As the TON ecosystem gains momentum, why do most VCs just watch but not invest?

Original author: flowie, ChainCatcher

Recently, Donald, the founding partner of FA agency D 2 Capital, talked to no less than 60 VCs, and he found that none of them were not looking at the TON ecosystem. "Even if they started looking at it late, they started researching it three or four weeks ago."

But despite all the interest, not many actually invest. Most of the VCs Donald has contacted are still waiting and watching. Bruce Lan, managing partner of Bing Ventures, has scanned nearly 100 projects but has not yet made a move.

RootData shows that the number of financings for the TON ecosystem in the past six months is still in the single digit. In contrast, the Bitcoin ecosystem, which is as popular as TON, has received financing almost every week in the three hot months.

The investment institutions interviewed by ChainCatcher all firmly believe that the TON ecosystem is different from any previous ecosystem or narrative and will not be a flash in the pan. However, in the TON ecosystem with ready-made traffic, the gameplay has also changed.

NotCoin, which is listed on Binance and OKX, did not seek VC financing; Catizen achieved $12 million in revenue without issuing any tokens. More than one investment institution said, "In the future, it is not necessary for all invested projects in the TON ecosystem to issue tokens."

If crypto VCs view the TON ecosystem purely based on the inertia of token investment, it may no longer work.

No VC is not watching the TON ecosystem

PAKA founder Owen lamented that paying attention to TON was a bit niche a year ago, but now there are almost no colleagues around him who are not paying attention to TON.

At the beginning of 2023, at a private gathering of Hong Kong Blockchain Week, Owen received a small USDT transfer from a Telegram friend. This was a new feature announced by Telegram a month ago.

Nearly 1 billion users can trade directly on the chain, which surprised Owen, who has always been paying attention to large-scale applications.

After studying with the team, Owen believes that the TON ecosystem will be different from any other ecosystem in the past. "Other ecosystems all propose an obscure technology and ask users if they want to come and play, but users are indifferent to it except for the airdrop. Telegram has a large number of real users and can use Web3 technology to satisfy these users. The latter is obviously more in line with the path of large-scale application.

But when we really started scanning the TON ecosystem, it was really difficult to get started at first.

Owen felt that many projects were useless, and could be said to be "a pity to abandon and tasteless to eat." The liquidity was also very poor. TON's TVL at the time was less than 10 million US dollars.

The first page Owen saw for the TON ecosystem DEX was extremely rough. Owen thought, "The PAKA investment team, which has development experience, can probably do better in a week."

Shigeru, a partner of CGV Fund, who also looked at the TON ecosystem in early 2023, was temporarily discouraged after scanning several projects. In addition to the small number of projects and generally low quality, he also found that the timing of the entire market was not right. "The infrastructure is too scarce, and there is not even a self-hosted crypto wallet."

Owen also quickly realized that "due to the new development language and the imperfect corresponding infrastructure, it is not so easy to build a DEX."

However, with the development of TON ecological infrastructure and other aspects, in just a few months, the project that Owen "disliked" has already had millions of users.

After Telegram announced its exclusive partnership with TON in September last year, it borrowed the commercialization path of WeChat and opened up infrastructure such as payment wallets, allowing 900 million users to directly buy and sell tokens and NFTs on Telegram and participate in ecological projects such as GameFi. In April this year, Tether reached a cooperation with TON, and TON also had its own native stablecoin.

At the same time, TON has promoted the application of mini-programs. A large number of mini-program games such as Notcoin and Catizen have quickly completed the registration of tens of millions of users. Many mini-applications can have many revenue methods without relying on the issuance of coins.

The phased success of small games such as Notcoin and Catizen has also attracted a group of Web2 "regular forces" to enter the market. Max, the founder of TownSquare Labs, which provides technical solutions for TON blockchain and developers, often contacts developers and project parties through offline salons.

"Currently, many Web2 game manufacturers and entrepreneurs in the WeChat ecosystem are targeting Telegram." MAX mentioned that the traffic of Web2 social media platforms such as WeChat and TikTok is already very expensive and the business is also saturated.

