claims. If you are a lower-class immigrant, all you want is to make life-changing money with Harry Potter or send remittances to your family; these claims sound ridiculous. Now, I do believe that Web3 will become an important part of the internet, but before entering a startup, you must be able to infer why this is the case from first principles and immerse yourself in existing crypto products to fully appreciate the power of crypto.

One direct consequence of senior elites from Web2 or TradFi entering the crypto space for the wrong reasons is that they often become enamored with reified ideas like "decentralized Uber." I know this term is now overused to the point of being annoying, but it is clear that just because something works in Web2 or TradFi does not mean it will work on the blockchain. When I interview applicants, I often ask myself or them: "What novel, quirky, or even potentially controversial consumer behaviors does their product bring about?" Even a non-genius can realize that decentralization often worsens user experience, but if the product can enable consumers to experience new behaviors they have never encountered before, that may be acceptable. If it cannot enable new behaviors, then it is merely competing with existing businesses in Web2 or TradFi that have worse user experiences. An example of novel behavior is that in DeFi, you can easily use hundreds of financial products from a single account without creating new accounts or undergoing KYC for each new product.

One question on our application form that I pay close attention to is: "Why did you choose to explore this idea?" Solving your own problem or your friend's problem can be a great answer. Interestingly, this answer often comes from founders in emerging markets or DeFi degens, who are the opposite of what I consider "elite." For example, Felipe built Kravata (ALL12) because he needed a fiat exit for Latin America to send remittances. Jackson built Thunder (ALL12) because he was frustrated with how difficult it was to mimic new ERC20s and Friendtech keys.

The key point is that if crypto is truly a long-term equalizing force for the 8 billion people on Earth, then logically, it must also be an equalizing force for crypto founders. That is to say, entrepreneurs from non-privileged backgrounds should have as much chance of success as elites. This is because they inherently understand users who are also non-privileged.

For these reasons, we rarely care about elite qualifications. We do care about them. About two-thirds of the applicants we admit did not come through enthusiastic introductions or referrals. They are complete strangers online who put a lot of thought into their applications and interviews. Many VCs believe that enthusiastic introductions are necessary because your ability to enter the VC community is your first test: if you can't even get an enthusiastic introduction, you won't get users. I agree with this viewpoint, but I also believe that for entrepreneurs from non-privileged backgrounds, the distance between them and elite VCs is not 1 degree to 2 degrees; their better use of time is to connect with users rather than with VCs.

Perseverance

While elite qualifications may not be a good indicator of first-principles thinking, they are a good indicator of perseverance. Many people, including myself, believe that persistence is the greatest commonality among successful founders in any industry.

On our application form, we ask applicants to describe a particularly persistent example. But to be fair, it is difficult to accurately gauge how strong a founder's perseverance is based solely on this question or during the interview process. Occasionally, they tell us some surprising things. One of our alumni (anonymized for privacy reasons) told me, "All my classmates from (a top university) have achieved great success in AI. If they can do it, I can too." I felt his/her passion.

Now, many people will say that money and fame are not good reasons to start a business. I'm not sure if that's true. But setting that debate aside, the most perseverant people I know are under a lot of pressure. No matter how much success they have achieved, they always seem to have something to prove. Many have experienced early trauma. It is well known that both Musk and Jobs were raised by abusive fathers.

But in the crypto industry, perseverance is even more important than in other industries, and this makes sense. Name another industry that experiences a complete boom and bust cycle every four years. Or another industry where the SEC chair has made it his personal mission to eliminate it. Or another industry where all the main characters end up in prison in less than a year. Whenever I see tweets like "I aged 3 years in the last 24 hours" or "I survived the bear market of 2022.11.20," I laugh. This is not an industry for the faint of heart.

A simple but not easy way to enhance perseverance is to find a partner you know well, preferably someone you have worked with before. We also ask applicants how they met their co-founders on the application form. The purpose of having co-founders is not only to complement each other's skills but also to provide psychological support for each other during tough times. The problem is that working with someone you just met at a conference rarely works; this person must be someone you have already built a trust relationship with. Many founding teams have dissolved during bear markets. They claim it is due to differing views, but upon closer examination, it is actually due to a lack of trust. If you cannot find someone you trust, you are better off going solo (you can also leverage founder communities like AllianceDAO for peer support).

Integrity

Warren Buffett said it best: "I look for three qualities: integrity, intelligence, and energy. If you don't have the first, the other two will kill you." In fact, over the past year, all the main characters who went to prison had the latter two but not the first. I don't think the term "integrity" needs further explanation.

Interestingly, the three elements of "integrity, intelligence, and energy" align very well with all the attributes I have discussed above. Insights relate to intelligence, perseverance relates to energy, and a non-privileged background may embody both.

In addition to these, we certainly also care about distribution, market size, engineering capability, defensibility, regulatory risks, and so on. But a weakness in one of these areas does not necessarily ruin a deal. We often work with insightful, non-privileged, persistent, and honest first-time founders to help them grow. These qualities may take years to cultivate or may even be innate, which is why they are indisputable. All other elements can be learned or acquired. All common mistakes can be avoided.