Source: Wu Says
In this interview, Qiao Wang, co-founder of Alliance and a well-known investor in the crypto industry, shared his investment strategy in the Crypto field. Alliance mainly invests in super early projects valued at a few million dollars. He detailed the investment and incubation of PUMPFUN, achieving at least a thousandfold return, as well as the investment in Moonshot, achieving over a hundredfold return. He stated that the success of the PUMPFUN project hinges on the youth and innovative capabilities of their team. He noted that the biggest change after Trump took office is that he will not appoint hostile SEC chairpersons or treasury secretaries towards cryptocurrencies, which will significantly improve entrepreneurial sentiment.
Opening introduction
Colin: In recent months, due to the emergence of some memecoin-related projects, the Chinese community has paid more attention to you. So I wanted to invite you to do a podcast to discuss this field. Why don't you start by introducing yourself, including your growth and entry into the crypto space?
Qiao: I was born in Jinan and immigrated to Canada at the age of 12. After graduating from university, I went to the United States to work. For the first six to seven years of my career, I was engaged in high-frequency trading in the traditional financial industry. In 2011, a colleague introduced me to Bitcoin. I didn't buy it at the time, but in 2012, another friend suggested I could 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 participation, it was somewhat similar in nature 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, leaving in 2020 to start my own business, founding Alliance, an incubator focused on cryptocurrency, which I have been doing since then.
Colin: What prompted you to decide to start your own business?
Qiao: In fact, in the last year at Messari, our product, especially the B2B product, made significant progress. People thought Messari mainly did consumer-facing research analysis tools, but Messari's strongest area is B2B business. At that time, we had already found a product-market fit. I enjoy the startup stage from 0 to 1, but once it reaches 1, I don’t like to expand the business from 1 to 10. So after leaving Messari, I have been thinking about how to keep doing things from 0 to 1, even doing it forty to fifty times a year. This idea was precisely the opportunity that led me to start Alliance.
The team composition and investment strategy of Alliance
Colin: In the beginning, did you have several partners doing this together? What were their backgrounds like?
Qiao: The positioning of Alliance is actually to invest in projects at the earliest stage, so we are quite different from most VCs; we focus heavily on deep involvement and like to help founders find good ideas, formulate go-to-market strategies, and fundraising plans early on. Alliance’s goal is to focus on projects from 0 to 1, helping forty to fifty such projects each year.
Our partners are actually very 'crypto native', with about ten years of experience in this industry. One of my partners is named Imran, who is often active on Twitter; you might know him a bit. He was previously a professional VC. Another partner is named Jacob. Then there’s another partner, Roberto, whose background leans towards Web2; he previously worked at YC and is one of YC's founders, 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, so did the investment amounts, and later we began to have LPs. Currently, the team size is not large, with about fourteen to fifteen people.
Colin: Is most of the work focused on investment, incubation, and research?
Qiao: Not completely. We actually have a product team of five people, making up a 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. We may develop an external social network next, allowing non-invested projects to join.
Colin: So from the beginning until now, how many projects have you invested in total? Are these projects all at the earliest stage, such as angel round?
Qiao: Yes, we have now invested in about 150 to 200 projects. Four to five years ago, we weren't investing in the earliest stages, because there weren't many projects at that time, and venture capital funds in the Crypto field were also limited, so our investment projects 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 approximately?
Qiao: Now it's viewed according to VC logic; the scale of VC funds will change with post-investment valuations (mark-up).
Colin: According to your logic, did you mainly start investing more in angel rounds or early projects one or two years ago? Was that a turning point for you? Before that, you probably didn’t have much contact with particularly early-stage projects?
Qiao: Before that, most of the projects we encountered were indeed early-stage projects. There have been many changes in the industry over the past few years. Two years ago, the number of projects grew by one or two orders of magnitude compared to before, and venture capital funds in the Crypto field also increased by one or two orders of magnitude. In this situation, different VCs will encounter projects at different stages and may even miss some projects. Therefore, we ultimately decided to focus on the earliest stage, fully concentrating on Pre-seed.
Colin: Does your investment style lean more towards gaming and DeFi sectors, or consumer products?
Qiao: Not entirely. This actually relates to market conditions. For instance, we have also invested in many infrastructure (Infra) projects, such as Arbitrum, which have performed very well, along with other Layer 2 projects. However, this year there are many projects in the infrastructure sector, and VCs tend to invest in infrastructure, which has led to inflated and unreasonable valuations for Infra-type projects. At this time, we choose to avoid these overvalued projects. In contrast, consumer projects often have lower valuations, especially for memecoins like the ones you just mentioned, which many VCs dare not touch.