Some Web2 entrepreneurs choose to go overseas in traffic depressions, and Telegram, which is very similar to WeChat, has naturally become an important position. "The methodology refined in the Web2 battle for many years can almost be copied to Telegram."

Owen also revealed that Web2 game developers such as Bingchuan, Weiyou and Sanqi have already started working on projects in the TON ecosystem.

However, compared with the changes in the internal ecology, the more critical factor that drives all Asia-Pacific VCs to pay attention to the TON ecology is the increased investment of top Western capital in the application layer and the TON ecology.

Paradigm and a16z both participated in Farcaster’s $150 million financing this year. Pantera Capital announced a heavy investment in TON in the first half of this year. According to analysts on the chain, the investment amount may exceed $250 million. Before that, the TON ecosystem was basically invested by Chinese or Russian capital.

Donald clearly felt that after the entry of Western capital, more VCs came to ask about TON ecosystem projects. "More than 50 VCs I talked to recently are all looking at TON ecosystem." Shigeru, who was discouraged by TON ecosystem last year, also began to pay close attention to it this year.

Donald said, “Many VCs understand that the combined investment of more than 50 VCs is only a few billion dollars. The capital volume of Asia-Pacific VCs alone cannot support a TON ecosystem.”

The entry of Western capital also means that more Western developers and project parties may be involved. Currently, most of the people building on the TON ecosystem are Eastern entrepreneurs and developers.

Donald has been in contact with both Eastern and Western entrepreneurs and developers in the TON ecosystem. He clearly feels that the Eastern side is still anxious to realize short-term profits, while Western entrepreneurs are more thinking about how to create super applications similar to Web2's Facebook, Snapchat, etc. around nearly 1 billion active users.

“Many VCs may expect that after the West has made some new paradigms, Asia-Pacific will create an Asia-Pacific version and break through with its own traffic cost advantages and better operational capabilities. Two years later, the number of products with a million DAU may be equally divided between the East and the West.”

Why do most VCs just watch but don’t invest?

Donald understands why most of the VCs he has contacted are reluctant to invest. Compared with a year ago, the rapid growth of TON ecosystem infrastructure and projects is obvious, but there are still not many targets to invest in.

Ton.app shows that there are currently 910 projects in the TON ecosystem, 60% of which have appeared in the past 8 months. Donald mapped 300-400 ecosystem projects, "90% of which are games." Owen also said that there are too many games in the TON ecosystem to keep up.

Most small game teams do not rely much on VC financial financing.

Owen came into contact with the team behind Notcoin last year. "They were working on a TON ecosystem launchpad platform, Tonstarter. I originally wanted to invest in Tonstarter, but the team said that their focus was on Notcoin and they didn't plan to take VC money. They wanted to go the pure community route." In fact, Notcoin did not announce any financing.

Even if they raise funds, these small game teams may only raise one round of funds during the cold start-up phase, and the amount of funds raised is very small. Donald has contacted many small game teams and found that "they have strong monetization capabilities." Scarlett, an investor in Pluto, the publisher behind Catizen, said that by adding a paid purchase module for game props, Catizen has achieved a revenue of over 12 million US dollars and has more than 500,000 paying customers.

Simple mini-games are not worth investing in for VCs. Many VCs are more concerned about whether the TON ecosystem can develop more 4399 mini-game malls and WeChat mini-game models.

Bruce Lan, managing partner of Bing Ventures, has looked at most of the TON ecosystem games. Like WeChat mini-programs such as Yangleyang, they are expected to have a short life cycle and disappear after rapid monetization. "It is difficult for VCs to guarantee a positive ROI, and such projects are more suitable for fair launch participation."

In addition, the number of registered users of small games in the TON ecosystem is often tens of millions or even hundreds of millions, so "the data is still somewhat inflated." Bruce Lan feels that some important indicators for evaluating game performance, such as real users, user stickiness, and future growth potential, are still in a very early or black box stage.

As the game is very competitive, CGV Fund partner Shigeru chose to focus more on the TON ecosystem infrastructure. He has recently looked at more than 20 projects. With few projects, some targets have "high valuations and are difficult to start with" due to the popularity of the TON ecosystem.

