Venture Capitalists are always on the lookout for the next big thing in FinTech and Web3. So how do they spot it? What is going to be big in 2023? And what do they do when times get tough? This week we bring you not one, but two VC investors who give us their insight into what they are looking for in 2023. Both Titan Fund and Token Bay Capital invest in a portfolio of entrepreneurs and start-ups in Asia.
Walter Jennings: I'm Walter Jennings, and this is Waves in the Finoverse. Venture capital funding is the lifeblood of Web3 companies. And in Hong Kong FinTech Week, we had the opportunity to sit with two leaders in the venture capital industry. First, we spoke with Shiau Sin Yen at Titan Fund, and then Lucy Gazmararian of Token Bay Capital. We learned what they are looking for when evaluating Web3 investments, and how the recent changes in the market have altered their outlook in investing. Lucy, Shiau Sin Yen, welcome to Waves in the Finoverse.
Lucy Gazmararian: Thank you so much. Great to be here.
Shiau Sin Yen: Glad to be here. Thank you.
Walter Jennings: I'm always excited to have a venture capital investor with us. Lucy, can you begin by telling us a little bit more about Token Bay Capital, your fund?
Lucy Gazmararian: Sure. So Token Bay Capital, it's an early stage digital assets and blockchain venture fund. And we are based in Hong Kong, we invest across the entire landscape of Web3. So that includes infrastructure, DeFi, Metaverse, SocialFi and Financial Services, or where financial services meets crypto. So it's an all-in-one fund. And we invest in both equity and tokens. And the differentiating feature about us is that we are a regulated venture fund manager in Hong Kong.
So we comply with the SFC. And that's important because investors are still a little bit nervous about deploying capital in the space. So it just gives comfort that actually a process and the governance is in place for the fund.
Walter Jennings: And this, you mentioned early stage, is that seed capital series A? I mean, how early are you investing in some of the companies?
Lucy Gazmararian: Yes, so it is a focus on the earliest stage. There have been a range of deals that we've done, but I would say primarily its seed and series A. So we do work with founders before the proof of concept has even been created. Because we understand what they're trying to do, the problem they're trying to solve.
And we believe that they've got the skills and drive and tenacity to go after it, and build. So it is a focus on early stage. But that being said, there are some later stage opportunities in the fund as well.
Walter Jennings: Well, Shiau Sin Yen introduce us to Titan Funding CMCC.
Shiau Sin Yen: Sure. CMCC is a global Hong Kong based digital assets investor. They started in 2016. And been investing through all the cycles since then. I joined them recently, in actually just a few months ago. I was at another crypto investment firm before. And so the founders of CMCC and I, we got together and said "We should launch a new venture capital fund focused on digital assets". And so I'm here.
Walter Jennings: Can you outline to us the kind of the remit, the size of the fund and the areas that you're most interested in?
Shiau Sin Yen: Sure. So CMCC's previous funds, so they've had three funds, which they started in 2016. They had fund one, they had fund two, and they also had fund three. All of them exited so far, and they've generated great returns for investors. Those funds were focused on token investments.
So we were a seed investor in protocols such as Solana, Cosmos, etc. And those have done very well. The Titan Fund is a bit different. The Titan Fund will invest in more like venture capital style. So that means investing in companies directly for an equity stake, and where they also our token allocations, we can also take them but the primary focus is to invest in equity in startups, in the infrastructure focused areas such as FinTech as well on the consumer side.
Lucy Gazmararian: So the fund has been open for about 18 months now. And I would say we were seeing a lot more DeFi protocols and initiatives at the end of last year, I would say what's really becoming more and more interesting recently is a lot of innovation in the social media space, and how companies are connecting people together in decentralised ways that is becoming pretty interesting at this particular moment.
And it's sort of giving the tiktoks run for their money, but having a token, as part of the ecosystem, and as a way to bind your viewers and your participants in your network closer together with the platform and the brand. So I think that's a really exciting space right now.
Walter Jennings: Well, that's a bit of a challenge. Because you're not the only venture capital fund out there investing in these areas. How do you make sure that the companies you want are attracted to you and your fund?
Shiau Sin Yen: Yeah, that's a very good question. Especially in the last, I would say, two years, there are so many new funds that are started. One of the main differences that we started in 2016. So we were one of the first funds focused purely on blockchain and digital assets, we have a strong track record. We had fund one, fund two, fund three, which generated a lot of returns. We've returned to more than a quarter of a billion back to our investors.
