Exclusive interview with Alliance: How to invest in Pump.fun to get a 1000-fold return as a cash cow catcher?

Editor | Wu Talks about Blockchain

In this interview, Qiao Wang, the co-founder of Alliance and a well-known crypto investor, shared his investment strategy in the crypto field. Alliance currently mainly invests in ultra-early projects with a valuation of several million US dollars. He gave a detailed introduction to the investment and incubation of PUMPFUN in this round, which has received at least 1,000 times the return, and the investment in Moomshot, which has received more than 100 times the return. He said that the key to the success of the PUMPFUN project lies in the youth and innovation of their team. He said that the biggest change after Trump took office was that he would not appoint the SEC chairman and the Secretary of the Treasury who were hostile to cryptocurrencies, and the entrepreneurial sentiment would immediately improve greatly.

The audio transcript was generated by GPT, so there may be some errors. Please listen to the full podcast:

Microcosm:

https://www.xiaoyuzhoufm.com/episodes/672f67fcf373fe5d4df0d502

Youtube:

https://youtu.be/nIkPUgPd_sA

Opening Introduction

Colin: In recent months, due to the rise of some memecoin-related projects, more people in the Chinese community have paid attention to you. So I want to invite you to do a podcast to talk about this field. How about you introduce yourself, including your background in growing up and entering the crypto field?

Qiao: I was born in Jinan and immigrated to Canada when I was 12 years old. After graduating from college, I went to the United States to work. For the first six or seven years of my career, I was engaged in high-frequency trading in the traditional financial industry. In 2011, a colleague introduced Bitcoin to me. I did not buy it at the time, but in 2012, another friend suggested that I try to invest, which made me start to learn more about Crypto. In 2014, I participated in Ethereum's ICO, which was my early investment experience in the field of Crypto. Although it was a personal participation, it was somewhat similar to the nature of VC. Because Vitalik is my schoolmate.

In 2017, I joined Messari, responsible for the company's product line and built the technical team. After working at Messari for three years, I left Messari in 2020 and decided to start my own business. I founded Alliance, an incubator focused on cryptocurrency, and have been doing it ever since.

Colin: What made you decide to start your own business?

Qiao: Actually, in the last year of Messari, our products, especially B2B products, have made good progress. Everyone thinks that Messari is mainly a research and analysis tool for consumers, but in fact, Messari's best business is B2B. At that time, we had found the fit between product and market. I like the entrepreneurial stage from 0 to 1 very much, but after 1, I don't like to expand the business from 1 to 10. So after leaving Messari, I have been thinking about how to keep doing things from 0 to 1, even doing it forty or fifty times a year. This idea is also the opportunity for me to start Alliance.

Alliance's team composition and investment strategy

Colin: In the beginning, did you have several partners working on this together? What were their backgrounds?

Qiao: Alliance’s positioning is to invest in projects at their earliest stages, so we are different from most VCs. We focus on in-depth involvement and like to help founders find good ideas, develop go-to-market strategies and fundraising plans at the early stages of a project. Alliance’s goal is to focus on projects from 0 to 1 and help 40 to 50 such projects every year.

Our partners are actually all crypto natives, with about ten years of experience in the industry. One of my partners is called Imran, who is often active on Twitter. You may know him a little bit. He used to be a professional VC. Another partner is called Jacob. And another partner Roberto, his background is more Web2, he worked in YC before, and he is also one of the founders of YC, and he is very familiar with the incubation and accelerator fields.

Initially, we used our own funds and had no LPs, but as the number of projects increased, the amount of investment also increased, and later we began to have LPs. Currently, the team is small, with 14 or 15 people.

Colin: Is your main work focused on investment, incubation and research?

Qiao: Not exactly. We actually have a product team of 5 people, which accounts for one-third of the company. Our investment and research team is actually not very large, maybe only three or four people. The product team’s job is to build an internal social network for the founders of the projects we invest in, so that they can ask each other questions or discuss topics such as their views on VCs, etc. This is a very interesting internal social platform. Next, we may develop an external social network so that projects that are not invested by us can also join.

Colin: So how many projects have you invested in since the beginning? Are these projects all in the earliest stages? For example, angel rounds?

Qiao: Yes, we have invested in about 150 to 200 projects now. Four or five years ago, we did not invest in the earliest stage, because there were not many projects at that time, and there was not much venture capital in the Crypto field, so our investment projects were similar to those of other VCs. But in the past one or two years, we have basically focused on the earliest pre-seed stage.

Colin: What is the current size of the entire fund?

