Cypher Capital can be called the "a16z of the Middle East" or the "Hillhouse" of Web3 in the Middle East. Its influence in the Middle East, North Africa and Asia is quite distinctive, and according to public information, it has abundant funds. This institution started with Bitcoin mining (Phoenix). After the founder Bijan Alizadeh built Phoenix into the world's number one giant in Bitcoin network computing power, he initiated the establishment of Cypher Capital on this basis to diversify the group. Cypher Capital is headquartered in Abu Dhabi and Dubai, and conducts mining, nodes, mother funds and direct investment in primary and secondary market projects in the field of Web3 around the world. In 2022, it launched a $100 million VC focusing on the early stage of Web3. It is the only "Capital With Solution" in the Middle East, providing full-stack support for ecological resources including capital, nodes, human resources, etc. for first-line founders around the world. There are also many crypto VCs with a scale of more than US$1 billion in Dubai. The Dubai government’s fund is also the largest fund force. Previously, the current sheikh has also been actively investing through various government and semi-government agencies. For details, please see the author’s previous article "Dubai with 200,000 Chinese: Another Major Web3 Capital in Asia", but Cypher is particularly unique because of its accumulated resources.
Cypher recently established an offline 10,000 square foot cryptocurrency networking center, Cypher Hub, in JBR, Dubai, which is becoming a must-visit place for global founders and investors to visit Dubai.
Bill is currently the Chairman/General Partner of Cypher and an independent director of the Ton Foundation, a public chain incubated by Telegram with 800 million monthly active users. Prior to this, he was the global head of investment and financing at Binance (Head of M&A and Binance Labs), and before that he was the investment director of JD Group's global technology field. He has complete experience in the three technology cycles of Web1, Web2, and Web3. He has also witnessed the rise of China's Internet in the past 20 years, as well as the globalization wave of Chinese Web3 from 2017 to the present. This time, I am very happy to share Bill's insights with readers.
Bill's career: From the rise of China's Internet to Web3
BlockBeats: Can you tell us how you got into the VC industry?
Bill: I first worked at a US dollar PE fund, Trustbridge Capital, doing technology and medical investments. Later, as CVCs in China became more popular, I worked at JD.com for six years, responsible for JD.com's global technology/fintech investments. Web2 itself had slowed down in 2020, and I joined Binance by chance and became the head of Binance's M&A and Binance Labs.
BlockBeats: How did you come to the Middle East?
Bill: Because the regulations in the Middle East are more friendly to Web3, and there is a lot of high-quality "offline traffic", it is like the Casablanca of Web3. Indians, Chinese, Europeans and Americans come here for different reasons, and it is very convenient to make friends. At that time, many of our teams came here, so I came here too. After I came here, I found that this place is pretty good, so I stayed. I joined Cypher Capital after coming to the Middle East.
BlockBeats: What do you think are the differences between traditional VC and Web3 VC?
Bill: Traditional VC has a history of more than 50 years (Sequoia was founded in 1972). The scale of traditional VC funds has grown from small to large. At the beginning, a US dollar fund in Silicon Valley might only have a few hundred million US dollars. Later, the first phase of the Vision Fund would have 100 billion, becoming a Growth Mega Fund. This is also related to the development of the entire TMT industry: many businesses in the TMT industry are getting bigger and bigger, and can reach the level of 100 billion US dollars. At this time, many investors told the founders that it would be better for you to take more of my money, build high walls, accumulate food, and become the king later (list later); finally, in addition to the global interest rate reduction cycle in the past 30 years, the fund investors (LP) also have more money. Therefore, DST, Tiger, and Vision all began to develop gradually after the late 1990s and 2000s, making the scale of traditional VCs larger and larger.
Of course, I think 2022 is a hurdle, a year of paradigm shift; in the foreseeable future, money will no longer be cheap, and the entire VC industry will become different. I used to think that traditional VCs are getting bigger and bigger, and there are two core reasons. One reason is that founders and investors are willing to focus on growing many big businesses in the primary market, which is what I mentioned before. The second reason is that in the past two or three decades, global interest rates have been cut, and money has become more and more. So more money is willing to choose the alternative investment area. Whether it is endowment or pension, everything is acceptable. So it is equivalent to saying that both the asset side and the capital side are willing to grow companies in the primary market.
