Challenges and Transformations in the VC Industry: Insights on New Trends in Crypto Assets Investment from the Hong Kong Consensus Conference

After recently attending the Hong Kong Consensus Conference, I deeply feel that the venture capital ( VC ) industry is facing unprecedented difficulties. In stark contrast to the bustling project parties, VCs are generally in a tough situation: some are unable to raise new rounds of funding, some are significantly laying off employees, some are transforming into strategic investments, and even some are considering issuing meme coins to raise funds.

Many VC practitioners choose to leave the industry and join project teams or become opinion leaders. In this era of transformation, everyone is looking for new ways to survive. This prompts me to think: what exactly is wrong with the VC industry? How can we break through the current dilemma?

It must be acknowledged that, whether in China or the United States, VC as an investment asset class has seen its most glorious era pass. Taking Lightspeed as an example, its most successful fund invested in companies like Snap, Affirm, and OYO in 2012, achieving a 3.7 times distributed return rate. However, starting from 2014, even preserving capital has become extremely difficult.

The VC industry in China has also experienced a similar trajectory. Relying on demographic dividends, the rapid growth of mobile internet and consumer internet has given rise to giants like Alibaba, Meituan, and ByteDance. The year 2015 was the last glorious moment; thereafter, due to stricter regulations, tightened liquidity, the decline of industry dividends, changes in the industrial cycle leading to growth bottlenecks, and factors such as limited IPO exit channels, the return rate of VC institutions has significantly decreased, and many practitioners have exited.

VC in the field of Crypto Assets is also facing challenges. With changes in the macro environment, evolution of market structure, and declining capital returns, VC is undergoing a severe survival test.

Liquidity Shortage and Intensified Market Game

In the past, the value chain of Crypto Assets investment was clearly visible: project parties proposed innovative ideas, VC provided strategic support and resources, opinion leaders amplified market voices at critical moments, and finally, value discovery was completed on centralized exchanges. All parties provided value and assumed risks at different stages, and received corresponding returns, forming a relatively fair value chain.

As a VC, the value we provide goes far beyond simple early-stage investment. We help project teams quickly connect with key resources in the ecosystem to promote business development, provide timely advice to adjust strategies when market trends change suddenly, and even assist in building core teams. In order to establish long-term cooperative relationships with project teams, we usually face a one-year lock-up period and a 2-3 year unlocking period after the token generation event (TGE). We hope to participate with project teams in a non-zero-sum game.

However, the core contradiction in the current market environment is that liquidity is extremely scarce, market speculation is intensifying, and the traditional model of VC is difficult to sustain.

Changes in Capital Flow Patterns

The current bull market is mainly driven by the approval of Bitcoin spot ETFs in the United States and the entry of institutional investors. However, the flow of funds has undergone significant changes:

1. Institutional funds are mainly flowing into Bitcoin, Bitcoin ETFs, and even index funds, with very little spreading to other Crypto Assets markets.
2. The lack of genuine technology or product innovation support makes it difficult for other Crypto Assets to maintain high valuations.

This directly leads to the VC model being heavily questioned in the current market environment. Retail investors believe that VCs have an unfair advantage, being able to acquire chips at a lower cost and grasp key market information. This information asymmetry leads to a collapse of market trust and further depletion of liquidity. In a zero-sum game environment, retail investors demand "absolute fairness." In contrast, the strategies of secondary market funds do not strongly oppose market sentiment, as retail investors also have the opportunity to enter the market under the same conditions.

The current strong criticism of VC is actually a counterattack on "absolute fairness" in the context of liquidity shortage, against "relative fairness."

The Rise of Meme Financing Models

If we previously regarded memes as a cultural phenomenon, now we need to see them as a brand new way of financing. The core value of this financing method lies in:

• Fair Participation Mechanism: Retail investors can track information through on-chain data and obtain early chips under a relatively fair pricing mechanism.
• Lower entry barriers: During the DeFi boom, we supported many independent developers who relied on product innovation to drive value capture. Now, the meme model has further lowered the barriers, allowing developers to "have assets first, then products".

This logic itself is not problematic. Looking back, many public chains conducted token generation events when their ecosystems or mainnets were not yet mature. Why can't meme projects adopt the same approach, attracting enough attention first and then advancing product development?

Essentially, the evolution of the "assets first, products later" path is a reflection of the impact of populist capitalism on the entire financial ecosystem. The prevalence of attention economics, catering to the public's desire for quick wealth, breaking the monopoly of traditional financial institutions, lowering capital thresholds, and ensuring transparency of information are all unstoppable trends in the new populist era. From the GameStop retail investors challenging Wall Street, to the evolution of financing methods through ICOs, NFTs, and meme coins, these are concrete manifestations of the waves of the times in the financial sector.

The Role of VC in the New Model

No financing model is perfect. The biggest problem with meme financing models is the extremely low signal-to-noise ratio, which presents unprecedented trust challenges:

• The signal-to-noise ratio is extremely low: Fair issuance leads to very low asset issuance costs, with a large number of worthless projects flooding the market.
• Insufficient information transparency: For high liquidity meme projects, market participants can enter early, making the long-term development of the project less important; the key lies in how to profit in the game.
• Trust costs soar: High liquidity means high stakes. The first day of circulation means there is no benefit binding mechanism between investors and founders to achieve long-term win-win, and all parties involved may become opponents at any time, becoming each other's exit liquidity. This trust structure is both dangerous and unsustainable.

The meme mode is essentially a darker on-chain world compared to the VC mode. Due to the lack of product and technical support, "absolute fairness" often serves merely as a guise. Observing the Libra project, we can see how the market manipulators behind it meticulously orchestrate public positive news, ultimately turning ordinary investors into precise targets for harvesting. In a highly gamified environment, it becomes difficult to identify the true long-term builders.

I don't believe VC will disappear, because this world is filled with huge information asymmetry and trust asymmetry. For example, certain collaborative resources are not easily accessible to ordinary developers.

However, in the face of such a populist capitalism wave, it is clearly unrealistic for VC to still fantasize about making money easily by leveraging information asymmetry like in the past. Adapting to change has never been easy, especially when market paradigms are completely reconstructed and previously effective methodologies are rapidly eliminated. The rise of meme financing is not a coincidence, but rather the result of deeper liquidity transformations and the reshaping of trust mechanisms.

When the high liquidity of memes meets the short-term speculative mindset, combined with the long-term support and value empowerment of VC, finding a balance between the two is a problem that current VCs must face. Although some investment institutions are grateful for their flexibility to respond to market changes, recognizing structural changes and adjusting investment strategies is by no means an easy task.

No matter how the market changes, one thing remains constant: what truly determines long-term value are those visionary founders who possess exceptional execution skills and are willing to continuously build.