Wu's Exclusive Interview with Qiao Wang: How to Invest in PUMPFUN for 1000x Returns? Alliance's Ultra-Early Investment Approach

In this interview, Qiao Wang, co-founder of Alliance and a well-known investor in the crypto industry, shared his investment strategies in the Crypto space. Alliance currently primarily invests in ultra-early-stage projects valued at several million dollars. He detailed the investment and incubation of PUMPFUN in this round, achieving at least a 1000x return, as well as the investment in Moonshot, which yielded over a hundred times return. He stated that the success of the PUMPFUN project hinges on the youth and innovative capabilities of their team. He mentioned that the biggest change after Trump took office is that he will not appoint an SEC chairman and Treasury Secretary who are hostile to cryptocurrencies, which will greatly improve entrepreneurial sentiment.

The audio recording was generated by GPT, so there may be some errors. Please listen to the complete podcast:

Xiaoyuzhou: https://www.xiaoyuzhoufm.com/episodes/672f67fcf373fe5d4df0d502

YouTube: https://youtu.be/nIkPUgPd_sA

Introduction

Colin: In recent months, due to the rise of some memecoin-related projects, the Chinese community has paid more attention to you. So I wanted to invite you to do a podcast and talk about this field. Why don't you start by introducing yourself, including your background growing up and entering the crypto space?

Qiao: I was born in Jinan and immigrated to Canada when I was 12. After graduating from university, I went to work in the United States. For the first six or seven years of my career, I was involved in high-frequency trading in the traditional finance industry. In 2011, a colleague introduced me to Bitcoin. At that time, I didn't buy it, but in 2012, another friend suggested I try investing, which led me to delve deeper into Crypto. In 2014, I participated in the ICO of Ethereum, which was my early investment experience in the Crypto field, although it was personal involvement, it was somewhat similar to VC. Because Vitalik is my alumnus.

In 2017, I joined Messari, responsible for the company's product line and building the technical team. I worked at Messari for three years, and in 2020, I left Messari to start my own business, founding Alliance, an incubator focused on cryptocurrencies, and I've been doing this ever since.

Colin: What prompted you to decide to start your own business?

Qiao: Actually, in the last year at Messari, our products, especially the B2B products, had made good progress. People thought Messari mainly focused on consumer-facing research and analysis tools, but in fact, Messari's strongest area was B2B business. At that time, we had already found the product-market fit. I really enjoy the startup phase from 0 to 1, but after reaching 1, I don't like to expand the business from 1 to 10. So after leaving Messari, I kept thinking about how to continuously do things from 0 to 1, even doing it four to five times a year. This idea was the impetus for me to start Alliance.

Team Composition and Investment Strategy of Alliance

Colin: In the beginning, did you have several partners working on this together? What are their backgrounds?

Qiao: Alliance's positioning is to invest in projects at the very early stage, so we are quite different from most VCs. We place great emphasis on deep participation, enjoying helping founders find good ideas, develop go-to-market strategies, and fundraising plans in the early stages of projects. The goal of Alliance is to focus on 0 to 1 projects, helping four to five such projects each year.

Our partners are all quite "crypto native," with about ten years of experience in this industry. One of my partners, Imran, is often active on Twitter, and people may know him; he was previously a professional VC. Another partner is Jacob. Then there's another partner, Roberto, whose background leans towards Web2; he previously worked at YC and is one of the founders of YC, with a deep understanding of the incubation and accelerator fields.

Initially, we used our own funds, without LPs, but as the number of projects increased and the investment amounts grew, we started to have LPs. Currently, our team is not large, with about fourteen to fifteen people.

Colin: Is the main work focused on investment, incubation, and research?

Qiao: Not entirely. We actually have a product team of 5 people, which accounts for one-third of the company. Our investment and research team is relatively small, probably just three or four people. The product team's job is to build an internal social network for the founders of the projects we invest in, allowing them to ask each other questions or discuss topics, such as their views on VCs, etc. This serves as a very interesting internal social platform. Next, we may develop an external social network to allow projects that we do not invest in to join.

Colin: How many projects have you invested in from the beginning until now? Are these projects all at the earliest stage, like angel rounds?

Qiao: Yes, we have invested in about 150 to 200 projects now. Four to five years ago, we were not investing in the earliest stage because there weren't many projects at that time, and there wasn't much venture capital in the Crypto space, so our investments were similar to those of other VCs. However, in the past year or two, we have basically focused on the earliest Pre-seed stage.

Colin: What is the current scale of the entire fund?