But Web3 VCs are very different. First, because Web3 projects are judged according to the stage, in fact, according to the definition of Web2, they are often listed in rounds A or B; from this perspective, the pool of money left for the primary market is very small. Second, in the past, for example, a project, such as Didi in China or Uber in the United States, had to find the best local investors, so many Web2 projects were not actually issued globally in essence, but a model that was provided to you in several economies around the world. However, Web3 companies themselves do not require much capital, and at the same time they need global capital, so in the end there is not much room left for each VC. So this is why the Web3 industry will only have a history of 13 years by 2022, and suddenly it seems that the VCs in this industry are involuted like the VCs of web2, which have been developed for more than 50 years. Behind this is a difference in the industrial structure.
But the same point is that I think it will not be easy to get money in the future. After all, Web3 is still just a tiny thing in the face of global macro and interest rates today. The current market will be more favorable for investors, but good assets will always be scarce. Even in a bear market, particularly excellent companies will still have a lot of capital chasing them.
Investment targets of Cypher Capital, the top cryptocurrency investment fund in the Middle East
BlockBeats: Can you tell us how you got involved with Cypher Capital? You have been with Cypher for almost half a year now. What are you proud of doing under your management?
Bill: Cypher and I were introduced by CZ in 2021. Later, I became friends with Cypher and Phoenix founders. We gradually talked about whether we should do something together. This is also a process of gradually forming a bond. In addition, I define myself as a maritime Chinese. Maybe I generally divide Chinese people into two categories, one is more continental and the other is more maritime. I am the latter. I think it is fun to walk the Silk Road. My partners are from different places, including Middle Easterners, Europeans, and Indians. Everyone is more open to a partnership.
First, we started investing in funds. After all, we are a very young institution, but at the same time, we have cash flow generated by a mining company. I wonder why we don’t support and connect with more young GP investors who are very complementary to us in the bear market. This is a process of strategic layout and making friends.
Secondly, we opened Cypher Hub, a co-working space with more than 60 seats under the Ferris wheel on the Dubai beach. In the past three years, due to the pandemic, our industry feels as if it is all online, but in fact, people will eventually return to offline and community. Offline is a very good catalyst for building trust. We regard our center as a meet up place for the future Middle East Web3 community. We recently held events with Polygon and INSEAD Business School, and have previously held sharing sessions for other public chains (TON, Mysten Labs, etc.).
The third is that we invested in Mysten, which will be elaborated later.
BlockBeats: What did you invest in after coming to Cypher?
Bill: We are now investing in the best projects in the global project pool. Currently, we basically invest in founders in the United States, Central and Eastern Europe, and also in Asia. In direct investment, one of our more representative transactions was: we invested in Mysten Labs (Sui Blockchain) as the only fund in the entire Middle East and Europe. Many people will ask us, as a young fund, why do they choose to take your money? How do you compare with a16z? My approach is to make it impossible for both parties to compare. This is also a sentence taught to me by one of my mentors that I often share with founders, to achieve "me different, instead of me too, or me better".
A US fund may have to answer the question you asked: "What is the difference between me and a16z?" We are completely different from a16z. If the founder wants to diversify his captable and investor resources, he should get money from a16z or Sequoia in the United States, and then get our money in the Middle East and Europe. At that time, I was the last one to talk to the founder of SUI. The project had been subscribed several times. As a result, the founder gave me a special quota the next day, making us their only investor in Europe and the Middle East.
BlockBeats: Would Cypher Capital define it as a fund for the Middle East, MENA and Asia? What is your unique selling point and what are you working on recently?
Bill: We don't use other funds as examples. Being ourselves has always been our core strategy. For example, even in Asia, we may have special Web2 resources. For example, our partner Elaine Liu is the former CHO of Meituan and a veteran HR who joined Tencent in 2003. As a CHO who has managed tens of thousands of employees, she should be the most experienced HR among the global Web3 entrepreneurs. Smartdeer, which she invested in, has covered 20 million of the world's best TMT talent resources, especially Chinese engineers, through its recruitment platform; at the same time, it also helps these companies to quickly deploy global teams through compliant employment services. As a member of our ecosystem, Smartdeer has helped more than 50 Web3 companies with global recruitment and global employment for more than 100 positions, and can solve the talent needs of global WEB3.0 startups in one stop. In addition, we recently cooperated with the youth team in Asia to establish the Chinese community of the SociaFi project Lens, which surprised Lens around the world with our landing value creation ability.
