Dialogue Folius Ventures Founder: The number of projects needing to sell tokens has increased by hundreds or thousands compared to the last cycle, and the "reshuffling" will continue for the next 18 months

Interviewer: Ruby, Growth Manager at RootData
Guest: Jason Kam, Founder of Folius Ventures
Organizer: Lyric, ChainCatcher

On the evening of September 3rd, at the RootData event "Navigating Bull and Bear Markets: Insights Behind VC Investments," invited guest Jason Kam, founder of Folius Ventures, shared his views on current market investment strategies.

Folius Ventures is a hybrid investment firm with a fund size of approximately $230 million. The team is located in various regions across Asia, including Shanghai, Shenzhen, Hong Kong, and Tokyo, and tends to support entrepreneurs from the Asia-Pacific region and the Chinese diaspora. The investment focus is primarily on the application layer, such as centralized exchanges, SaaS software, mobile applications, and games.

Jason Kam believes that the cautious investment approach of current VCs is due to a pessimistic outlook on the current market cycle and the need to reconstruct the exit strategy that relies on short-term, high-frequency investment projects with a 6-12 month horizon.

Here is the complete content of the Space:

Ruby: We have invited Jason Kam, founder of Folius Ventures. Please introduce the characteristics of Folius Ventures, Jason.

Jason Kam: Folius Ventures was established in September 2021, inspired by two friends. Compared to other investment firms, Folius Ventures is a hybrid investment firm that invests relatively less in the primary market but holds a significant amount of secondary assets. The fund size is approximately $230 million, and the team is located in various regions across Asia, such as Shanghai, Shenzhen, Hong Kong, and Tokyo. We tend to focus on entrepreneurs from the Asia-Pacific region and the Chinese diaspora. Our investment areas primarily focus on the application layer, such as centralized exchanges, SaaS software, mobile applications, and games.

Ruby: What is the current investment frequency of Folius Ventures?

Jason Kam: Since March of this year, Folius Ventures has not made many investments, with a frequency comparable to our peers.

I believe that the "broad net" model that most VCs have relied on since 2017, which involves quickly achieving exits from centralized exchanges within a 6 to 12-month cycle, needs to be reconstructed.

Investments in the primary market have undergone significant changes in recent years. Compared to before, current primary investments are more complex and speculative. The number of projects needing to be listed or already listed but requiring token sales has increased tenfold, hundredfold, or even thousandfold compared to previous cycles.

It is estimated that in the next 6 to 12 months, there will still be 50-200 projects with valuation requirements (over $500 million) that need to be listed on exchanges.

The industry faces challenges of insufficient liquidity and an increase in projects. Jason Kam believes that the industry will undergo a reshuffle in the next 18 months, and after 24 months, a wave of promising secondary projects may emerge.

Additionally, the irregular pace of emerging entrepreneurs, the cyclical nature of the industry, and our greater focus on application-layer tracks mean that we have not made frequent investments.

Ruby: How do you view the traditional "broad net" investment approach of current primary VCs, and how do you think an ideal exit mechanism should be designed?

Jason Kam: The model where some early-stage VCs hold small stakes, rely on hype to inflate prices, and quickly go public can yield high paper returns, but this investment approach and its exit mechanism need to be reconstructed in the future. An ideal exit mechanism should allow early investors, such as private equity investors, to achieve partial or full exits and obtain considerable returns through advisory agreements or pledges/airdrops, even when the project is not fully developed or listed. This means that even in the face of early lock-up situations, there can still be profit potential through later liquidity premiums.

Ruby: The relationship between retail and institutional investors seems to be increasingly tense. How do you think this relationship will develop, and what role will VCs play in it?

Jason Kam: There is indeed a phenomenon of liquidity shortages and a surge of innovative projects in the current market, which has led investors to feel a scarcity of new things, further exacerbating the conflict between VCs and retail investors. In future developments, VCs may be somewhat sidelined, but when considering long-term value, if a project can overcome liquidity issues, find a sustainable business model, and resist cyclical risks, then token models centered around business models still have investment opportunities.

Regarding the future relationship between retail and institutional investors, I believe the tension between these two groups is particularly evident in the crypto industry.