Colin: Can you reveal how many rounds your fund has?
Qiao: We are currently in the third fund; the first was in 2021. 2021 was the worst year for Crypto VCs overall, but our fund's performance was still in the top 5% of the industry, possibly even higher.
Colin: So looking at it from now, or from this cycle, are there any particular opportunities or chances that have allowed you to delve deeper into the memecoin sector? How involved are you with the currently popular memecoin products?
Qiao: Actually, the most successful project we invested in this cycle is PUMPFUN, which is at least a thousandfold return project. When we invested in PUMPFUN, they were actually doing something else. They tried several different directions before finally establishing the current idea of PUMPFUN. At first, we didn't think it would become a memecoin project. My initial thought was that it could serve as a token launchpad, but I wasn't sure what kind of token would specifically be launched. I just felt that 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 felt 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 quite common in early investments; you can never fully foresee the final form of a project. However, later on, PUMPFUN indeed became one of the projects that ignited the entire memecoin sector. After that, we invested in Moonshot, and this time we clearly knew it would be a memecoin-like product, which was already clear at the time of investment.
Successful investment cases of PUMPFUN and Moonshot, their backgrounds, team characteristics, and success factors
Colin: OK, what was the reason for choosing to invest in PUMPFUN at that time? 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 the time? Did you place great importance on the team's style and background when investing?
Qiao: When we invested in PUMPFUN, they were not doing a launchpad; they initially started as an NFT marketplace but shifted to their current direction after several attempts. 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 low, and the team is likely to adjust direction, so the core consideration is the team's potential.
Colin: Are they a Chinese team?
Qiao: No, they are a European team.
Colin: Understood. Now, looking back at their success, what qualities do you think the team has that made you optimistic about them? Is their success directly related to team characteristics, or is luck a bigger factor?
Qiao: Luck certainly plays a significant role 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 was able to truly realize it. One reason is that they are very young; their CTO didn't even go to university, with the highest education being high school, yet their technical skills are very strong. Their youth and technical capabilities allow them to view problems differently and have keen instincts about products.
Colin: Indeed, many hacker-type talents do not have traditional higher education backgrounds.
Qiao: At this stage, the background is not the main consideration; we are more focused on communication to understand their way of thinking and how they comprehend and feel about the product.
Colin: When you invested in PUMPFUN in December last year, what was their valuation approximately? Was it tens of millions?
Qiao: Not that high. Our investments are generally in the millions of dollars, and our standard amount at the Pre-seed stage is $5 million. We generally do not invest in projects valued at tens of millions.
Colin: Since you are investing in early-stage projects, does that mean the failure rate is 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, it 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 tenfold, hundredfold, or even thousandfold returns. PUMPFUN belongs to the extremely high return projects; it is an exception. So far, the zero rate of the projects we invested in is actually quite 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 returns over ten times. However, the actual situation is that very few projects have gone to zero; if the team is good and really commits to the project, they usually find ways to survive.
Colin: It seems you truly have unique insights and methods in selecting teams. So besides youth and drive, what other selection criteria are there?
Qiao: Youth is not the only criterion; we have also invested in founders who are in their thirties or even older. The key is the match between the team's background and the project. If it is a launchpad for memecoins, a young team might be more suitable, but for infrastructure (Infra) projects, a team in their early twenties may not be competent and may need more experienced technical backgrounds. Therefore, the key is whether the team background matches the project.
Colin: Was the investment in PUMPFUN an equity investment or token?
Qiao: It's a mixed approach. For consumer projects like PUMPFUN, there is not a need for a lot of funding; we only invested a few hundred thousand dollars.
Colin: For a project valued at a few million, that’s also quite a lot.
Qiao: Yes, our allocation is not small, but for consumer projects, several hundred thousand dollars is often sufficient. Having too much funding can sometimes become a hindrance.
Colin: What kind of help did you provide during PUMPFUN's success?
Qiao: The core idea of the project is what we provide, but the final execution lies with the team. A good idea is only 1% of success; 99% is in execution. Excellent teams can usually identify good ideas and execute them effectively. Many successful ideas are not novel; the key lies in execution.
Colin: Did PUMPFUN encounter many competitors before its success? How did they win the competition?
Qiao: Yes, PUMPFUN did have some competitors at the beginning, though not many, but as their revenue reached several tens of millions, competitors rapidly increased. The key to success lay in their execution and deep understanding of users since they were users themselves.
Colin: How many people are on their team?