We should be considered the most solid and high-quality ecosystem in the Middle East. If a founder only wants to take American money, we may not be able to enter, but in fact I have never met such a founder. Every founder hopes that there are several best funds from three or four continents on my cap table. We rarely have a headache about competing for the cap table because we have thought about this strategy clearly from the beginning.
Phoenix Technology now has the world's largest computing power on the Bitcoin network; our compliant exchange has invited executives from Kraken and ex-CTO from KuCoin, and our Fenix Game is also a Web3 game company based in the Middle East with an investment of $150 million. Every institution in the world will say that it has an ecosystem in the end, and we are no exception. But in the end, is your ecosystem an ecosystem on the PPT or a delivery of capabilities? I think we are the latter.
BlockBeats: What is Cypher’s current AUM size and preferred investment allocation?
Bill: We prefer not to disclose our AUM. Our asset allocation includes mining, investing in funds (GP), primary and secondary direct investment, distressed asset acquisition, etc.
For direct investment, our check size is between 200,000 and 10 million US dollars. We still prefer early-stage projects, but we will also participate in the growth stage/OTC rounds of many projects. We think that the current market is a bit like the rise of the Internet, with many opportunities for long-term growth and compound interest. We will also hold some secondary market projects based on long-term vision, and ultimately make judgments based on quality and value.
Regarding regional selection: Ultimately, our investment logic is value-based and we have no preference for regions. Our partnership team comes from several continents. We basically never discuss the region when discussing projects.
BlockBeats: What are the hard metrics you usually look at? What are the most important ones? What about soft metrics?
Bill: Many people make investments based on price and emotions. Perhaps it is because of my personal upbringing. We have always insisted on making value-based investments in this industry. I think common sense itself will eventually cross the technology cycle. Whether it is non-technical investment, TMT investment in the past 20 years, or recent web3 investment, the ideal state is a good track, car, and racer. However, in this process, the judgment factors at different stages will have different weights. When looking at mid- and late-stage projects, basically the data itself can help you judge whether it is a good track, a good car, or a good racer. But if it is further ahead, such as angel round projects, you may still use this judgment framework, but your judgment will be more based on qualitative observations. Mid- and late-stage projects are more like science, and early-stage projects are more like art. Mid- and late-stage projects are more about establishing a seamless judgment system in an institution, but mid- and early-stage projects should respect contrarian (non-consensus).
Here I take Layer One’s Mysten investment as an example.
For example, the "Layer One" operating system of Web2 mobile Internet, there are only two operating systems in the mobile Internet, one is iOS, and the other is Android. Their competition actually ended as early as 2010 (after 2010, you will never encounter Symbian and Windows Mobile again, because they were eliminated in the Layer One competition of mobile Internet). In Web2, the winner takes all, one is called economies of scale, and the other is network effects, which are two characteristics of monopoly economy, so I often joke that among the more than 190 countries and regions in the world, the most severe tax collection for enterprises is actually not in the list of more than 190 countries and regions, but iOS and Android, because they charge 30% business tax to enterprises in their jurisdiction (please note that it is business tax, that is, direct tax deduction on income, which is terrible; the UAE only charges 5% consumption tax, this is the power of monopoly.) However, in the field of Web3 operating systems, there will also be network effects, but the Web3 operating system is subject to its technical characteristics, so for a long time, it has been hoping to improve its scalability. Therefore, this business may be a little different from the Web2 operating system. It has a little "scale diseconomy"; second, in the process of evolution, it is decentralized. From an ideological point of view, why can't there be more operating systems in this industry? Why can't a large application have its own operating system? Even in 2022, we still think there is an opportunity to bet on operating systems, even though the Web3 industry is already 13 years old. Our internal research system is a comparison across cycles. Sharing these things with our founders can also help them rethink their future strategies from a historical perspective.
The second is racing. In racing, we feel that Meta’s previous technical accumulation is solid. I won’t go into details. And the industry has been going on so far. Based on the first reason I mentioned, the winner is far from taking all. The industry still has opportunities.