Qiao: Currently, looking at it from the VC logic, the scale of a VC fund changes with the post-investment valuation (mark-up).

Colin: According to your logic, did you start investing more in angel rounds or early-stage projects one or two years ago? Was that a turning point for you? Before that, you probably didn't have much exposure to very early-stage projects?

Qiao: Before that, most of the projects we encountered were indeed early-stage. The industry has undergone many changes in recent years. Two years ago, the number of projects increased by one or two orders of magnitude compared to before, and venture capital in the Crypto space also grew by one or two orders of magnitude. In this situation, different VCs would encounter projects at different stages and might even miss some projects. Therefore, we ultimately decided to focus on the earliest stage, completely concentrating on Pre-seed.

Colin: Does your investment style lean towards gaming and DeFi, or consumer products?

Qiao: Not entirely. This actually relates to market conditions. For example, we have also invested in many infrastructure (Infra) projects, such as Arbitrum, which have performed very well, as well as other Layer 2 projects. However, this year, there are many projects in the infrastructure space, and VCs are also inclined to invest in infrastructure, which has led to inflated and unreasonable valuations for Infra projects. In such cases, we choose not to touch these overvalued projects. Conversely, consumer projects often have lower valuations, especially those like the memecoins you just mentioned, which many VCs are hesitant to touch.

Colin: Can you disclose how many funds you have? For example, how have the returns been for the previous funds?

Qiao: We are currently on our third fund, with the first fund launched in 2021. 2021 was the worst year for the entire Crypto VC industry, but our fund still performed in the top 5% of the industry, possibly even higher.

Colin: From the current perspective, or from this round of cycles, are there any particular opportunities or chances that have allowed you to delve deeper into the memecoin space? What is your level of involvement with the currently popular memecoin products?

Qiao: In this round of cycles, the most successful project we invested in is PUMPFUN, which is at least a thousand times return project. When we invested in PUMPFUN, they were actually working on a different direction. They tried several different directions before finally establishing the current idea of PUMPFUN. Initially, we didn't expect it to become a memecoin project. At that time, my thought was that it could serve as a token launchpad, but I wasn't sure what kind of token would be launched. I just felt it had potential, similar to Zora (an NFT launchpad). Zora has been doing well for several years with stable income, but it doesn't have a circulating token, so I thought there was a need for such a project, which is why we decided to invest.

As a result, PUMPFUN eventually evolved into a launchpad focused on memecoins, which is common in early-stage investments; you can never fully foresee the final form of a project. However, later on, PUMPFUN indeed became one of the projects that sparked the entire memecoin space. After that, we invested in Moonshot, where we were clear that it would be a memecoin-type product, which was already very clear at the time of investment.

Investment Success Cases: Background, Team Characteristics, and Success Factors of PUMPFUN and Moonshot

Colin: OK, what was the reason for choosing to invest in PUMPFUN initially? Of course, you mentioned earlier that you felt there was a need for such a token launchpad, but what kind of research did you do on their team at that time? Did you place a lot of emphasis on the team's style and background when investing?

Qiao: When we invested in PUMPFUN, they were not initially doing a launchpad; they were originally working on an NFT marketplace, but after several attempts, they shifted to their current direction. When choosing this team, we mainly focused on the team rather than the specific idea. Especially at the Pre-seed stage, particularly for consumer applications, the success rate is very low, and the team may need to adjust their direction, so the core focus is still on the team's potential.

Colin: Are they a Chinese team?

Qiao: No, they are a European team.

Colin: Got it. Looking back at their success now, what qualities do you think the team has that made you optimistic about them? Is their success directly related to team characteristics, or is it more about luck?

Qiao: There is definitely a significant element of luck in successful projects, but there are also inevitable factors. The success of the PUMPFUN project hinges on the youth and innovative capabilities of their team. Many people have thought of this idea, but only PUMPFUN's team could truly execute it. I believe one reason is that they are very young; their CTO didn't even attend university, with the highest education being high school, yet he is technically very strong. Their youth and technical prowess allow them to view problems differently and have a keen intuition for products.

Colin: Indeed, many hacker-type talents do not have traditional higher education backgrounds.

Qiao: Yes, at this stage, background is not the main consideration. We focus more on understanding their thinking process through communication and seeing how they understand and feel about the product.

Colin: When you invested in PUMPFUN last December, what was the valuation approximately? Was it tens of millions of dollars?

Qiao: It wasn't that high; our investments are generally in the millions, and our standard amount for the Pre-seed stage is 5 million dollars. We generally do not invest in projects valued at tens of millions.