Qiao: Now, based on the logic of VC, the size of VC funds will change with the post-investment valuation (mark-up).

Colin: According to your logic, did you start investing more in angel rounds or early stage projects one or two years ago? Was that a turning point for you? Before that, you probably didn't get involved in many early stage projects?

Qiao: Before that, most of the projects that everyone was exposed to were indeed early-stage projects. The industry has changed a lot in recent years. Two years ago, the number of projects increased by one or two orders of magnitude compared to before, and the venture capital funds in the Crypto field also increased by one or two orders of magnitude. In this case, different VCs will be exposed to projects at different stages, and may even miss some projects. Therefore, we finally decided to focus on the earliest stage and focus entirely on Pre-seed.

Colin: Does your investment style tend to be more focused on gaming and DeFi, or consumer-grade products?

Qiao: Not entirely. This is actually related to market conditions. For example, we have invested in many infrastructure projects, such as Arbitrum, which have performed very well, as well as other Layer 2 projects. But this year there are many infrastructure projects, and VCs tend to invest in infrastructure, which leads to overvaluation and unreasonable valuations of Infra projects. At this time, we will choose not to touch these highly valued projects. On the contrary, consumer projects are often valued at lower prices, especially memecoins like the one you just mentioned, which many VCs dare not touch.

Colin: Can you tell us how many rounds your fund has? For example, what are the yields of the previous rounds?

Qiao: We are currently in the third fund, and the first fund was in 2021. 2021 was the worst year for the entire Crypto VC, but our performance in that fund was still in the top 5% of the industry, possibly higher.

Colin: So from now on, or from this cycle, what special opportunities or opportunities have allowed you to enter the memecoin track more deeply? How much do you participate in the current mainstream memecoin products?

Qiao: In fact, in this cycle, the most successful project we invested in is PUMPFUN, which is at least a project with a thousand-fold return. When we invested in PUMPFUN, they were actually working in other directions. They tried several different directions before finally establishing the current idea of PUMPFUN. At first, we didn't expect it to become a memecoin project. At the time, the idea in my mind was that it could be used as a token launchpad, but I was not sure what kind of token would be launched. I just thought it had potential like Zora (an NFT launchpad). Zora has done well and has had stable income for several years, but there is no tradable token, so I felt that a project like this was needed at the time, and that's why we decided to invest.

As a result, PUMPFUN eventually evolved into a memecoin-focused launchpad, which is common in early-stage investments. You can never fully foresee the final form of a project. But later, PUMPFUN did become one of the projects that set off the entire memecoin track. After that, we invested in Moonshot, and this time we knew it would be a memecoin-type product, which was already clear at the time of investment.

Investment success cases: PUMPFUN and Moonshot’s background, team characteristics and success factors

Colin: OK, what was the reason for choosing to invest in PUMPFUN? Of course, you mentioned before that you felt you needed a token launchpad like this, so what kind of research did you do on their team at the time? Do you pay much attention to the team's style and background when investing?

Qiao: When we invested in PUMPFUN, they were not actually doing launchpad. They initially did an NFT marketplace, but after several attempts, they turned to the current direction. When we selected this team, we mainly focused on the team, not the specific ideas. Especially in the pre-seed stage, especially when doing consumer applications, the success rate is very low, and the team is likely to adjust its direction, so the core is still to look at the team's potential.

Colin: Are they a Chinese team?

Qiao: No, they are a European team.

Colin: I understand. Now looking back at their success, what qualities do you think made you optimistic about them? Is their success directly related to the team's qualities? Or is luck more of a factor?

Qiao: Luck definitely plays a big role in successful projects, but there are also inevitable factors. The key to the success of the PUMPFUN project lies in the youth and innovation of their team. In fact, many people have thought of this idea, but only the PUMPFUN team can really make it. I think one reason is that they are very young. Their CTO did not even go to college. His highest education is middle school, but he is very technical. Their youth and technical strength allow them to look at problems in different ways, and their intuition about products is also very sharp.

Colin: Indeed, many hacker-type talents do not have a traditional higher education background.

Qiao: Yes, at this stage, background is not the main consideration. We are more concerned about understanding their way of thinking through communication and seeing their understanding and feeling of the product.

Colin: When you invested in PUMPFUN last December, what was the valuation? Tens of millions of dollars?

Qiao: Not that high. Our investment is usually in the millions of US dollars. Our standard amount in the pre-seed stage is 5 million US dollars. We generally do not invest in projects with a valuation of tens of millions.

