Investors Unplugged is a special dialogue program that explores global investment trends in depth. It is launched by Starlabs Consulting. Through in-depth exchanges with well-known global investment institutions, the program builds a platform for entrepreneurs and investors to gain insight into the dynamics of innovative technology investment. In this series of dialogues, top investors will share their thoughts and strategies, reveal the path of innovative financing, and predict the future development trends of the investment community. It is an indispensable reference resource for all parties in the technology ecosystem.
This issue of (Investors Unplugged) interviewed Mr. Wang Yuehua, managing partner of Draper Dragon Fund. The topics discussed included Web 3.0, artificial intelligence, blockchain, and technological innovation, development stages and trends, regulatory environment, etc. in the Crypto industry, which are enlightening for us to analyze the industry situation and clarify the investment context.
Draper Innovation originated from DFJ Fund in Silicon Valley. It was co-founded in 2005 by the world's most influential venture capitalists and the first generation of venture capital leaders in China. It has invested in and cultivated several technology unicorns around the world, such as Coinbase (Nasdaq: COIN), HKbitEX, VirgoCX, CoinDCX, Ledger, Otter.ai, VeChain ($VET), IOTEX ($IOTX), YEEPAY and Splashtop, etc. Recently, Draper Innovation and Hong Kong Cyberport jointly established the "Hong Kong Cyberport Draper Dragon Web3.0 Accelerator". With the help of Draper Innovation's entrepreneurial incubation experience in Silicon Valley and the booming Web3 ecosystem of Cyberport, it will accelerate the actual application of Hong Kong's Web3 field from multiple dimensions such as talent cultivation, project incubation and investment, and help Hong Kong's Web3.0 innovation keep pace with the international level.
The following are highlights from the interview with Investors Unplugged:
Core Viewpoint
The hot spots that emerged in this round, such as RWA, DePIN, and AI, have obvious characteristics of breaking the circle, and their prospects are worth looking forward to. At present, the technical reserves are basically in place, but it will take some time to carry out business innovation and enrich the ecology.
General large models cannot be generated in professional fields. Professional fields need professional large models, which is an opportunity for entrepreneurial teams. Blockchain can play a role in computing power, data and algorithms to empower AI.
There has been no phenomenal GameFi project in the past two years, but Telegram ecological mini-games have made significant progress in user-friendliness. In the future, with the improvement of public chain performance, projects comparable to Web 2.0 games will definitely appear, and Right Tigger is a potential player.
Draper Dragon has always insisted on investing in technological innovation and its application dividends, because among the many factors that affect corporate growth, only technological factors can cross short- and medium-term economic cycles and provide long-term stable dividends to share investment risks.
In recent years, Europe has tightened its regulation on cryptocurrency trading, while the United States has become more clear-cut. Unified rules and innovation are the next regulatory trends.
Starlabs: Mr. Wang, please tell us about your insights on current and future Web 3.0 technological innovations and industry development trends from the perspective of VC and primary market investment research.
Wang Yuehua: Technological innovation and application implementation are always two sides of the same coin. They are interdependent and mutually reinforcing, and the main driving factors of each market cycle will be different. In the last bull market, hot spots such as DeFi, NFT, and GameFi emerged. It was also after the public chains represented by Ethereum reached a certain level of technical maturity that they attracted the attention of various developers and entrepreneurs. As the ecology gradually enriched, phenomenal application innovation emerged. There is a time difference in between, about 2-3 years, just like the time from the launch of the Ethereum mainnet to the outbreak of ICO, which was also about 2-3 years.
Technological innovation needs to be combined with market resources, especially outstanding entrepreneurs. The recent market is no exception. The innovation of technology and applications is still advancing at its own pace, but this pace is somewhat different from market expectations. BTCFi has not exploded because the existing technology has not yet met market expectations in terms of security and innovation. Otherwise, how could the idle BTC of up to trillions of dollars not be tempted by even a 5% annualized return?
The so-called reason why only a few stocks such as BTC have performed well in this bull market is that the technical security of BTC has been recognized on a larger scale. The most typical example is the launch of the BTC spot ETF in the United States.
In fact, several new hot spots that emerged in this round are very good. RWA, DePIN, and AI all have a common feature, which is the obvious breaking circle attribute. Unlike BTC, which only breaks the circle by security and scarcity, RWA expands the basic assets of DeFi to the real economy according to the logic of finance, and DePIN expands the source of data to the physical world. The combination of Web3.0 and AI turns AI from a data intelligent entity into an economic intelligent entity from the level of computing power, data, and algorithms. These directions are very promising.