Colin: Since you are investing in early-stage projects, is the failure rate very high? What do you estimate the failure rate to be?

Qiao: The failure rate depends on how you define failure. If a project goes to zero, that counts as a failure. I would roughly categorize investment outcomes into three types: the first type is going to zero; the second type is recovering the principal or making a slight profit; the third type is achieving 10x, 100x, or even 1000x returns. PUMPFUN belongs to the extremely high-return projects and is an exception. So far, the zero rate of the projects we invested in is actually very low, which surprised me. My expectation was that one-third would go to zero, one-third would recover the principal, and one-third would achieve ten times or more returns. But the actual situation is that very few projects have gone to zero; if the team is good and really puts in the effort, they usually find a way to survive.

Colin: It seems that you indeed have unique insights and methods in selecting teams. So besides youth and drive, what other selection criteria do you have?

Qiao: Youth is not a standard; we have also invested in founders in their thirties or even older. The key is the match between the team's background and the project. If it's a launchpad for memecoins, a young team might be more suitable, but if it's an infrastructure (Infra) project, a team in their early twenties may not be competent and would need a more experienced technical background. Therefore, the key is whether the team's background matches the project.

Colin: When you invested in PUMPFUN, was it equity investment or tokens?

Qiao: It was a mix. For consumer projects like PUMPFUN, not much funding is needed; we only invested a few hundred thousand dollars.

Colin: For a project valued at several million dollars, that's still a significant amount.

Qiao: Yes, our amount is not small, but for consumer projects, a few hundred thousand dollars is often sufficient. Sometimes having too much funding can become a hindrance.

Colin: What kind of help did you provide during PUMPFUN's success?

Qiao: The core idea of the project was provided by us, but the final execution lies with the team. A good idea is only 1% of success; 99% is in execution. An excellent team can usually identify good ideas and execute them effectively. Many successful ideas are not actually novel; the key lies in execution.

Colin: Did PUMPFUN encounter many competitors before their success? How did they win the competition?

Qiao: Yes, PUMPFUN had some competitors from the beginning, although not many, but when their revenue reached several tens of millions of dollars, competitors quickly increased. The key to success lies in their execution and deep understanding of users, as they are users themselves.

Colin: How many people are on their team?

Qiao: There are currently about a dozen people; initially, there were only three.

Colin: The profit per person is very high.

Qiao: Yes, many excellent Web2 startups are like this. Instagram had only a dozen people when it was acquired by Facebook.

Qiao's Views on the Current Memecoin Space and Market Potential Analysis

Colin: I have two more questions about PUMPFUN. First, what do you think their future direction will be? Will they make some transformations or upgrades, such as moving towards a more centralized exchange direction?

Qiao: I have some understanding of their future direction, but I can't disclose that at the moment.

Colin: Understood, no problem. The other question is, do you think they will issue their own tokens? Or will they do this to some extent?

Qiao: I can't say that either, haha.

Colin: Alright, let's talk about another phenomenal project—Moonshot. When did you start connecting with them? How did the project team find you?

Qiao: This project is from our previous fund, and we connected with them around June or July. I don't know how they found us, but they applied through our website, and after a few conversations, our team was quite impressed with them. This team doesn't have any prominent background; they are just two young people.

Colin: Which country are they from?

Qiao: They are a team from the United States, and one of the founders is a student at Duke University; that's my only impression of their background. Normally, VCs wouldn't invest in such a team, but after talking to them, you find that they have a very good feel for the product.

Qiao: The idea behind Moonshot is very simple; it solves a direct problem. For example, on centralized exchanges like Coinbase or Binance, you can deposit fiat currency and then purchase tokens, but those tokens are already listed. Moonshot allows users to directly purchase memecoins with fiat currency. This idea is very simple, but as long as the problem exists and a sufficiently good solution is provided, it can develop very well.

Colin: So their advantage lies in the ability to purchase memecoins with fiat currency, or is it more like a curated memecoin platform?

Qiao: Curation is very important. When we discussed this, we found that the uniqueness of their team lies in their decision to only recommend the version of memecoins with the highest liquidity within the same category. For example, for the same category of Trump memecoins, they won't show multiple versions to users but will filter out the highest quality one. This simplified user experience is particularly good for retail investors.

Colin: What was their valuation when you invested?

Qiao: We do not invest in projects valued at tens of millions.

Colin: Now their valuation must be very high, right? Have they had a recent round of financing?

Qiao: Their current valuation is about 100 times the initial investment.

Colin: It seems that PUMPFUN and Moonshot are your two most successful projects in this round of cycles; are there any others?

