Journalist: Gitana


2017 was hailed as the “ICO year” for blockchain projects. Initial Coin Offerings or ICO’s raised more than $327 million out performing the $295 million of capital raised for blockchain projects by traditional venture capital firms.


Even with stronger regulations being placed on ICO’s in early 2018, with some countries such as China outright banning them, Cointelegraph reports that as much as $2.94 billion was raised in March 2018 alone, making it the most capital raised through ICO’s so far.


PANews interviewed Richard Wang, a partner at Draper Dragon, after his presentation at the XTalks forum in Shanghai to discuss VC investments in blockchain projects. Draper Dragon is a VC firm established in 2006, with headquarters in Silicon Valley and Shanghai, as a joint venture between the internationally acclaimed venture capital firm Draper Fisher Jurvetson (DFJ) and DragonVenture.


The Draper family name is quite popular in cryptocurrency spaces. Both Tim Draper and son Adam are strong advocates of bitcoin and its underlying blockchain technology. Before bitcoin, Tim Draper was an early investor in some of the startup companies that have become household products today — Gmail, Hotmail, Tesla, Inc. and Baidu. While Tim Draper and his firm Draper Associates no longer invest in China based companies as of last June, Draper Dragon does.


“I’m not investing in China. I’ve stopped, I’ve closed the door.” -Tim Draper

Draper Dragon’s investments in China focus on the primary market before a project lists their token on an exchange.

Richard shared opinions about the present blockchain landscape, the rise of token funds, investment strategies and what he thinks needs to happen for projects to begin to decouple from the bitcoin price.

PANONY: With 2017 being called a banner year for cryptocurrency projects, particularly with ICO’s, 2018 is now seeing a rise in VC investment in the blockchain space. Why do you believe this is happening?


Richard: First of all we have to define what kind of VC. We are seeing a lot more token fund VC’s, maybe more than a hundred that invest only in token projects. If we are talking about traditional VC’s, for them and for us it is a trend.

If we talk about investment returns for these kinds of deals, ICO deals or blockchain deals or cryptocurrency deals, indeed, just by looking at the numbers, it has a better return in a short time, in one year or less, returning as much as 2x or 10x on the investment.


PANONY: When did Draper Dragon start to invest in blockchain projects and what were those projects?


Richard: Four years ago. Its quite different for equity investment its just like any traditional investment through an M&A or IPO, these projects didn’t have a token or a proof of currency at the time. Four years ago a lot of companies had blockchain deals. They didn’t know or didn’t create a token to make a token economy and build up the ecosystem and utilize the ICO method.

In 2017 more and more people in this space learned about ICOs from the US and the UK and utilized that crowdfunding method or both traditional equity investment and ICOs to raise funds for their projects.

Compared to some token funds, we do not invest as much as they do. We only have around 30 deals, but for some very new and local token funds they have more than 100 deals. I would say that most of their performance is not that good because now we are in a bear market.


PANONY: What is Draper Dragon’s investment strategy for blockchain projects?


Richard: There are six indicators we look at; globalization, the team, application scenario, unique infrastructure and ecosystem facilitation. We look for projects that can reach a wide audience across the globe with a strong team behind it. For application scenario we like to invest in a project that already has a lot of subscribers using their application.

Nowadays, there are a lot of new projects that tell the investor they are trying to build something but have nothing at the time of the pitch. We look for projects that already have millions of subscribers and their team utilize the token system to add greater value to their application.

For unique infrastructure, this means something like a protocol company with a unique technology that can facilitate an application scenario. If we look at financial services such as VISA they have a high TPS (Transaction Per Second), if there is a project that is able to utilize blockchain technology and maintain a high TPS, we are interested in investing in them. Vitalik Buterin, founder of Ethereum, as an example, has discussed applying Sharding as a method to increase the TPS on the Ethereum chain.

Storage is another area, like IPFS technology, that is an important use case for blockchain. Of course these projects are not 100% perfect, but if we are able to identify them, those are the one’s we look to invest in.


PANONY: How can these projects prove that they can do what they say? Have they tested their technology?


Richard: It is difficult, but we have a strong team with the expertise to check their documentation, technology and their algorithm and make an assessment from there. These projects often time have an MVP or a demo that can prove about 20% of what they can do.

As for ecosystem facilitation, that looks at all parts of the system from miners to PR. We are interested in the media side, we invest in the PR for these projects.


PANONY: Does Draper Dragon facilitate cooperation or interoperability between the different projects they’ve invested in?


Richard: Yes. We regularly encourage the teams from our different projects to cooperate. We want them to talk to each other and see whether they can interoperate or create synergy to leverage their resources between their projects.


PANONY: Right now, most projects follow the BTC price. Do you think that eventually there will be projects that will be able to decouple from that price? If so, which projects?


Richard: I believe it is possible and that a few can do it. The one that will, I believe, has to be a public chain like bitcoin, and has to have built a very vertical ecosystem so that it can separate from the big chain.


PANONY：What kind of advice or recommendations do you have for projects looking to be funded by your firm?


Richard: We really care about the team behind the projects. Those that approach us and pitch their projects we like to give them advice after their presentations.

One of the areas that some teams miss is doing a good market survey. Some teams approach us claiming they are the first one’s to do something better than others without having done a market survey.