From the perspective of blockchain, the current technical reserves are basically in place, but commercial innovation in these areas also requires entrepreneurial teams to complete. And unlike previous times, this commercial innovation requires the participation of teams with richer industry backgrounds, so it may take a little longer.
The prospects of Web 3.0 are still very worth looking forward to. For investors, being half a step ahead of the market is still the key to success.
Starlabs: Draper Dragon has participated in many AI projects. In your opinion, with OpenAi, Microsoft, Google, Amazon and other large companies occupying their own territory with their capital, technology, and talent advantages, what opportunities do AI startups and SMEs have to seize the niche market? What are the opportunities and challenges of blockchain + AI? What conceptual innovations are you optimistic about?
Wang Yuehua: From the perspective of AI alone, the opportunities for start-up teams and small and medium-sized enterprises are mainly at the application level. For example, based on the combination of various scenarios, they can create large models in professional fields through the combination of knowledge graphs and general large models, because most general large models use public data, and proprietary data in specific scenarios cannot be obtained by large models. Therefore, general large models can realize the generation of text-generated images, text-generated videos, and daily conversations, but cannot generate them in professional fields.
Professional fields require professional large models, which is an opportunity for entrepreneurial teams. However, the opportunity here is not open to everyone. The key is whether the entrepreneurial team can obtain data in specific scenarios and build data barriers through continuous accumulation. Data barriers mean model barriers, which also means market barriers.
There is a special field here, which is smart hardware. In the last round of Internet business models, hardware was a very marginal topic compared to search, social networking and e-commerce, because the core of the last round of Internet business models was information integration. But in the era of big models, the role of hardware has changed. Hardware can take on the function of collecting data in specific scenarios, and it cannot be replaced by software. Therefore, under the current circumstances, smart hardware will be a good direction.
In the combination of AI and blockchain, AI is dominant and blockchain is auxiliary, but blockchain can play different roles in three levels: computing power, data and algorithms to empower AI.
Data level: The assetization of private domain data can greatly expand the data sources of AI, but the difficulty lies in the standardization of data. Some projects in this regard focus on data collection, while others focus on data labeling and transactions. Based on the perspective of DePIN, other directions can also be derived, such as decentralized storage, trusted execution environment (TEE), and real-time data acquisition (RAG).
Computing power level: The core logic of blockchain is to achieve ledger consensus through redundant computing, while the development idea of AI is "coding computing power, refining models, and penetrating scenarios." Therefore, decentralized computing power has become a typical application in this field, and permissionless computing based on the blockchain architecture can greatly improve the effectiveness of computing results.
Algorithm level: AI model architecture is a self-contained system, and blockchain cannot play any role in it, but it can put the calculation results on the chain and play a role in interest coordination through on-chain transactions. For example, an agent, NPC or virtual person can be transformed from an intelligent subject to an economic subject based on blockchain technology. Some people even propose "decentralization + AI = immortality".
Starlabs: We noticed that Draper Dragon's investment portfolio also includes game projects such as RIGHT TRIGGER and CARV. In your opinion, how mature and advanced is the current development of the GameFi industry compared to three or four years ago? Will GameFi's users and traffic in the future come more from outside Web3 or within Web3?
Wang Yuehua: So far, GameFi’s innovation in business models is mainly reflected in the balance between profit attributes and fun attributes, but there has not been a phenomenal game project in the past two years. However, in other aspects, such as user-friendliness, there have been some significant improvements. This is mainly reflected in the mini-games in the Telegram ecosystem. Due to the lower threshold for user participation, their daily activity is very high.
Different platforms prioritize the development of specific types of games based on their own attributes, providing innovative opportunities for building industry infrastructure based on user identity. For example, CARV Protocol is a self-sovereign identity oracle that gives users control over their data through a decentralized incentive model, covering Web2 and Web3 data.
▲ CARV, the new generation gaming platform
In my opinion, Web 3.0 games serve all users, and there should be no distinction between Web 2.0 and 3.0 at the user level. The reason for this distinction is that Web 3.0 games were mainly restricted by technical factors in the early stages of development, and there is a big gap in experience compared to traditional games. However, with the improvement of public chain performance, projects comparable to Web 2.0 games in terms of visual effects and game mechanisms will surely appear, such as Right Tigger, which has such potential.
▲ (Lowlife Forms) game developed by Right Trigger
Starlabs: Based on the cases of projects invested by Draper Dragon, what are the main concerns of institutions when screening projects and tracks? How can secondary market investors learn the investment research ideas and methods of VCs?
Wang Yuehua: Since its establishment, Draper Dragon has positioned itself as a dual-currency fund investing in the primary market, with investment projects covering the United States, Europe, and Asia. We have always insisted on investing in technological innovation and its application dividends.
