Interview with SevenX Ventures: Focus on high-quality investment and be the "Benchmark" of Web3
Author | Qin Xiaofeng
Editor | Hao Fangzhou
Produced | Odaily
Author | Qin Xiaofeng
Editor | Hao Fangzhou
Produced | Odaily
In today’s Web3 field, there are many active venture capital institutions, including transformation from traditional funds such as a16z and Sequoia, as well as native Web3 venture capital such as Binance Labs, Coinbase Venture, and Alameda Research.
Looking at the investment styles of various institutions, there are mainly two types: one is to bet on the track and widely deploy promising subdivided tracks; the other is to invest in high-quality goods, relying on early and accurate investment to obtain excess returns. The former tends to make high-frequency shots and often appears in financing news. However, SevenX Ventures, which Odaily had the honor of interviewing recently, chose the latter path and stood out in a short period of time.
Behind the explosive Web3 models of YGG, Mask, and DAOMaker in the past two years, SevenX Ventures is one of the early investors, and continued to follow the investment during the project growth stage, earning dozens of times the income.
In just two years, SevenX Ventures has become one of the first-tier investment institutions. At present, it has two main funds and one FoF, with an asset management scale of more than 250 million US dollars, and a cumulative investment of more than 80 projects, covering key tracks such as DeFi, NFT, and DAO, as well as multiple ecosystems such as AR, Polkadot, and NEAR.
In actual combat, SevenX Ventures has summed up a unique methodology, drawing on the "three-draft theory" to grasp industry trends; and proposed the "CIVIC" model to select high-quality projects: Contrarian (reverse), Innovation (innovation), Value (value), Idea (Creativity), Connection (connection); after the investment, SevenX Ventures coordinated the overall situation with the industrial chain thinking, and promoted the interconnection and synergy among the invested projects.
Do not follow the trend, foresee the industry trend with a unique vision, identify the target and quickly follow up, restraint and sharpness, and pursue super returns, this is the impression SevenX Ventures left on us. In addition, SevenX Ventures has always adhered to the concept of "boutique investment", benchmarking against traditional funds BenchMark, and not blindly pursuing scale.
"The essence of venture capital is to capture the 1% of projects and bring a hundredfold return. Once the scale is pursued, it will not only mean that the number of investments will increase, but may also lead to a decline in investment standards."
1. Getting to know SevenX Ventures for the first time: internal mobility, high-quality investment
What is the working status of the founder of the venture capital institution?
The three partners of SevenX Ventures are so busy that they fly to the front line every day. They can be seen in all communication meetings with project parties. Every BP seeking financing is reviewed in person, just to grasp the pulse of the industry and keep abreast of the market acuity. "If the founder is only responsible for fundraising and managing the team, the subordinates may become more and more powerful, but they are farther and farther away from the market."
Back in 2018, the three partners had not formally formed an alliance because they had just met for the joint investment project. Then the market entered a bear market, and the new generation of investment institutions suffered losses and retreated. The three who firmly believe in "value investing" huddled together to keep warm and survive the cold winter. The turning point came in the midsummer of 2020. With the popularity of DeFi liquidity mining and the continuous release of water by the Federal Reserve, they had a premonition that the crypto bull market was coming, and decided to form a new Web3 fund to help blockchain startup projects grow.
In August of that year, SevenX Ventures established the first fund with a scale of 5 million US dollars. According to his disclosure, the first phase of the fund has exited with a return rate of 700%. The dark horse projects invested include asset issuance platform DAOMaker and Web3 application Mask Network. SevenX Ventures is an early investor in these two projects and continues to follow the investment. Among them, the highest rate of return of DAOMaker is more than 8000%, and Mask Network also contributed more than 1500%.
Due to the outstanding performance of the first phase of the fund, the second phase of the fund in April 2021 attracted family offices including encrypted trading platforms, well-known blockchain investors, and Internet entrepreneurs as LPs, and the size of the second phase of the fund also reached 30 million US dollars.
Compared with large funds that cost hundreds of millions of yuan, SevenX Ventures is not large in size, which is also intentional. The founding team's positioning for SevenX Ventures is to be the BenchMark of the Web3 world, adhere to the concept of "boutique investment" and not blindly pursue scale.
"The essence of venture capital is to capture the 1% of the projects and bring a hundredfold return. Once there is more money, the fund will have to spend it within two or three years. This not only means that the number of investments must increase, but also may leading to a decline in investment standards."
At the same time, SevenX Ventures implements flat management, with only two levels, and a built-in mobile team to manage project investment.
