[Research Analysis] Sora Ventures’ Philosophy to Blockchain Investments
16 Oct, 2018 12:16
source: Sora Ventures Jason Fang
Recently, I have been speaking to a number of investors in the cryptocurrency space about my thoughts on the industry and how we, at Sora Ventures, have a different approach to how we do business in the space. Many found my insights intriguing and encouraged me to share it to the public. It has taken me some time to write my thoughts down about my journey and what I have learned thus far. After some deliberation, I have decided to put into words about some of my ideology… on a plane ride from San Francisco back to Shanghai.
For those of you who do not know me, I am the Managing Partner at Sora Ventures, an Asia-based venture capital firm focused on blockchain and crypto investments. I was one of the earliest employees at Fenbushi Capital and started Sora Ventures when Mainland China banned ICOs in 2017. The mission of the fund is simple: invest in entrepreneurs who can make positive changes in our world using blockchain technology.
This post is meant to explain some of the current issues I see in our industry and the strategies Sora Ventures is taking in order to achieve blockchain adoption in traditional businesses.
While I do believe scalability and general-purpose protocols are important, it is the only thing that tier 1 investors are looking at right now. It has become a popular trend that enables tier 1 investors with large AUM to secure their 10x+ returns during a bearish market. Protocol and scalability projects tell a really big story, so that enables them to raise a lot of capital with crazy valuation through multiple rounds of fundraising. Product, technology, token use case is only important for 1st and 2nd round. After that, it is much easier to fundraise as investors in later rounds FOMO (Fear of Missing Out) and follow the investment routes made by tier 1 funds; this is basically a numbers game, and we are seeing VCs exiting before coins are even listed through the use of secondaries. Anyhow, by the time these projects fail to deliver their promised checkpoints / milestones, these early investors have already exited their positions.
Another reason why a lot of these scalability and protocols projects have multiple rounds of fundraising is because most of their token use cases are heavily dependent on developers. However, in our industry today, incentivizing developers can be extremely expensive, a lesson that many projects are learning first-hand.
Nevertheless, Sora Ventures makes small investments into scalability projects as long as we can also get into the second (higher-priced) round. If you don’t get into round 1 or 2 (also need to assume there is an undisclosed round), be prepared to lose money.
Understanding that there is a lot of FOMO and irrational investments in the scalability and protocol space, Sora Ventures takes a different approach to doing investments in the space. Sora’s primary investment is geared towards blockchain adoption in traditional businesses through reverse ICO incubations in Asia. We focus on incubating companies based in Asia because consumers in Asia have a higher appetite for trying out new technology (ie. Alipay and Wechat Pay).
Here are the core criteria when selecting a project to incubate:
1. Reverse-ICO, which means an equity company launching a token as a strategy.
2. The equity company’s operation must be banned or non-existent in mainland China (due to regulatory reasons).
3. It must be a monopoly in Asia’s crypto market.
(Bonus: Usually high profile team or backers to secure business adoption)
Sora’s incubated projects will always start out with a hybrid model whereby 20%-30% of the tech is built using Ethereum (Ethereum remains to be the most efficient playground for building blockchain tech) while the rest is centralized. This is the most practical approach because it enables users in existing business to experience a taste of blockchain technology without having to change the entire technology stack.
After token integration, the same team will develop an industry protocol tailored for the industry partners to further strengthen the token use case. Because the protocol is built from industry leaders, the likeness of achieving market adoption is much higher compared to a general-purpose protocol. This is a safer model for achieving blockchain adoption since the core challenge for most general-purpose protocol is not actually the performance nor technology, but rather the business integration.
There is a Chinese saying that all roads lead to Rome. Like many funds out there, our end goal is to create the next “money” or “monetization channels” for all our current and future projects. In our case, we start from one industry, and build the monetization effect around the initial use case.
The first project we worked on was Mithril (www.mith.io), founded by the Chairman of M17, a leading live-streaming platform in Asia and Taiwan’s largest software company. The goal is to build Mithril’s social mining concept (which has been integrated into Lit, a product co-managed by M17 and Mithril) into all social based networks, to enhance content creation and business efficiency. Lit has proven that the model of saves cost for both consumers and businesses (which leverage these social networks to build brand awareness).
The second project incubated by Sora Ventures is Alphaslot (www.alphaslot.io), which is founded by the core team at TGG Interactive, Asia’s leading casino game distributor that owns 99% of Asia’s market share for skill-based casino games. They are the only company in Greater China to own the license to distribute slot machines and game cabinets to casinos in Macau. Backed by the three of the largest casino families in Macau, Alphaslot will integrate its token to enhance the gaming experience and more importantly, win more for the people playing Alphaslot machines.
If you are interested in learning more about our incubated projects or our philosophy in blockchain investments, feel free to follow my twitter @Jason_SoraVC or find me on Linkedin.