Yi He, the woman who helped found cryptocurrency exchange Binance with Changpeng Zhao in 2017, now leads the company’s venture capital practice and sees a declining market and difficult economic environment as a perfect time to identify promising investment projects.
In conversation with forcastHe — who was named head of incubator and investment unit Binance Labs last month — said she has aggressive plans for the operation, which manages $7.5 billion in assets across more than 200 projects for the world’s largest cryptocurrency exchange .
He, 35, said she is looking at early-stage projects that offer long-term benefits to the industry and sees opportunities in the current bear market conditions, but declined to give details. She added that it’s important to filter out “copycat” projects that jump on a fad to make a quick buck. Such projects lack solid business models and will not last, she said.
Binance Labs announced last month that it has returned 2,100% since its inception in 2018 and has investments including play-to-earn game Axie Infinity, layer-2 blockchain Polygon, Metaverse Play The Sandbox and the move-to-earn app STEPN.
In June, Binance Labs closed a $500 million mutual fund that includes partners including internet investment firms DST Global Partners and Breyer Capital. The new fund also attracted private equity funds, family offices and corporate limited partners (LPs), according to a June statement.
The following interview has been translated from Chinese and edited for language and brevity.
Timmy Shen: What is your investment strategy? How is it different from venture capital (VC) investing in the internet industry or web 2.0?
Yi Hey: We all know it’s a good investment opportunity in a bear market, as many teams just looking to make a quick buck would be pushed out of the industry. Now is a good time to support those who really want to run a good business and believe in this industry.
A key difference in fundraising between Web 3.0 and Web 2.0 is that Web3 projects do not necessarily need to raise money through VCs. You might as well just issue tokens and sell them to users. In such a scenario, the role of a venture capitalist can be more valuable, providing guidance rather than giving money. This can include guidance on technical aspects, security aspects or the token model. This is important because the users and the related community are at the heart of running a Web3 business.
Shen: You said now is a good time to invest. How do bearish or bullish market conditions affect your VC investment?
He: We generally figure out what we really want, whether we’re in a bull or bear market. In a bear market, I think we should invest more aggressively, but not just for the sake of investing.
There’s this tendency in the investment industry to follow the herd, and many funds are worried they might miss out on a four- or five-year investment cycle. Some of our LPs have also suggested investing in more projects and investing faster. I told them not to be nervous.
Shen: How do you set preferences when deciding which projects to invest in?
He: There are three types of companies that we look at. The first type are those who build the infrastructure.
The industry is still in its infancy. I imagine that blockchain-native products can be used almost anywhere in the future, just like we are used to from office software and social media. There is only one technical bottleneck. So infrastructure is an area where we would still invest, whether you are a layer 1 company or a cross-chain protocol.
The second type of projects we would invest in are projects running all types of blockchain applications. More and more projects with large user bases are emerging, e.g. B. those that adopt play-to-earn or move-to-earn models. We keep an eye on products with innovative use cases.
For these projects, we would ask similar questions as you would ask a Web2 company. What is your business model? What questions or problems do you solve? What is the innovation? These are the typical questions we would ask.
The third type of companies we look at are those that provide blockchain-related services to help the industry develop better, such as: B. Data security. It’s rare for an internet company (Web2) to get hacked, but it happens all the time in the Web3 industry.
For a long time, the buzzword “code is law” was repeated in Web3. If you don’t program well enough, it’s your responsibility if something goes wrong. I agree, but if we’re going to get wider adoption, you need to make your products more user-friendly to serve more people.
I also prefer projects with their own innovative approaches to imitators. If you tell me you’re just a certain trending project and have a similar user base that could make a quick buck with it, it doesn’t work for me.
Binance does not invest in projects just to make a quick buck. We value “longevity”.
There are still founders and entrepreneurs who find it easy to raise money in Web3 and start “Tang Ping”. [Editor’s note: Tang ping is a phrase that translates as “lying flat” and refers to younger generations in China rejecting a work lifestyle that demands long hours to succeed.]
These entrepreneurs didn’t realize that you, as the founder, need to make a promise to users. You can’t just put users’ money in your pocket and feel financially free now, so you can tang ping.
However, many in this industry are still looking for different avenues to succeed and we hope to find those who appreciate the long-term approach.
Shen: Before you acquired Binance Labs, it invested X-to earn Projects like Axie Infinity and STEPN. What is your plan for X-to-Earn models?
He: Businesses operating X-to-Earn models need to realize that “earn” is not the key, it is the “X”.
A typical example is play-to-earn games. If users only join because they want to make money, once the “pump” period is over, the game is pretty much over as well, as user numbers dwindle and token prices fall.
You would have to go back to the point of origin if the game is still attractive if there is no revenue. Would there be enough people who would want to buy it?
Shen: Binance said in February it would invest $200 million in Forbes, but CEO Changpeng Zhao said in June that could change after a SPAC deal goes through. Can you give us an update on that and your media investment strategy?
He: We’re still following the Forbes case. This is an IPO related investment through a backdoor listing, in plain English. But there seems to be some difficulties, so they’re making adjustments. Maybe some of their shareholders want to dilute their holdings.
When Elon Musk said he wanted to buy Twitter, we thought it was a good opportunity as Twitter has a large user base and would be good for Web3 education. [Editor’s note: Binance said in May it will commit US$500 million to Elon Musk’s buyout, which has gone sour.]
Well, we don’t really list media as a specific investment target, but we’ll take a look and see if we come across any good ones.