So number one, we have a strong history track record. And number two we are actually based out of Hong Kong, we will start it in Hong Kong. So we're very proud of that. We actually also licenced by the SFC. We have offices in North America in Toronto, we also have an office in Europe in Berlin. So we also are a truly global firm.
Lucy Gazmararian: I think it's very important to have diversification. And that is important for Cap Tables, that's important for building strategic partners around them. These startups are looking to have people that can bring ecosystems with them. And if you have differentiated investors, they will have differentiated networks and ecosystems. So the people that I know will be very different to another VC, depending on that profile.
So actually, diversification is really important, but it's important for a strategic reason. And so I do bring something different to the table to a lot of the VCs. My TradFi background is unusual, a lot of the VCs have not worked for 16 years in finance, because they haven't been working for 16 years. And so that does as the space is maturing, and the ecosystem is really developing the ability to make those introductions and to really help with the interconnection between traditional finance markets and crypto, or with more established brands and companies and corporates with startups, sometimes it does take someone with a depth of network that has been built really over almost 20 years of my career.
So that is something very valuable that I bring to startups and being just a different type of investor and diversification is healthy.
Walter Jennings: How do you evaluate a company that may not have product and may not have a long track record?
Lucy Gazmararian: So much about how I invest and how the team invests is based on the founder. That's really what you have to go with when it's very early stage. Of course, we've done analysis of the market, there are the pockets of opportunity that we think need to be built, things need to be built and products need to be discovered. But it needs to be executed upon. And that's the most critical piece.
So when I look to projects, how I go to sleep at night is - Do I still have belief in that founder, even if the times get really hard, which goodness, everyone was shaken over the summer, even if you weren't a centralised lending platform and directly impacted by the mini credit crash that we had in crypto markets. You still were shaken by the fact that the crypto market cap dropped to a third. You know, went from 3 trillion to 1 trillion. And a lot of people had all their wealth wiped out overnight, as a result of the implosion of the stable coin terror. So it was very shaky times over the summer. I mean, it's miraculous as typical with crypto, we're already sort of recovering. But you need to be an incredibly strong founder and your belief needs to be really strong and you need to have a talented team around you.
So I would say when the going gets tough. The founders are communicating, they're pulling through they're thinking on their feet. They're pivoting. I think the ability to pivot is absolutely critical. So those are the people I back and that makes me able to sleep at night because I think to myself, if there is a way to navigate choppy waters, I believe that those founders are going to do it. And they've got the best intention to pull through and have a very successful company at the end of it.
Shiau Sin Yen: Yeah. So the early investors, and that was in 2016, when we started, were literally friends and family. So these were people that were friends of our co-founders. These were people in Hong Kong, a lot that worked at banks, that worked in law firms, that worked in accounting firms, and they believe their idea. And you have to imagine to in 2016 it's very difficult to get people excited for digital assets. So they raised a total of literally 1 million.
You know, one million is nothing, when you read about the big American VC funds that raised literally billions now for digital assets. So they raised 1 million, and but they returned a lot.
Walter Jennings: Yeah, I actually have here, someone had written the CMCC first fund made returns of over 8,000%.
Shiau Sin Yen: Yeah, I can't comment on the specificity of that. But yes, in around there, we that was the first one which did really well. So when we talk to investors, we discuss with them our track record, we are really missions led, we believe in digital assets, we started probably earlier than majority of other investors. And I think the fact that we are based out of Hong Kong also allows us to see a lot of opportunities in Asia. Around 1/3 of all deals, globally, are being funded for Asian companies.
And while you have very strong infrastructure projects in, let's say, North America, but consumer led companies with Web3 opportunities, there's plenty of them here in Asia, Japan, Korea, and Southeast Asia. And that's something that investors are really keen at as well. If you follow the trend of say, ConsumerTech, FinTech, Asian companies have dominated them also in the last couple of years. And those are homegrown companies, and not companies that we're calling important from the west. So we have strong conviction that through our connections, we will be able to find the next Web3 leaders and make money for our investors.
Walter Jennings: Okay, Yen. And if we're out there looking for the best Web3 leaders for you and for your fund. Tell me about the kinds of companies that you find most attractive to invest in and the kinds of tech entrepreneurs that should be targeting Titan Fund as a potential investor.