Colin: Since you are investing in early-stage projects, will the failure rate be high? What do you estimate the failure rate to be?

Qiao: The failure rate depends on how you define failure. If a project goes to zero, it is considered a failure. I would roughly divide investment results into three categories: the first category is going to zero; the second category is recovering the principal or making a slight profit; the third category is a return of 10 times, 100 times or even 1000 times. PUMPFUN is an exception, belonging to a project with extremely high returns. So far, the rate of zeroing out of the projects we have invested in is actually very low, which is beyond my expectation. My expectation is that one-third will go to zero, one-third will recover the principal, and one-third will achieve a return of more than ten times. But the actual situation is that there are very few projects that go to zero. If the team is good enough and really puts in the effort, they will usually find a way to survive.

Colin: It seems that you have a unique approach to selecting your team. So, besides youth and drive, what other selection criteria do you have?

Qiao: Being young is not a criterion. We have also invested in founders who are in their 30s or 40s or even older. The key lies in the matching degree between the team background and the project. If you are doing a memecoin launchpad, a young team may be more suitable, but if you are doing an infrastructure project, a team in their early 20s may not be competent and need a more experienced technical background. Therefore, the key is whether the team background matches the project.

Colin: When you invested in PUMPFUN, was it an equity investment or a token investment?

Qiao: It's a mixture. Consumer projects like PUMPFUN don't require a lot of money. We only invested a few hundred thousand dollars.

Colin: For a project valued at several million, this is quite a lot.

Qiao: Yes, our quota is not small, but for consumer projects, a few hundred thousand dollars is often enough. Too much money can sometimes become a hindrance.

Colin: What kind of help did you provide in the process of PUMPFUN's success?

Qiao: We provide the core idea of the project, but the final execution lies in the team. Good ideas are only 1% of success, and 99% is in execution. Excellent teams can usually identify good ideas and execute them effectively. Many successful ideas are not actually new, the key lies in execution.

Colin: Did PUMPFUN encounter many competitors before it became successful? How did they win the competition?

Qiao: Yes, PUMPFUN had some competitors at the beginning, although not many, but when their revenue reached the first tens of millions of US dollars, the number of competitors increased rapidly. The key to success lies in their execution and in-depth understanding of users, because they themselves are users.

Colin: How many people are there in their team?

Qiao: There are about a dozen people now, but there were only three people at the beginning.

Colin: The profit per capita is very high.

Qiao: Yes, this is also the case with many excellent Web2 startups. When Instagram was acquired by Facebook, the team only had a dozen people.

Qiao's views on the current memecoin track and market potential analysis

Colin: I have two more questions about PUMPFUN. First, what do you think their future direction will be? Will they make some transformations or upgrades, such as moving towards a more centralized exchange?

Qiao: I have some understanding of their future direction, but I cannot disclose it at the moment.

Colin: Got it, sure. Another question is, do you think they will issue their own token or do that to some extent?

Qiao: I can’t say that either, hahaha.

Colin: OK, let’s talk about another phenomenal project, Moonshot. When did you start working with them? How did the project find you?

Qiao: This project was our last one, which was in June or July when we connected with them. I don’t know how they found us, but they applied through our website. After a few chats, our team was impressed by them. This team doesn’t have any prominent background, just two young people.

Colin: Which country are they from?

Qiao: One of the founders of the American team is a student at Duke University, which is my only impression of their background. Normally, VCs would not invest in such a team, but after talking to them, I found that they have a particularly good feeling about the product.

Qiao: The idea of Moonshot is simple and solves a straightforward problem. For example, on centralized exchanges like Coinbase or Binance, you can deposit fiat currency and buy tokens, but those tokens are already listed. Moonshot allows users to buy memecoin directly with fiat currency. This idea is very simple, but as long as the problem exists and the solution is good enough, it can develop well.

Colin: So their advantage is the ability to buy memecoin with fiat currency, or is it more like a curated memecoin platform?

Qiao: Selection is important. When we talked about this, we found that the uniqueness of their team was that they decided to only recommend the most liquid version of the same type of memecoin. For example, for the same type of Trump memecoin, they would not show multiple versions to users, but filter out the best one. This simplified user experience is particularly good for retail investors.

Colin: What was their valuation when you invested?

Qiao: We do not invest in projects with a valuation of tens of millions.

Colin: Is their valuation very high now? Do they have the latest round of financing?

Qiao: The current valuation is about 100 times the initial investment.

Colin: It seems like PUMPFUN and Moonshot are your two most successful projects in this cycle, are there any others?