Specifically, each member can become a project manager to initiate investment, and internally "hire" other members to participate in the project management and post-investment, and share the revenue according to the agreed ratio.
Through this mechanism, the enthusiasm and driving force of each mobile group are greatly improved, and the members eventually grow into all-round "pentagonal fighters". In the end, these results are also fed back to the development of projects and funds, achieving a win-win situation.
After more than two years of development, SevenX Ventures currently has two main funds and one FoF, with an asset management scale of more than 250 million US dollars, and a cumulative investment of more than 80 projects, including infrastructure, middleware and DAPP, covering DeFi, NFT, GameFi, etc. Multiple subdivided tracks and multiple ecology such as AR, Polkadot, and NEAR.
2. SevenX Ventures actual combat: "Three drafts" theory + "CIVIC" model + industrial chain layout
Looking at the investment styles of Web3 venture capital institutions, there are mainly two types: one is betting on the track, focusing on investing in Web3 subdivisions; .
Representative institutions of the former are Binance Labs, Coinbase venture, Alameda Research, etc., while SevenX Ventures is on the latter path. Undoubtedly, the second path has extremely high requirements on the professional level of the institution itself. After all, compared with betting on the track, the success rate of the latter is lower.
In addition, SevenX Ventures did not follow the trend and participate in various hot spots like other investment institutions, but has its own set of investment methods and rhythms; through values, concepts, strategies and amazing performance, SevenX Ventures defines a new set of "Crypto VC" Templates to reshape VC's definition of "value". Specifically, this set of theories includes three parts: "Three drafts theory" + "CIVIC" model + industrial chain layout.
(1) Three draft theory
The "Three Draft Theory" is an encryption investment theory summarized by SevenX Ventures in comparison with the traditional game industry, and uses this theory to guide the fund's industrial layout.
In the game industry, the first draft will put forward the world view, value proposition, and realize the vision and mission. The second draft is the product and design deduced on the basis of the first draft. The third draft involves specific implementation practices and is close to users and the market.
For example, the proposition of the first draft of "Minecraft" is an open world. In the second draft, various custom functions will be added to create composable tool services, and after it is launched on the market, it will continue to be optimized according to user feedback. , In the end, players can build various scenes in the game and supplement various tools.
SevenX Ventures believes that many projects in the current encryption market do not have a clear plan, only one draft, and cannot be followed up. Of course, the value conveyed by the first draft does not have to be very grand, "it can also be a very small value", the key lies in whether there is consistency in deduction between the first draft, the second draft, and the third draft, that is, the latter two serve the The proposition of the first draft, "Add whatever is popular if you can't see it", the product that the user finally experiences must be consistent with the originally set goal.
The "Three-Draft Theory" is not only SevenX Ventures' thinking on project inspection, but also a requirement for itself. At the beginning of the fund's birth, SevenX Ventures realized the concept: adhere to early stage and value investment, hope to achieve self-growth by helping others succeed, and continue to empower the invested projects.
(2) CIVIC model
In addition to the "three-draft theory", SevenX Ventures also established the CIVIC model to select projects and help them grow.
C, Contrarian, reverse thinking/non-consensus. SevenX Ventures does not pursue proven market hotspots, but conducts reverse investments based on its deep understanding of the blockchain world, and seizes trends before they come through cognition. Looking at its portfolio, most of the projects are deeply involved in the first round of financing, rather than following the trend and getting on the car after the project becomes popular. This approach enables SevenX Ventures to obtain returns that far exceed the market average, and the fund size does not need to be enlarged, which is a typical boutique investment.
Last year, when institutions gathered to invest in the Solana and Terra ecological projects, SevenX Ventures did not follow suit. So far, there is no such ecological project in the portfolio, but chooses to focus on the Arweave ecological project.
Blockchains such as Solana are more copies of Ethereum, and there is no underlying blockchain technology; Arweave focuses on decentralized storage. Among the various components of the Web3 hardware stack, decentralized storage can be said to be the most powerful Yes, as an infrastructure-level protocol, Arweave’s narrative, logic, and value support are very different from other public chains. Therefore, when capital pursues other popular public chains, SevenX Ventures silently chooses to deeply cultivate Arweave. "After more than a year of hard work, we are already one of the top investors in the AR ecosystem."