Shiau Sin Yen: So as I mentioned before, we've had some strong conviction in the very past, we were seed investing in Solana, Cosmos Hashgraph, even actually Terra. Of course, everyone knows about Terra, we were the seed investor in Intel in 2018. And we actually also exited that position three months before everything imploded. For us, it was about risk management. And we, of course, with some luck, and also good risk management, decided that we're able to actually make a lot of money from that. But that aside, we focused on infrastructure, the Web3 or blockchain growth is, in my view, still, in the beginning, you see a lot of great opportunities. But a lot of the people that are coming in now are really just investment driven.
And I think what we're looking for are people that are truly trying to make a difference with Blockchain in everyday life. Right now we have all the tokens, you have a lot of shit coins that started and people invest, people have lost money. But I would say a lot of sophisticated investors, people with a finance background or people who have strong engineering background were able to benefit but to a large degree, many others weren't able and for blockchain to really gain mass adoption, the normal person has to be able to understand and feel comfortable.
Walter Jennings: Well, you know, as a marketer, that really does interest me because I see blockchain as a way of really engaging with your community and giving them a vested interest through the ownership of either a token or character etc.
Lucy Gazmararian: Definitely, I would say that relationship, this idea of a token is drawing your customer so closely to you and with that becomes far more innovation in that relationship. And so we're really seeing uncharted territory when it comes to developing community, offering your customers and investors experiences, ways to use tokens that actually beneficial to them. So it's opening up a whole new world of utility. And that is an incredibly exciting inflection point where we're actually going past the JPEGs. And into the functional use of these tokens
Walter Jennings: Will and then I imagine those companies would be also serving as advisors to larger corporations or brands that may not have a digital background and helping them or are these just companies that are figuring out within their own communities how to leverage their network?
Lucy Gazmararian: So the most important thing for what makes one of these platforms successful is there has to be an ecosystem, if it's a closed loop, if it's a walled garden, no matter how great the tech is, and the token and how it's all created, there needs to be a broader ecosystem. Crypto really is about partnerships and thinking bigger and better all the time. So I would say that, you do need to have that expansion plan in mind.
And I understand that it's very sort of generic right now, the way we're discussing this, but what I mean is you can't just issue a token and build a platform and hope people are going to find you. You actually need to go out there, create partnerships, have strategic investors, and that plug and play actually needs to be worked on. And then magic can happen. But I think it's a core piece that needs attention for the startups that are working in this space to be successful.
Walter Jennings: Now, this year, 2022 has been characterised by some drastic ups and downs in the valuation of digital assets or what some people are calling crypto winter. How is that impacting the startup scene and the opportunities you're looking at?
Lucy Gazmararian: So most of the teams that I'm working with, don't pay very much attention to crypto prices? Yes, when we get together, it's a bit sort of grim faces and or when are we going to pull out of it? It's a question of when not if we're going to move out of this crypto winter, if you like. So the drive, the energy, the teams that are coming together and building. It's actually just a relief that there's a bit of froth that's been taken out of the market.
And I would say one impact is that some of these projects have held off from listing their token. So while they're working on the project, they're working on the product, the company, whatever it is that they're creating, when it comes to actually the liquidity event for these early stage startups, which is via a token generation event, or TGE, as it's called, a lot of the startups are holding off, they are not listing into a bear market.
And so I would say that is definitely one impact of the down market. But in terms of actually the progress all these teams are making, I would say they're making even more progress in a bear market, because there's nothing to distract them. And there's no FOMO going on. So actually, it's an ideal time to be building. And in my opinion, it's an ideal time to be investing.
Walter Jennings: Shiau Sin Yen, How successful has the fundraising been to date for Titan Fund?
Shiau Sin Yen: We have now finished the data room and the documents. And now we are talking to a few of anchors already. Just to give you an idea of the four type for CMCC. The first initial investors were, as I mentioned, previously mentioned small investors. But over the years, we have had large family offices, big investment groups that have practice.
For example, Pacific Century Group, which is led by Richard Li, in a strong supporter and invest in us. So as we grow, we are carrying also more larger, more institutional investors financing.
Walter Jennings: Well, good luck, it sounds like the next few weeks or months are going to be very critical to you in the fundraising effort. How long a period will the fund be open for and when do you look to complete the round?
Shiau Sin Yen: Yeah, so within the next, I would say, three months, or maybe three to four months, we're looking to have our first close. And that means with initial anchors, with initial large investors, we agree on terms. We'll then have our signing for the first close and we start deploying capital. And after that, for the next nine to twelve months, we hope to finish it.