Qiao: We previously invested in a project called Glow, which belongs to the decentralized energy (DePIN) field and mainly does carbon credits. Their latest round of valuation reached $160 million, invested by the world's leading clean energy VC USV.

Colin: You yourself are also involved in memecoin investment. How do you think the sustainability of this track is? Because PUMPFUN and Moonshot are both focused on this. If this track is not sustainable, then these projects will also be affected.

Qiao: Even if we hadn't invested in PUMPFUN and Moonshot, I would still think that the memecoin track is highly sustainable. What is the core purpose of buying memecoin? Many people do it to "turn over". In contrast, it is difficult to obtain such returns by buying VC coins (i.e. tokens supported by VCs), and many VC coins began to fall as soon as they were listed. Secondly, although some VC coins will perform well in certain market cycles, such as the DeFi track, ordinary retail investors usually do not understand these areas and prefer to buy things that they can easily understand. Therefore, these two points combined, memecoin has a certain degree of sustainability.

Colin: That’s true. In the current cycle, VC coins have been strongly challenged by memecoins, which is more or less due to the impact of regulation. Due to regulatory restrictions, ICOs and even many launchpad projects cannot be carried out. To some extent, the role of memecoins has replaced the opportunity for retail investors to participate in ICOs in the early stage.

Qiao: Even if VC coins can do ICO, what will be the final result? First, retail investors may not understand the project content of these VC coins; second, it often takes several months after investment to unlock. Memecoin is different, it has liquidity immediately after investment. Therefore, the existence of ICO will not have an impact on memecoin, but will have a greater impact on VC, because many projects will find it more difficult to raise funds from VC, so they choose to do ICO directly.

Expected changes in US regulatory policies and their impact on the Crypto industry

Colin: But I think it may not be very realistic to expect Trump to quickly relax this policy after he takes office. His pre-election promises and post-election actions may be very different. But since you are in the United States, I still want to hear your opinion on what relatively certain changes will Trump's election bring to the Crypto industry?

Qiao: The most obvious change is that Trump will not let someone like Gary Gensler take charge of the SEC (Securities and Exchange Commission) as he did before. This is very critical, not only for the SEC, but also for the Treasury. Both departments are very critical.

Colin: Yes, the Treasury is responsible for stablecoins and some related areas.

Qiao: Yes, the Ministry of Finance is not only responsible for stablecoins, but also for privacy issues, and even self-custody. The Ministry of Finance actually has much more power than the SEC, but in the past four years, they have not specifically targeted Crypto. If the next Secretary of the Treasury has an unfriendly attitude, it may have a very negative impact on the industry.

Colin: I remember when Trump took office, a director of the Treasury Department's monetary department was very supportive of Crypto.

Qiao: Yes. So the most direct change is that if the SEC and the Treasury Department stop suppressing Crypto, then entrepreneurs in the United States and even the world will be more willing to do Crypto projects. In the past four years, the SEC has mainly cracked down on some legitimate projects, rather than those that actually violated the rules. FTX has not been regulated much.

Qiao: So the most direct impact is the improvement of entrepreneurial sentiment, which is very beneficial to Crypto. This change can be effective almost immediately, without the need for new laws or regulatory adjustments. As long as the attitude changes, entrepreneurial sentiment can be improved immediately. In addition to sentiment, the new laws you mentioned, such as stablecoin laws or ICO laws, do take time to promote. However, now that both houses of Congress are dominated by Republicans, the possibility of the law passing is greater, but it still takes time.

Colin: After your successful investments in PUMPFUN and Moonshot, has the number of projects approaching you increased significantly?

Qiao: It’s true that there are more. Even before PUMPFUN and Moonshot, most entrepreneurs in the US and Europe knew us. As you just mentioned, the Chinese community may have only recently started to really understand us. In fact, in our latest round of projects, the proportion of Chinese teams is quite high, about 30% to 40% of the projects are from China. It’s not easy for Chinese teams to raise funds from Western VCs, mainly because of cultural and language barriers, but these are not problems for me.

Future investment directions and suggestions for Chinese entrepreneurial teams

Colin: You have been incubating and investing in the earliest stages for four years. You mentioned that about 30% to 40% of your investment projects are from Chinese teams. Do you think there are any differences between Chinese entrepreneurs and those in the United States and Europe?