Third, as for racers, I got along well with Evan Chang of Mysten Labs. I think he should be considered a rare technical leader among the founders of L1 who has platform development experience across three technology cycles. Finally, what I just said is actually all about quality, but talking about quality without price is actually useless. It's like we all think that Ethereum will be a decentralized Alibaba Cloud in the long run, but you bought Ethereum at 4,000 yuan, and you should be in a depressed mood now, so talking about quality without price is always rogue. We think the valuation at that time is also reasonable, because any first-line L1 should have a market value of at least 15 billion in the future, whether it is today's Aptos or others. Combining these points, we think it is very obvious when the trigger is pulled in the end.
Let me first talk about what I think is the biggest challenge in this industry today.
Compared to 2001, the global Internet DAU was increasing at that time, even though asset prices were not good. At that time, the number of users of Netscape and IE was increasing, because users did not care whether it was a bear market or a bull market. The Internet was valuable to me, so I would surf the Internet. However, the Web3 bear market in 2022 has not only seen a decline in asset prices, but also a growth in global users. In a sense, it is also in a plateau period. In the end, the ceiling of the DAU of people from all over the world who come to speculate in coins is limited. We can actually look at how many users Robinhood or Futu has in the world. So what is the greatest common divisor of the third-generation Internet in the end? In addition to the current financial technology, it should be the same as the first and second generations, that is, social and entertainment; in the end, it may also begin to empower the industry, but perhaps it is the third wave. If we open the big business of Web2 in the world today, the biggest ones are Infra and Application. One end is a trillion-dollar application, the other end is a trillion-dollar Infra, and in the middle are various subdivided tracks of tens of billions and hundreds of billions of dollars.
In the field of Web3, many investors today also invest in Web3 Infra, that is, invest in airports. When you don’t know what an airplane looks like, it is safer to invest in airports. We are the type that want to invest in both “airport” infra and “aircraft”-applications. This brings us to our cooperation with TON. TON is Layer One incubated by Telegram, which has 800 million monthly active users. We support TON’s ecosystem, and TON can become an airport that incubates many airplanes in the future. In addition, we have been dealing with the Ton team for a long time. They are a very solid and hardworking team. We hope to do something interesting for their ecosystem and for the future 5 billion Web2 users to enter Web3 through our own efforts.
BlockBeats: Since we are still building the airport, we are investing in infra L1 public chains and the like. We rarely invest in SocialFi and GameFi projects, right? You don't want to see if you can invest in the next StepN or Nostr?
Bill: Of course we will invest in applications, and we will announce several transactions soon.
BlockBeats: Regarding the current market situation of Web3, do you think it has turned from bear to bull, or is it a bull trap?
Bill: The macro environment is an objective condition that we need to accept. We generally don’t make predictions about the macro environment. I think it’s better to think about retreat before thinking about advancement. We assume that there will not be a big bull market in the world next time. In this environment, we should pay more attention to quality and price, so that we can be invincible.
But I think the macro situation is much better than I expected, because first, China's rebound is a clear sign for the world, and second, interest rates are not rising any further, so I think it's still good overall.
BlockBeats: What do you think about Chinese Web3 entrepreneurs? Have you seen any good projects led by Chinese? Of course, SUI definitely has an Asian team. Do you have anything to say to Chinese Web3 entrepreneurs who want to start a business in Dubai?
Bill: First of all, Chinese entrepreneurs have already reached the world's first-class level in most technologies. Chinese Web3 also needs to learn from their predecessors and catch up. For example, all kinds of manufacturing, from current mobile phones to future electric cars, are dominated by Chinese. Whether it is Joyoung soymilk machines or Huawei mobile phones, they are sold all over the world. For Web2, such as SheIn, Tik Tok, and Zoom, they are also founded by Chinese. So last year I saw some very pessimistic statements that Chinese people can't do well in Web3 because they can't speak English. I would think that this is actually a statement of not making progress, because these Chinese born in the 70s and 60s who are not as good at English as those born in the 90s have made their international businesses so successful, so why do founders born in the 85s and 90s suddenly feel that they can't do Web3? It's really strange. Although we have regulatory restrictions in China, the user base of Chinese people around the world, including the user base of the entire global Confucian cultural circle. When I say Confucian cultural circle, it includes Chinese people around the world + Japan, South Korea + Southeast Asia. In addition, Chinese people have the development capabilities and product experience to create world-class products in Web2. Based on the above, I don’t see any reason why Chinese people can’t do well in Web3.