Although the market has high hopes for TON, Donald believes that if there are no more projects that create inflection points, the TON ecosystem will be no different from other short-lived narratives, "at most, it will be a different flavor of air." To be successful, "at least we need to have 3 million real DAU."

Many investors that Donald has contacted are still waiting and watching. They hope to see the TON ecosystem attract more top players from Web2 game giants such as ByteDance, Tencent, and NetEase, as well as Western entrepreneurs, to enter and bring about projects that will turn the TON ecosystem around.

In addition, VCs’ own liquidity issues may also constrain investment in the TON ecosystem. Donald said that VCs in the entire Asia-Pacific region have made fewer investments recently. Because in this round of ETF bull market, the entire cottage season has not taken off, and “institutions are more anxious about how to sell their chips.” No matter how hot the TON ecosystem is, investment decisions may be passed at the partner level.

In Donald's opinion, the investment boom in TON will have to wait until the next interest rate cut cycle comes, and after the traditional Web2 dollar fund and the Asia-Pacific Web3 fund have raised funds, so that the entire Web3 will have sufficient funds and liquidity.

Grab traffic as early as possible

In the middle of last year, Scarlett invested in Pluto, the publisher behind Catizen, and was considered one of the earliest investors in the TON ecosystem.

Scarlett believes that tap to earn games will definitely be eliminated, but he sees room for growth after Catizen gets huge traffic through games. After accumulating tens of millions of users, Catizen is also expanding its business boundaries and launching the Launchpool model. "In essence, it is more like a gamified Pump.fun."

PAKA is one of the few VCs that has made aggressive investments in the TON ecosystem. It has invested in more than 10 TON ecosystem projects, covering multiple segments such as Infra, games, red envelope applications, DeFi, DePIN, etc.

Owen wants to invest in all the different segments of the TON ecosystem as soon as possible. In Owen's opinion, "getting traffic first is more important than anything else." Although the TON ecosystem project looks simple, boring, and even rough, it is best to attract traffic at this time, and you can do anything with traffic.

For example, when WeChat first launched public accounts, the content quality and layout of public accounts were very rough, but with a little bit of uniqueness, they attracted millions of users and were easy to monetize. But after the track was saturated, it became increasingly difficult to do anything.

Bruce Lan feels that TON ecosystem Tap to earn games are similar to the web games that emerged after 2000. “Even though they were very simple, many web games at that time could generate tens of millions of dollars in revenue per month.”

He also does not expect the TON ecosystem to produce a masterpiece like Honor of Kings in the short term. In his opinion, most players have only been playing for a few months, and how to combine Web3 to play will require a long period of exploration. The performance of the TON chain also needs to continue to evolve to support high-performance games.

Compared with PAKA's wide-ranging ecological positioning model, Bing Ventures plans to focus on cultivation.

Bruce Lan does not want to wait for a killer application. He plans to proactively look for leading projects or platforms in the market, join forces with several leading VCs to incubate some projects, and fill in some blank tracks in the TON ecosystem.

Bruce Lan said that in addition to direct investment, Bing Ventures also has its own parent fund, which has invested in many European and American institutions. Bing Ventures currently tells its invested projects to look for opportunities on TON, and also hopes to influence more European and American GPs and LPs to pay more attention to large-scale application opportunities in the TON ecosystem.

Although it is unknown when large-scale applications will return, Shigeru, partner of CGV Fund, believes that the TON ecosystem may be able to end the current situation of "no mutual support" in the crypto market.

He feels that in most Web3 narratives in the past, there was a gap in cognition between the East and the West. For example, in the Bitcoin ecosystem that was popular at the beginning of this year, the first inscription that appeared was "The East is bright, the West is not bright", and then the rune "The West is bright, the East is not bright" appeared.

The TON ecosystem does not have to rely entirely on token economics, and has become a consensus path for achieving large-scale applications in the East and the West.

However, in an ecosystem that does not rely entirely on token investment, as more new models emerge, crypto VCs also need to think about how to change the inertia of past token investment and find more suitable investment methods.

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