Qiao: There is no difference in essence. The main differences are in language and culture. For example, there are some obstacles when communicating with Western communities or VCs. I found that many Chinese projects attach great importance to obtaining support and endorsements from Western VCs. I always tell them that this is not important. Endorsements are not valuable. The key is to make good products, which will naturally attract good VCs to come to you. Of course, the community still has a certain influence. This is a cultural difference.

Colin: Indeed, it is not easy to create a product with real users and revenue. There are very few successful projects like PUMPFUN, maybe only one in thousands or tens of thousands of projects. Do you think this kind of product form is foreseeable, or does it require luck and market competition to drive it?

Qiao: Luck plays a big role. PUMPFUN is an example. Even when they first started the project, we gave them the idea, but we didn’t expect it to be so big. The chance factor is very high, almost more than 90%.

My opinion on the popularity of memecoin in this cycle

Colin: Do you think the hot spots in this cycle have changed compared to the previous cycle? Around 2019, DeFi, NFT, games and other fields were very popular, but in this cycle, it seems that only memecoin is hot?

Qiao: This cycle is indeed a little different, the main hot areas are memecoin and stablecoin. However, stablecoin projects usually do not issue tokens.

Colin: Yes, projects like Circle or Tether are often more stable. Will you invest in new stablecoin projects?

Qiao: We will not invest in stablecoin projects that compete with Circle or Tether, but will invest in some application layer or infrastructure (Infra) related projects, such as cross-border payments. At the Infra level, we have invested in an acquired bridge project, which provides APIs for developers and can be regarded as a stablecoin infrastructure.

Colin: What do you think about the concentration of memecoin on Solana? And the competition between Solana and Ethereum?

Qiao: I don’t know exactly why memecoin is concentrated on Solana, but I guess it has something to do with Ansem, an early influencer. He brought a large number of users to Solana at the time, and the addition of these users may have driven the growth of memecoin.

Colin: Indeed, shouting orders are very important to memecoin. For example, Murad’s recent shouting orders have brought new impetus to memecoin. His thinking is very clear. I did a podcast with him a few days ago, which was really special.

Qiao: Yes, Murad is really great. Although many traditional VCs don’t think highly of him, when you listen to him speak you will find that he has very clear ideas.

Colin: Indeed, his logic is very concise. Many people do not agree with people like Ansem, but he actually has a lot of ideas and a very strong technical background.

Criteria, process and follow-up support for the selection team

Colin: Going back to the earlier question, you received so many project applications. What are the screening criteria and process? How did you initially select the projects you were interested in?

Qiao: I am mainly responsible for the screening work. I look at 4,000 to 5,000 projects every year, about a dozen a day. I don't have any special criteria, I mainly go by intuition. Through their application materials, I can feel the clarity of ideas, background and attractiveness of the project.

Colin: And if they pass the initial screening, how will you further contact these teams?

Qiao: If they pass the initial screening, I will arrange for our partners to talk to them. Many excellent projects can actually be judged as good or bad in a 5-minute conversation. Although it is said to be a 20-minute conversation, in fact, a few minutes is enough.

Colin: What kind of help will you provide after investing?

Qiao: We help them in three main areas: first, assisting them in entering the market, finding users, and analyzing user feedback; second, if the initial idea of the project is immature, we will explore new ideas with them; third, we help them raise funds.

Thoughts on the recent performance of VC tokens, TON, and the impact of Trump’s election

Colin: What do you think about the recent poor performance of VC-backed tokens, such as the sharp drop in the prices of some projects on Binance?

Qiao: The phenomenon is simple, there are too many project tokens and insufficient funds. The FDV (fully diluted valuation) of VC coins is too high, and no one takes it, causing the price to fall. In contrast, the initial FDV of memecoin is usually lower, and there is room for natural growth. Centralized exchanges are also responsible for this phenomenon because they listed some projects that have no user base, which ultimately hurt retail users.

Colin: What do you think of the TON blockchain game that was popular a while ago? Have you ever considered investing in similar projects?

Qiao: I have been looking for opportunities to invest in the TON blockchain project, but I have not found a particularly good team yet. As the only Web3 project supported by a large social media, TON is indeed unique, but it also faces some challenges, such as user quality and token performance issues.

Colin: How long do you think this Crypto bull market will last under the influence of Trump?

Qiao: I am not sure how long it will last, but the outlook for the next three to six months is very good. However, it mainly depends on macroeconomic policies. Trump’s Crypto policy is one aspect, but macroeconomic factors are more important.

Colin: Okay, we’ve talked a lot today. Thank you very much for your time. We’ll discuss this in depth next time if we have the chance.

Qiao: Okay, thank you.