In traditional markets, the interaction between retail and institutional investors is relatively gentle, with institutions typically helping companies grow through early investments and exiting in mature secondary markets. In this process, companies usually have clear profit logic, and retail investors are not seen as "greater fools."

However, in the crypto industry, the challenges have significantly increased. On one hand, strong liquidity has led various participants to enter the market, creating a complex and risky market environment. More critically, with the introduction of new elements like Web3, establishing a long-term sustainable business model has become very difficult. The value of tokens is highly volatile, and retail investors may suffer severe losses after buying at high points. Furthermore, even if project teams have strong business capabilities, they may not be willing to translate that value back into tokens. This is mainly due to a lack of relevant requirements within the industry and regulatory pressures, causing excellent companies to be reluctant to realize value through token issuance. Current token designs often follow industry conventions, limiting the potential for innovation.

However, if companies can reasonably unlock tokens in the future and ensure that core business growth does not exceed inflation rates, there will still be investment opportunities. Therefore, we need to pay attention to these issues to help investors better cope with market fluctuations and challenges.

Ruby: What are your thoughts on projects that have strong business capabilities but may not necessarily need to issue tokens for exits?

Jason Kam: My view is that, first, capitalization is the best way to monetize the team's efforts over the years. Secondly, in the cryptocurrency field, if a company is leading in its industry and is well-regarded, it can persuade investors of the sustainability of its business model and achieve high valuations through capitalization. However, after implementing capitalization, the company must carefully consider whether this action will negatively impact its business development.

Ruby: Can you discuss your methodology for evaluating projects in the current market environment?

Jason Kam: In the current market environment, project valuations have become more complex. Evaluation should primarily focus on two capabilities of the project team: first, the ability to execute, meaning whether they can successfully implement their business logic and create competitive products; second, the ability to tell a story, meaning whether they can construct a business model and industry position that attracts investors. Only projects that excel in both areas, especially those that dominate their niche or have a significant competitive advantage, are more likely to navigate market fluctuations in the future, and we may consider these projects to have greater investment value.

Ruby: Which sectors do you think might see innovations next, and which sectors will Folius Ventures focus on?

Jason Kam: We believe that the current industry's infrastructure is relatively well-developed, but there is still room for improvement in user experience. Therefore, we are focusing on and willing to invest in companies that can provide seamless user experience UI/UX solutions, although the exit mechanisms for this segment are not easy to predict.

Additionally, we are looking for C-end application projects that combine Web 3 technology and traffic advantages, and that have reward mechanisms to maintain user stickiness in the long term.

At the same time, we are also optimistic about new platforms that may emerge on platforms like Telegram or X, and we look forward to participating in the growth paths native to Web 3.

Ruby: What are your thoughts on the Solana ecosystem?

Jason Kam: Regarding the Solana ecosystem, I believe its importance lies in its characteristics as a foundational public chain and its breakthroughs in Layer 2 security. More importantly, the Solana ecosystem needs to possess strong investment attraction and service capabilities, with its team focused on solving real problems and improving user experience, which is where its value lies.

Ruby: As a primary investor, do you place more emphasis on the team or the project itself when selecting investment projects?

Jason Kam: "Adults do not make choices." Personally, I lean towards valuing both equally. An excellent team and a promising project are both essential; they complement each other and together are more likely to create successful investment cases.

Ruby: As a primary investor, how do you see the differences between this bull market and previous ones, and what are your views on the upcoming market trends?

Jason Kam: Before 2019, investments in the primary market were relatively straightforward because there weren't as many funds and VCs. VCs would raise funds, tackle major projects, and then wait for the project to TGE and airdrop before staking, allowing them to sell tokens for cash. This business model was very appealing. Therefore, from 2019 until 2024, the number of entrepreneurs in the industry has surged dramatically, with many speculators also entering, leading to no real increase in projects that capture true value.

Current primary investments are more complex and speculative. The number of projects needing to be listed or already listed but requiring token sales has increased tenfold, hundredfold, or even thousandfold compared to previous cycles. The industry faces challenges of insufficient liquidity and an increase in projects, and in the next 18 months, the industry will undergo a reshuffle, while after 24 months, a wave of promising secondary projects may emerge.