I, that is Innovation, innovation. SevenX Ventures believes that the underlying original innovation has more long-term value than substitutes and improvements, and does not invest in CopyCat. Some funds like to bet on the track for covered investment, such as investing in dozens of decentralized trading platforms at a time, as long as one or a few can break through the tight encirclement, they can get benefits. However, SevenX Ventures does not like to make repeated investments in the same segment, but chooses the best and chooses the most innovative ones to bet on.
"The reason why many funds invest repeatedly is because they don't understand, they can't distinguish between good and bad projects, and they can only invest in sea. But for us, we have talked about all the projects in this entire track, the advantages of all projects, The shortcomings are all clear. In other words, we only vote for UniSwap, not Sushiswap.”
V, that is, Value, value. SevenX Ventures hopes that the invested projects will not only have economic benefits, but also output value to society, which coincides with its purpose.
I, that is Idea, idea. Entrepreneurs don't have to provide SevenX Ventures with a finished product, even if they only have an original idea, SevenX is willing to accompany the project's growth and help it succeed. "We believe that helping early entrepreneurs has more long-term value than joining the capital feast, and there are additional benefits."
C, namely Connection, emphasizes connection and collaboration. SevenX Ventures hopes to help individuals in the system obtain more resources through the power of the system.
The CIVIC model has been throughout the entire investment process of SevenX Ventures, especially the investment in YGG (Yield Guild Games). In his view, YGG has changed the allocation of resources in the blockchain game world. There are a large number of poor people in Southeast Asia. They have a lot of time but no means of production, while some rich people monopolize the means of production but have no time. This kind of resources and production The relationship imbalance has given birth to the chain game rental market. YGG acts as a coordinator and a link, and can also drive local employment, which has extremely high social value.
However, YGG's business model was not favored by capital at that time. As an industry first, it means an increase in the risk level in the eyes of many institutions. SevenX Ventures chose to go against the wind and participated in the early angel round of YGG.
A few months later, the number of YGG unions only grew to 1,000, and the data level performance was not good, and some early organizations began to opt out. At this time, SevenX Ventures chose to continue to invest in the A round. There are two reasons: First, YGG established YGG SEA at that time, focusing on local investment in various regions and supporting locally developed P2E games. From SevenX Ventures’ point of view, this move It will further expand YGG's customer base in the future; second, the data is only temporary, as long as there is no problem with the business model of the project itself, it is very easy to obtain good-looking data.
"For many VCs, the first thing is to look at daily activities and data. At the data level, as the project develops, we can also help. Especially in the Web3 field, data growth may be exponential. So , compared to data, but for us, we value ideas and the business logic behind them more.”
In the following six months, YGG performed as expected by SevenX Ventures, becoming the No. 1 guild in the chain game market, and the number of users continued to set new records, and it was no longer limited to the game Axie Infinity. YGG brought SevenX an investment return of up to 1000 times. Being able to capture a dark horse like YGG is the inevitable result of SevenX Ventures' deep understanding of industry trends.
(3) Industrial chain thinking, overall layout
Looking at the investment of SevenX Ventures in various tracks, we can actually find that these projects are not random, but have a certain connection with each other. "Our investment is deployed along the thinking of the industrial chain, and we will not invest in more than a dozen DEXs in a public chain ecology."
For each segmented track, SevenX Ventures will split it into multiple structural foundations, break it up into parts, and invest from different dimensions, so as to realize the connection between various projects of the entire track and generate synergistic effects.
Taking DeFi as an example, if it is compared to a gazebo, its structure includes two foundations, five pillars, a platform, a cover, and cement, sand, and stones for building a house:
The two foundations are stable coins and assets. Among them, stablecoins can be subdivided into USD (legal currency) stablecoins, collateralized stablecoins, and algorithmic stablecoins, and assets include encrypted native assets and real-world assets. At present, the stable currency track has gradually matured, and SevenX Ventures has not seen innovative projects that can break the existing pattern, so it is not the focus; in the field of assets, SevenX Ventures invested in KEEP (tBTC), which focuses on cross-chain BTC, and real assets Introduce KINE on the chain.
The five pillars refer to trading, lending, asset management, payment and derivatives. Among them, trading and derivatives are the key layout directions of SevenX Ventures, investing in dozens of projects such as Orderly, Ref Finance, Synfutures, Shield, Strips FInance, and Swivel. On the one hand, trading is always the core of DeFi, and it is also the closest to the basic logic of DeFi; in addition, the decentralized derivatives track is not in an absolute monopoly, and new algorithms or product designs still have the possibility of breaking through, so SevenX Ventures Continuing betting on both fronts.