▲ Draper Dragon’s Portfolio
It generally takes 10 years for a startup to succeed, even for an organization like OpenAI, which was founded 10 years ago. Primary market investment is based on professional knowledge, taking high risks to gain high returns; and among the many factors that affect the growth of a company, only technology factors can cross short- and medium-term economic cycles, such as inventory cycles and monetary cycles, and only technology factors can provide long-term and stable dividends to share investment risks. Therefore, based on our positioning, in our investment process, technological innovation is a very important assessment standard.
Then, from technological innovation to application implementation, there will be corresponding excellent investment targets at each stage. We will invest according to the law of industrial development and the ecological niche of the enterprise in the industrial chain. There are many cases in this regard. I think the most typical one is BTC, because BTC is still in the process of cognitive expansion and value realization.
Starlabs: Will regulatory policies be an important consideration when you screen investment targets? What do you think of the overall regulatory trends for Crypto in major regions in the future?
Wang Yuehua: Regulation is a very important factor that all investments must consider. In recent years, Europe has tightened its regulation of cryptocurrency trading businesses, while the US has become more clear-cut. In addition, Hong Kong has also approved the first cryptocurrency exchange license in the world.
The change in global regulatory attitudes basically reflects the process from no perception to gradual rationality towards emerging things, because both regulatory and social levels have a clearer view of digital assets, and can adopt a more pragmatic attitude to accept its benefits while trying to avoid its risks.
There is a very important principle in Western regulatory theory: "same business, same risk, same regulation". The benefit of implementing this principle is that it can provide a relatively clear code of conduct for market players in specific business areas, while also providing guidance for market innovation. For example, the BTC spot ETF was launched under this regulatory system.
Empirical research shows that the clearer and more operational a country’s financial regulatory system is, the more developed its financial market is in terms of scale and products. Hong Kong, my country, also adopts similar regulatory principles for digital asset trading-related businesses.
It should be noted that DLT technology represented by blockchain, as a financial infrastructure, is fundamental and subversive to the changes in financial products and financial services. The existing financial regulatory system cannot fully adapt to these changes. For example, regulators in various countries can introduce corresponding regulatory systems for CEX, but no country has introduced regulatory measures for DEX because the subject, process and form of the service have completely changed. This requires regulatory innovation, from comprehensive innovation in regulatory principles to regulatory means, and the premise of regulatory innovation is industry practice.
Therefore, rule unification and innovation are the next regulatory trends, which will have a significant impact on the development of the crypto asset industry in various countries and regions.
Starlabs: In your opinion, which tracks of Hong Kong's Web3 and blockchain industries are more encouraged by the SAR government? What challenges does Hong Kong currently face in achieving the goal of "Web3.0 innovation in sync with the world"? Compared with Europe, the United States, Dubai, Singapore and other regions, what are the comparative advantages of Hong Kong's Web3 industry?
Wang Yuehua: In our view, the Hong Kong government’s support for Web 3.0 is comprehensive, thorough, and exploratory (of course, all activities must be subject to regulatory rules). This is because Web 3.0 is the next generation of the Internet and a sunrise industry that is still in its early stages. It is not easy to presuppose too many frameworks at present, so this comprehensive and exploratory support is very important.
However, Hong Kong's development of the Web 3.0 industry will also be constrained by its own resource endowments. Funding, talent, and the legal environment are its significant advantages, and of course there is an efficient regulatory system; but it is also Hong Kong, why did it not gain much industrial division of labor and market share in the last Internet wave? In my opinion, the main reason is that Hong Kong lacks industrial support, and the Internet industry needs to be integrated with various industries and various industrial chains. Only by "Internet +" can the Internet industry expand a huge market space. For Web 3.0, although it has its own financial attributes, it also needs to be combined with the industrial foundation.
If Hong Kong can leverage the advantages of being backed by the mainland market and combine the advantages of Hong Kong's finance with the advantages of the mainland's industrial chain, then its disadvantage of lacking industrial support will be reversed and turned into a huge advantage over Singapore, Dubai, and even the European and American markets.
Starlabs: In the face of the "going overseas fever" in recent years, what suggestions do you have for domestic companies? In view of the differences in domestic and foreign markets and policy environments, what qualities do you think companies need to have most when going overseas, and what minefields should they beware of?
Wang Yuehua: Going overseas is basically a business model of Web 2.0. Pure Web 3.0 is naturally cross-border, so there is no problem of going overseas. But in fact, whether it is Web 3.0 or Web 2.0, we must pay great attention to the pain points of the local market. Different demands naturally require different supplies to meet them. But I also want to say that going overseas is not a simple copy. Going overseas is actually an opportunity to upgrade business, which also requires entrepreneurial spirit and exploration of innovation.