Qiao: We previously invested in a project called Glow, which belongs to the decentralized energy (DePIN) field, mainly focused on carbon credits. Their recent round of valuation reached 160 million dollars, backed by the leading clean energy VC USV.

Colin: You also participate in memecoin investments; how do you view the sustainability of this space? Since both PUMPFUN and Moonshot focus on this, if this space lacks sustainability, those projects will also be affected.

Qiao: Even if we hadn't invested in PUMPFUN and Moonshot, I would still believe that the memecoin space has high sustainability. What is the core purpose of buying memecoins? Many people do it to "turn their fortunes around." In contrast, buying VC coins (tokens backed by VCs) is difficult to achieve such returns; many VC coins start to decline as soon as they are listed. Additionally, while certain VC coins may perform well during specific market cycles, like in the DeFi space, ordinary retail investors usually do not understand these areas and tend to prefer buying things they can easily comprehend. Therefore, these two points combined give memecoins a certain level of sustainability.

Colin: That's true. In the current cycle, VC coins have faced strong challenges from memecoins, partly due to regulatory influences. Due to regulatory restrictions, ICOs and many launchpad projects can no longer operate, to some extent, memecoins have replaced retail investors' early participation opportunities in ICOs.

Qiao: Even if VC coins can conduct ICOs, what will the final result be? First, retail investors may not understand the content of these VC coin projects; second, investments often take months to unlock. In contrast, memecoins provide immediate liquidity after investment. Therefore, the existence of ICOs will not impact memecoins; rather, it has a greater effect on VCs, as many projects find it increasingly difficult to raise funds from VCs and choose to conduct ICOs directly.

Expectations for Changes in U.S. Regulatory Policies and Their Impact on the Crypto Industry

Colin: However, I think expecting Trump to quickly relax policies in this area may not be very realistic. There may be a significant difference between his pre-election promises and post-election actions. However, since you are in the U.S., I would like to hear your thoughts on what certain changes Trump’s election will bring to the Crypto industry.

Qiao: The most obvious change should be that Trump will not appoint someone like Gary Gensler to head the SEC (U.S. Securities and Exchange Commission). This is crucial, not only for the SEC but also for the Treasury, as both departments are very important.

Colin: Yes, the Treasury is responsible for stablecoins and related areas.

Qiao: Right, the Treasury not only manages stablecoins but also deals with privacy issues, and even self-custody falls under their jurisdiction. The Treasury's power is actually much greater than that of the SEC; it's just that over the past four years, they haven't specifically targeted Crypto. If the next Treasury Secretary has an unfriendly attitude, it could have a very negative impact on the industry.

Colin: I remember that when Trump took office, a currency department head in the Treasury was very supportive of Crypto.

Qiao: Yes. So the most direct change is that if the SEC and Treasury no longer suppress Crypto, then entrepreneurs in the U.S. and even globally will be more willing to pursue Crypto projects. Over the past four years, the SEC has primarily targeted legitimate projects rather than those that are genuinely violating regulations; even FTX was not heavily regulated.

Qiao: Therefore, the most direct impact is the improvement of entrepreneurial sentiment, which is very beneficial for Crypto. This change can almost be seen immediately; it doesn't require new laws or regulatory adjustments—just a change in attitude, and entrepreneurial sentiment can improve right away. Besides sentiment, the new laws you mentioned, such as those regarding stablecoins or ICOs, do indeed require time to promote. However, now that both houses of Congress are led by Republicans, the likelihood of passing laws is greater, but it still takes time.

Colin: After your investments in PUMPFUN and Moonshot were successful, have you seen a noticeable increase in projects approaching you?

Qiao: There has indeed been an increase. In fact, even before PUMPFUN and Moonshot, most entrepreneurs in the U.S. and Europe were already aware of us. As you just mentioned, the Chinese community may have only recently started to truly understand us. In fact, in our most recent batch of projects, the proportion of Chinese teams is quite high, about 30% to 40% are from China. Chinese teams find it difficult to raise funds from Western VCs, mainly due to cultural and language barriers, but for me, these are not issues.

Future Investment Directions and Advice for Chinese Entrepreneurial Teams

Colin: You have four years of experience in early-stage incubation and investment, and you mentioned that about 30% to 40% of your investment projects are from Chinese teams. Do you think there are any differences between Chinese entrepreneurs and those from the U.S. and Europe?