Walter Jennings: I want to look forward now into the coming year. And I just want to for a moment stay in APAC, Asia Pacific. What are the kind of trends and drivers that are pushing growth now in the Web3, FinTech space here in the region, are there any particular trends or businesses that seemed to be more active here?
Shiau Sin Yen: So in Asia, in terms of infrastructure, or in terms of areas where we'd like to deploy is in financial services, you have had the exchanges, you have a lot of wallets in the last three to five years that have become very successful, but you still need a lot of the railings. And that includes, for example, fear of an on ramp solutions that are properly vetted, also compliant. That's when Matic can join. So financial service, we feel there's a lot of opportunities.
And of course, on the consumer side, Asia is very much digitally native, when you look at China, India, in terms of FinTech adoption, is the highest or I think, close to 70, or even more percent. And so to use digital solutions for their financials, or even for their own assets that are digitised, I think it comes very easy for him. And you have seen what the whole FinTech called not revolution, but evolution in Southeast Asia that has started the last five years. Blockchain, we believe, has a place in there. And so we hope that in financial services and consumer that we'll be able to find a lot of good companies in the next few years.
Lucy Gazmararian: I've been a big proponent of crypto in Asia Pacific. And the reason is because I see this technology, impacting the lives of people in this part of the world faster and in a more fundamental way than in western jurisdictions or countries such as the US or Europe. The reason being is that so many individuals in Asia Pacific are unbanked. So the World Bank says that 30% of the adult population is unbanked. Half of those unbanked people are in Asia Pacific.
And so because of the levelling effect of this technology, the ability of crypto and blockchain and decentralisation to level the playing field so that people can interact with these protocols, they can save money, they can borrow money, they can invest money, all without needing a bank account. And that sort of gateway into traditional finance that has blocked so many people from being part of the global financial system. So I think this part of the world is really important for the whole story of why crypto is important, because it's giving people access that they have not previously had before. And to put that in context, someone in a village in the Philippines, if they've earned any money through, you know, hard day's labour, they never really had anywhere to spend that money, they certainly weren't going to save it, maybe you'll spend it in the local shop.
But now if they're earning money through a digital currency, they now have the ability to go into a DeFi lending, borrowing protocol, or an investing platform and do something with that money, rather than just spend it and it's giving more opportunity to these people. And it's incredibly empowering for that reason, that right now there is somebody in a village in the Philippines who has equal access to a DeFi protocol that someone sitting in Wall Street has access to and is probably also interacting with, because the minimums to participate, are so low, because the infrastructure and the architecture of blockchain is so hyper efficient, so they can put in $1-0.50, and the person on Wall Street can put in, you know, $2,000 $100,000, but it's the same process. It's the same access.
And this is the revolution that is really coming into play, because no longer can we leave out so many, so much of the global population out of the global financial system. And the result of bringing them all in is that we're going to have a more vibrant global markets, it's going to create more wealth, it's going to create wealth for future generations. And overall, it's going to be a great boost for so many people around the world.
Walter Jennings: As a venture capitalist. How do you keep up with the trends and issues that are affecting the venture capital industry? Is there an association newsletter, gatherings, meetings? I mean, how do you keep abreast?
Lucy Gazmararian: Well, if there is a newsletter, I'm not on that distribution list. So I'd like to sign up pronto, but no, so much of the industry, we get together at events like this. We're very global. We jump on planes at a drop of a hat. And actually, the relationships you build with VCs are very sort of organic.
So you'll meet people and naturally you'll be inclined to work with people that you just get on with, quite frankly. So no, to be a VC, it's a natural network effect, as you have in so many different industries. And I will say that once you get started and you get into the space, it builds upon itself very, very quickly. And you build this sort of momentum, which is very exciting. So, yes, it just takes its path. You just got to get started.
Walter Jennings: Is there any music that you would bring along with you in the Finoverse of the metaverse? Is there any soundtrack that you would want powering your time in the Finoverse?
Shiau Sin Yen: I like all kinds of music. I grew up in Austria and I think it was in the mid 80s, thhere was a song by a woman called Nena and she sang that song 99 luftballoons which means 99 airballoons and I actually was listening to the song yesterday. I really liked it and it's about peace right at song and if I were to add to the metaverse I think that will be the song now that I will take with me.
Walter Jennings: Well amazingly I can hear it loud and clear in my head right now. Though it's a very well known song. Thank you so much for joining us at Waves in the Finoverse.
Lucy Gazmararian: Thank you.
Shiau Sin Yen: Thank you very much.