In terms of lending, SevenX Ventures continues to pay attention to credit loans, but it is currently unable to truly connect the ID on the chain with the identity off the chain, and the oracle machine is not yet mature; payment and asset management are easy to touch the red line, so there is little investment.
A platform refers to traffic portals, including DeFi aggregators/dashboards. Users only need to use a unified and concise interface to manage and trade all assets on the chain, and do not need to care about which transaction agreement, loan agreement to interact with, how the liquidity is, and other cumbersome issues. In this regard, SevenX Ventures has invested in Debank as well as Zerion. "We think this is a very good entrance to control the flow of the entire DeFi, so we have a deep layout on it."
A cover, referring to the wallet. The DeFi aggregator/dashboard is just one of the traffic entrances, and another important traffic entrance is the wallet—the first step for everyone to enter Web3. Considering that some wallets may not be connected to aggregators, from the perspective of the industry chain, SevenX Ventures has not given up on this sector, and has successively invested in multiple wallet applications such as Blocto, BitKeep, and Sender.
With the main structure, if you want to build a DeFi high-rise, you can’t do without cement, sand, and stones. This is cross-chain, privacy, oracle and other technologies; without these technologies, or technology development is limited, you can only build a small house . For example, the oracle machine, which needs to be used in on-chain asset on-chain, will also be used in credit loans. DeFi transactions, derivatives and other aspects are inseparable. It acts like an adhesive, holding the parts together firmly. On these basic protocols, SevenX Ventures invested in O3 Swap, Parastate, Zecrey, Integritee and other projects.
In addition to DeFi, the five subdivision tracks of NFT, Web3, GameFi, Arweave, and Multi-chain Ecosystem (Multi-chain Ecosystem) have all been disassembled by SevenX Ventures with the thinking of an industrial chain. "Each subdivision track has its own Mapping. Based on this, we will also supplement projects that we have not covered, and discover projects with higher ceilings in advance. Of course, such a division may not be complete, and we will try our best to improve it .”
3. What can SevenX do for the project?
Today's investment is no longer limited to financial investment. Entrepreneurs also need support from other aspects.
The first is the cognitive level. SevenX Ventures hopes to understand what entrepreneurs think. Especially in the early stage of entrepreneurship, when the project is not popular, every entrepreneur is like an isolated island in the deep sea, at the edge of the industry. SevenX Ventures truly recognizes the value of entrepreneurs, "understanding what entrepreneurs are thinking, what they are doing, and the value of this matter in the Web3 world".
Furthermore, we provide comprehensive post-investment services. The three founders have different focuses, and are good at different dimensions such as strategic planning, marketing, and economic model design. They can help project entrepreneurs clarify their ideas and truly promote the implementation of projects. For example, SevenX Ventures has been deeply involved in the design of token economic models including more than a dozen projects including Rangers and ArDrive. Post-investment services also run through the entire process of project development, as long as the project needs to respond at any time. "We communicate very frequently with the project party. We are the first to know when he has strategic, operational, and financial problems. We will give early warning and help the project solve problems."
SevenX Ventures believes that the provision of resources is not to spread out the resources you have for projects to choose, but to provide funds and resources in a targeted manner by understanding needs and even predicting needs. Moreover, these resources have opened up the entire industrial chain. For example, taking GameFi as an example, SevenX Ventures brings together upstream producers (production companies, tools), midstream guilds (YGG) and publishers, as well as downstream applications. When a new game project enters its industrial layout, the services it can enjoy far exceed what other institutions can provide, and it is easier to produce popular applications.
If you divide crypto VC, it can be roughly divided into two types: one is Pump & Dump, everything is for greater financial returns, and even sold immediately after going online; the other is Diamond Hand, which not only holds it all the time, but also continues Provide Value-added.
Four. Summary
SevenX Ventures clearly falls into the latter category. As an angel investor of Octopus, its tokens have increased by more than 10 times in the secondary market, but SevenX Ventures has always held them and has not sold them. Of course, as the project matures and is strong enough to no longer need the assistance of SevenX Ventures, or to achieve a complete closed loop, SevenX Ventures will consider a gentle exit.
"Octopus Network increased 40 times in the first curve, and our investment also increased from 400,000 to 16 million US dollars, which is almost half of the second phase of the fund. But we still did not exit. Because I think it will go down the first curve It's over, there is a second curve; the logic of the second curve is what we really want to see, and it is in line with the design of the first draft. Therefore, I will withdraw if it meets my goal of voting for it; if it is only in the price If I am satisfied, then I will not quit."
Four. Summary