Qiao: Essentially, there isn't much difference; the main differences are still in language and culture, such as some barriers when communicating with Western communities or VCs. I find that many Chinese projects place great importance on gaining the support and endorsement of Western VCs. I always tell them that this is actually not important; the value of endorsement is not significant; the key is to create a good product, which will naturally attract good VCs to find you. Of course, the community still has some influence, which is a cultural difference.

Colin: Indeed, creating a product with real users and revenue is not easy. Successful projects like PUMPFUN are rare; there may be only one among thousands or tens of thousands of projects. Do you think this product form is foreseeable, or does it require luck and market competition to drive it?

Qiao: Luck plays a very significant role. PUMPFUN is an example; even when they first started this project, we provided the idea, but we didn't anticipate it could grow this large; the randomness is very high, almost exceeding 90%.

Views on the Current Memecoin Boom in This Cycle

Colin: Do you think there are any changes in the hotspots of this cycle compared to the last cycle? Around 2019, fields like DeFi, NFTs, and gaming were very popular, but this cycle seems to have only memecoins that are relatively hot?

Qiao: This cycle is indeed somewhat different; the main hot areas are memecoins and stablecoins. However, stablecoin projects typically do not issue tokens.

Colin: Yes, projects supported by Circle or Tether tend to be more stable. Will you invest in new stablecoin projects?

Qiao: We will not invest in stablecoin projects that compete with Circle or Tether, but we will invest in some application layer or infrastructure (Infra) related projects, such as cross-border payments. In the Infra space, we invested in a bridge project that was acquired, which provides APIs for developers and can be seen as a kind of stablecoin infrastructure.

Colin: What do you think about the phenomenon of memecoins being concentrated on Solana? And the competition between Solana and Ethereum?

Qiao: I’m not entirely sure why memecoins are concentrated on Solana, but I suspect it has to do with the early influencer Ansem. He brought a large number of users to Solana, and their addition may have driven the growth of memecoins.

Colin: Indeed, influencer promotions are very important for memecoins; for example, Murad's recent promotions have brought new momentum to memecoins. His thinking is very clear; a few days ago, I did a podcast with him, and it was indeed special.

Qiao: Yes, Murad is indeed impressive. Although many traditional VCs do not hold him in high regard, when you listen to him speak, you will find his thinking is very clear.

Colin: Indeed, his logic is very straightforward. There are many people who do not recognize figures like Ansem, but he actually has a lot of ideas and a very strong technical background.

Standards, Processes, and Subsequent Support for Team Selection

Colin: Returning to the earlier question, you have received so many project applications; what are the standards and processes for screening? How did you initially filter out the projects of interest?

Qiao: The screening work is mainly handled by me; I look at four to five thousand projects each year, about a dozen each day. I don't have specific standards; I mainly rely on intuition. Through their application materials, I can sense the clarity of thought, background, and attractiveness of the project.

Colin: Then if they pass the initial screening, how do you further engage with these teams?

Qiao: If they pass the initial screening, I will arrange for our partners to talk with them. Many excellent projects can be judged in just five minutes of conversation; although we say it lasts 20 minutes, a few minutes is usually enough.

Colin: What kind of help do you provide after investing?

Qiao: The main areas where we help are threefold: first, assisting them in entering the market, finding users, and analyzing user feedback; second, if the initial idea of the project is not mature, we will discuss new ideas with them; third, helping them with fundraising.

Views on Recent Performance of VC Tokens, TON, and the Impact of Trump's Election

Colin: Regarding the recent poor performance of VC-backed tokens, such as some projects experiencing significant declines on Binance, what do you think?

Qiao: The phenomenon is simple: there are too many project tokens and insufficient funds. The FDV (Fully Diluted Valuation) of VC coins is too high, and no one is willing to buy in, leading to price declines. In contrast, the initial FDV of memecoins is usually lower, allowing for natural growth. Centralized exchanges are also responsible for this phenomenon because they have listed some projects without user bases, ultimately harming retail users.

Colin: What do you think about the recently popular TON blockchain games? Have you considered investing in similar projects?

Qiao: We have been looking for opportunities to invest in TON blockchain projects, but we haven't found particularly good teams yet. TON, as the only Web3 project supported by a large social media platform, is indeed unique, but it also faces challenges, such as user quality and token performance issues.

Colin: How long do you think this Crypto bull market will last under Trump's influence?

Qiao: I'm not sure how long it will last, but the outlook for the next three to six months is very good. However, it mainly depends on macroeconomic policies; Trump's Crypto policies are one aspect, but macroeconomic factors are more important.

Colin: Alright, we talked a lot today; thank you very much for your time. I hope we can delve deeper next time.

Qiao: Sure, thank you.