Regarding supervision, I think you must abide by the laws and regulations of your own place, but on a global scale, this is a big direction worth trying. Speaking of global centralized exchanges, or global centralized CeFi, 70% are controlled by Chinese to this day. In decentralized Web3 native, the proportion may not be as high as in CEX, but we can now see many of these Chinese, whether in infrastructure or in the application layer, doing a lot of these projects. In addition, I think that when Chinese are at the helm, you should not label yourself as a Chinese. When you label yourself, it means that you are discriminatory and not international enough.
Zoom in Web2 was named the most popular employer in Silicon Valley last year. Many of its executives are not Chinese, but I remember that Yuan Zheng came to the United States at the age of 28. He is a relatively old Chinese but eventually became a successful international Chinese. Of course, everyone has a hometown complex. I personally think it is very good for Chinese Web3 founders to start businesses in Dubai. Now everyone will default to choosing Hong Kong and Singapore. I think it is okay to be familiar with the places, but I think coming to Dubai itself will give the project and the team a completely different experience. You may be exposed to a brand new market and make some new local friends. I also think that the supervision is very friendly and supportive. As an entrepreneur, you can choose to go to Southeast Asia, and of course the Silk Road is also a good choice.
Advantages of Chinese Web3 entrepreneurs in Dubai
BlockBeats: You currently choose to live in Dubai, or at least fly back and forth between Dubai and China or the world. What are the advantages of Dubai? For example, Singapore or North America? What do you think of Dubai?
Bill: First of all, Dubai is like the Casablanca of Web3. Teams from the CIS region, which is Central and Eastern Europe and the former Soviet Union, as well as Indians, European and American founders also come here, so you can see more diversity and inclusiveness here. Living here, you will have a sense of historical involvement.
Everyone says that Dubai doesn't have many developers. I think that's true. But Dubai has one thing that other centers can't compare to. It's a hodgepodge, a melting pot. I think this is something that other centers, whether it's the center of the United States, the center of Asia, or Europe, can't compare to. This is also one of the reasons why I like this city so much from the perspective of choosing a city to live in.
Second, from the perspective of time zones, although our Cypher Hub itself is one of our offline cards, online is indeed a very important part of market life. In Dubai, you will find that you seem to have become the king of time zones. Because people in Asia work half a day, you can have a meeting with them in the morning. Basically, it is better for all urban areas. It is also convenient for us to have meetings with European and American time zones.
Third, I think Dubai itself has a lot of offline traffic. Although Dubai has not yet held some particularly high-quality world-class forums, because many world-class forums are still held in places like Denver and Lisbon, many people will stop in Dubai. For example, our team often does not need to travel for business, so we stay in Dubai and meet many people from other places. Finally, I think it is still the supervision, including the tax advantages of this place and the safety of the city. I think these are the reasons why I am particularly willing to stay in the Middle East and Dubai.
But there is another point that may have something to do with my personal background. In fact, most of my career has been in technology and Web2 in Asia. In fact, we can see that due to the paradigm shift in geopolitics and economy, Asia and the Middle East are cooperating more and more in the entire pan-tech field. We, Cypher, are now becoming the "reception office" of Asian technology giants in the Middle East. It is very happy to make friends in this way. I feel that in this place you will personally experience many changes in geopolitical, economic, and cultural collisions. This change will also give me a sense of historical participation, engage in an epic game.
BlockBeats: Are there any books or movies you would recommend?
Bill: I would recommend Vitalik's Proof of Stake. He should be considered an opinion leader in our industry. Everyone has a different way of expressing something. You can make a contribution, or you can choose to establish morality and establish your words. Some people make a big business by making contributions. I think Vitalik may belong to the latter. I think it is also because of his leadership that Ethereum is a particularly vigorous ecosystem today. I think this is similar to his own anthology. I would recommend friends who are interested in this industry to take a look.
postscript
Bill's investment logic draws on the rise of Web2 Internet, focusing on users, estimating user scale, and track selection. After the interview, Bill said that this was his first Chinese interview on crypto investment, and he felt a little "awed and terrified". When asked why he didn't invest in another excellent GP in the industry, Bill said that they would rather invest in a complementary GP in terms of geography or style, but unfortunately they can't invest in that GP for the time being. The author thinks that with the increasing number of cryptocurrency projects and GPs coming to the Middle East, the next excellent opportunity is always just around the corner.