Qiao: There are now about a dozen people; it initially started with only three.
Colin: The per capita profit is very high.
Qiao: Yes, many excellent Web2 startups are also like this. The team of Instagram was only a dozen people when it was acquired by Facebook.
Qiao's views on the current memecoin sector 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 any transformations or upgrades, like 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. Another question is, do you think they will issue their own tokens? Or will they do so to some extent?
Qiao: I can't say this either, hahaha.
Colin: Alright, let's talk about another phenomenal project—Moonshot. When did you start connecting with them? How did the project find you?
Qiao: This project is from our last batch, which we connected with around June or July. I don't know how they found us, but they applied through our website, and after a few discussions, our team was impressed by them. This team doesn't have any prominent background; they are just two young individuals.
Colin: Where are they from?
Qiao: The American team, one of the founders is a Duke University student, which is my only impression of their background. Normally, VCs wouldn't invest in such a team, but after talking with them, it became clear they have a great sense of the product.
Qiao: The idea of Moonshot is very simple; it solves a direct problem. For example, in 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 is their advantage the ability to purchase memecoins with fiat currency, or is it more like a curated memecoin platform?
Qiao: Selection is very important. When we discussed this, we found that the uniqueness of their team lies in the fact that they decided to only recommend the version of the same type of memecoin with the highest liquidity. For instance, for Trump memecoins of the same type, they don’t present multiple versions to users but instead 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: Is their valuation already very high now? Do they have a new round of financing?
Qiao: The current valuation is about 100 times the initial investment.
Colin: It seems that PUMPFUN and Moonshot are your two most successful projects in this cycle. Are there any others?
Qiao: We previously invested in a project called Glow, which belongs to the decentralized energy (DePIN) field, mainly focusing on carbon emissions offsetting (carbon credits). Their most recent round achieved a valuation of $160 million, backed by globally leading clean energy VC USV.
Colin: You also participate in memecoin investments yourself; how do you view the sustainability of this sector? Because both PUMPFUN and Moonshot are focused on this, if this sector does not have sustainability, these projects will also be affected.
Qiao: Even if we didn't invest in PUMPFUN and Moonshot, I would still think that the memecoin sector has high sustainability. What is the core purpose of buying memecoins? Many people do it to 'turn things around'. In contrast, buying VC coins (tokens supported by VCs) is less likely to yield such gains, and many VC coins start to drop once they are listed. Moreover, although some VC coins perform well in certain market cycles, such as in the DeFi sector, ordinary retail investors typically do not understand these areas and are more inclined to buy things they can easily comprehend. Therefore, these two points combined indicate that memecoins possess a certain level of sustainability.
Colin: Indeed, in the current cycle, VC coins are facing strong challenges from memecoins, partly due to regulatory impacts. Due to regulatory restrictions, ICOs and many launchpad projects cannot be done, to some extent, memecoins have replaced retail investors' early participation opportunities in ICOs.
Qiao: Even if VC coins can do ICOs, what will the final result be? First, retail investors might not understand the project content of these VC coins; second, investments usually take months to unlock. In contrast, memecoins provide liquidity immediately after investment. Thus, the existence of ICOs does not impact memecoins; instead, it affects VCs more, as many projects find it harder to raise funds from VCs and choose to go directly for ICOs.
Expectations for changes in U.S. regulatory policies and their impact on the Crypto industry
Colin: However, I think it may not be very realistic to expect quick relaxation of policies in this area after Trump takes office. There may be a big difference between his pre-election promises and post-election actions. But since you are in the U.S., I still hope 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 let someone like Gary Gensler run the SEC (U.S. Securities and Exchange Commission) as before. This is crucial, not just for the SEC, but also important for the Treasury; both departments are very critical.
Colin: Yes, the Treasury is responsible for stablecoins and some related areas.
Qiao: Yes, the Treasury not only manages stablecoins but also deals with privacy issues, and even self-custody falls under their management. The Treasury's power is actually much greater than that of the SEC; it just hasn't specifically targeted Crypto in the past four years. 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 repress Crypto, then entrepreneurs in the U.S. and even globally will be more willing to work on Crypto projects. Over the past four years, the SEC has mainly targeted legitimate projects rather than those that are actually illegal; FTX was hardly regulated.
Qiao: So the most direct impact is the enhancement of entrepreneurial sentiment, which is very favorable for Crypto. This change can almost be seen immediately; it doesn't require new laws or regulatory adjustments—just a change in attitude will instantly improve entrepreneurial sentiment. Aside from sentiment, the new laws you mentioned, such as those regarding stablecoins or ICOs, indeed take time to push forward. However, both houses of Congress are currently led by the Republican Party, so the chances of laws passing are greater, but it will still take time.
Colin: After your investments in PUMPFUN and Moonshot were successful, has there been a noticeable increase in projects seeking you out?
Qiao: There has indeed been an increase. Actually, even before PUMPFUN and Moonshot, most entrepreneurs in the U.S. and Europe already knew 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, around 30% to 40% are from Chinese projects. It's not easy for Chinese teams to raise funds from Western VCs, mainly due to cultural and language barriers, but these are not issues for me.
Future investment directions and advice for Chinese entrepreneurial teams
Colin: You already have four years of experience in early-stage incubation and investment, and you just mentioned that about 30% to 40% of the investment projects are from Chinese teams. What differences do you see between Chinese entrepreneurs and those from the U.S. and Europe?
Qiao: Essentially, there is not much difference; the main differences are still in language and culture, such as having some barriers when communicating with Western communities or VCs. I find that many Chinese projects attach great importance to gaining support and endorsement from Western VCs. I always tell them that this is not very important; the value of endorsement is not significant. The key is to create a good product, which will naturally attract good VCs to approach 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; perhaps only one in several thousand or even tens of thousands of projects will achieve this. Do you think this product form is foreseeable, or does it require luck and market competition to drive it?
Qiao: Luck plays a significant role. PUMPFUN is an example; even when they initially started this project, we gave them this idea but did not anticipate it could grow this large; the randomness is very high, almost over 90%.
Views on the current cycle's memecoin boom
Colin: Do you think the hotspots in this cycle have changed compared to the last? Around 2019, fields like DeFi, NFTs, and gaming were very hot, but this cycle seems to only have memecoins that are quite 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 are often more stable. Will you invest in new stablecoin projects?
Qiao: We will not invest in stablecoin projects that compete with Circle or Tether, but will instead invest in some application layer or infrastructure (Infra) related projects, such as cross-border payments. On the Infra level, 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 am not entirely sure why memecoins are concentrated on Solana, but I speculate it is related to early influencer Anson. He brought a large number of users to Solana, and their addition may have driven the growth of memecoins.
Colin: Indeed, shoutouts are very important for memecoins. For instance, Murad's recent shoutouts have brought new momentum to memecoins. His ideas are very clear; I did a podcast with him a few days ago, and it was indeed very special.
Qiao: Yes, Murad is indeed very impressive. Although many traditional VCs do not rate him highly, you will find that his ideas are very clear when you listen to him.
Colin: Indeed, his logic is very straightforward. There are many people like Ansem whom others do not recognize, but he actually has a lot of ideas and a very strong technical background.
Standards and processes for screening teams and subsequent support
Colin: Going back to the earlier question, with so many project applications, what are the screening standards and processes? How did you initially filter out the projects of interest?
Qiao: The screening work is mainly my responsibility. I look at about four to five thousand projects every year, roughly a dozen each day. I don't have specific standards; I mainly rely on intuition. The clarity of their ideas, backgrounds, and the attractiveness of the projects can be felt through their application materials.
Colin: Then if you pass the initial screening, how do you further contact these teams?
Qiao: If they pass the initial screening, I will arrange for our partners to talk with them. Many excellent projects can be assessed in just a five-minute conversation; although we say it's a 20-minute chat, a few minutes are often enough.
Colin: What kind of help do you provide after investing?
Qiao: The main areas we help with include three aspects: first, assisting them in market entry, finding users, and analyzing user feedback; second, if the project's initial idea is not mature, we explore new ideas with them; third, we help them with fundraising.
Views on the recent performance of VC tokens, the impact of TON, and Trump's election
Colin: What do you think about the recent poor performance of tokens supported by VCs, such as some projects dropping significantly on Binance?
Qiao: The phenomenon is simple: there are too many project tokens and insufficient funding. The FDV (fully diluted valuation) of VC coins is too high, and no one is willing to take over, leading to price drops. In contrast, the initial FDV of memecoins is usually lower, allowing for natural growth. Centralized exchanges are also responsible for this phenomenon because they listed some projects without a user base, ultimately harming retail users.
Colin: What do you think about the recent popularity of TON blockchain games? Have you considered investing in similar projects?
Qiao: I have been looking for opportunities to invest in TON blockchain projects, but I haven't found any particularly good teams yet. TON, as the only Web3 project supported by a large social media platform, is indeed unique, but it also faces some 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 can 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. Let's delve deeper next time if there's an opportunity.
Qiao: Okay, thank you.
