[Notes] - Jason Choi: How Spartan Group Pioneer in DeFi Investing
[51% with Mable Jiang] - EP.15
Part I: English Version
Part II: Chinese Version
Part I
Time: 2021.02.28
Interviewers: Mable Jiang (Multicoin Capital), Jason Choi (The Spartan Group)
Guest introduction
The Spartan Group basically consists of two independent companies, Spartan Advisory and Digital Asset Management Fund. Spartan Advisory includes multiple businesses such as Fundraising, M&A, and strategic consulting. The M&A business once led the acquisition of Blockfolio and FTX.
In 2018, I entered the crypto industry full-time. Joined The Spartan Group in May 2018 and became the first employee in its Hong Kong office. I met Kelvin Koh by chance. I met Casper and Melody (the founder of The Spartan Group) through a friend, and then I met Kelvin through them. At that time, the fund had just been established and its own legal structure had just been set up.
Why is the name of the fund called Spartan?
Spartan represents the culture of warriors, with qualities such as perseverance and high discipline.
The fund was established in 2018. At that time, only a few traditional capital market investors entered the crypto field, which meant a sense of rebellion.
How has your podcast experience helped you in your investment career?
Harry Stebbings did The Twenty Minute VC when I first wanted to do podcast. This model brought him many benefits:
He has access to almost all large-scale VCs in the world, and many institutions later became his LPs.
Established a huge social network with the founder.
Provides an exposure platform for the invested company.
At first I was interested in a lot of content in the crypto field, so I read a lot of medium articles. Later I started to want to communicate with the authors, but obviously they are busy, so I need a reason for them to be willing to sit down and talk with me, for example, I can bring them exposure, and they just need to sit down and talk with me One hour and let me ask any questions I want. I contacted a lot of people through cold email, very, very lucky, Adam Draper and many others came to my podcast, and finally I got to where I am today by doing this.
This reminds me of what Marc Andreessen said "We are not an investment firm. We're actually a media company."
Talk about DeFi Venture Fund!
Background of the establishment of the fund:
Spartan was originally a crypto hedge fund, which means that we have a flexible investment strategy. We can buy tokens directly from exchanges, buy tokens through OTC, or invest directly in the project team. At the same time, we can execute transactions for 1-2 weeks, as well as Can not withdraw for many years.
When we look at it from a long-term perspective, we find that alpha usually comes from the core team that started betting on the crypto field in the early stage, and established contact with them from the early stage.
We realize that our main fund has invested too many early projects that need to be held for a long time, which reduces the liquidity of our fund. Therefore, we want to build an independent tool that allows us to hold early projects patiently for 3-5 years.
We have raised 50 million US dollars. Usually a project invests 250,000 to 500,000 US dollars. If the project is really great and we want to lead the investment, we may invest a larger amount.
Why is DeFi?
We realize that although there are many really explosive ideas and ideas that change the world, these ideas are related to the decentralized Internet in web 3 and world computer. Many of these things may still exist in 5-10 years, and what we see today are products that users are actually paying for, and these product forms are still in the early stages, which means that there is still strong demand on the user side.
We (Multicoin Cap) have a common experience. I remember that as early as 2017, Multicoin was also established as a hedge fund. Later, until the end of 2018, the market was actually not good at that point in time, but there were also some investment opportunities. So at that time we decided to establish this Oppotunity Fund, because essentially there are many interesting small opportunities in the market. Then we started to run two funds at the same time, namely the main fund and the venture fund, so the essence is very similar to your experience.
Next, I want to talk more about your standards. When you look at the project, what factors do you consider? What are some of the qualities you are looking for?
Long-term view. Because we are investing in the early stage, the founder is very important. Most importantly, we are very curious about the founder's motivation to start a business. Because in encryption technology. You often get promises of quick rewards. We want to make sure that the founders have a very long-term vision, not speculators.
Fundamental innovation. We are not looking for teams that make marginal improvements on existing technologies. We are trying to find people who want to create innovative products that may define the development of the industry.
Ability to quickly PMF and rapid iteration. The founder must have a big enough idea and an idea that can enter the market right now. The entrepreneur’s first ideas are actually secondary. Because of these successful agreements, they rarely develop as they were originally proposed. They always have some kind of change in the middle. Compared with the specific ideas put forward by entrepreneurs in the early days, I am more willing to bet that entrepreneurs have the necessary adaptability and continuous improvement capabilities in the process of enterprise development.
Alpha Finance has such a team. First, the team is top-notch, and secondly, from the initial raised yield farming development to today, the iteration speed is extremely fast.
The market misunderstanding and investment logic of the Synthetix project:
Market misunderstanding:
Capital efficiency is too low, severely over-collateralized (750%)
There is a ponzi risk in the token design.
Investment logic:
Strong team; product innovation: zero slippage; community: very active; early enough.
One of the reasons for Paradigm's investment is also because of the active community and excellent team. Everything about the project is based on governance. The active community will remove the parts that they are not interested in, thus making the agreement better.
Sushi was also very controversial in the early days. When did you start to look forward to this project?
Team + vision + valuation. The initial use of vampire attacks to attract a large number of TVLs, this stage seems to be just because of the high income brought by sushi's inflation, rather than the actual use of the token. Until we discovered that the team is actually building a rich roadmap and actively pushing forward, they don't just want to make a copy of uniswap, but want to make a community version of uniswap, which makes us excited. On the other hand, because today uniswap generates a lot of trading fees, but these fees have nothing to do with token holders, so uni is only used for governance purposes. But sushi token holders probably earn 30% of the income from earning trading fees. Yesterday they made 15 million dollars in income, and in the past 30 days they earned 45 billion dollars in income, part of which was distributed to token holders. Based on the revenue and token model, we believe that the value of sushi is seriously underestimated. Sushi served the crowd that uni did not serve well.
Sushi’s approach to the community also reflects some of the differences between the traditional VC perspective and the crypto VC perspective of startups (traditional VC mentality vs crypto VC mentality):
traditional: Does not support the idea of start-ups paying dividends from equity on the first day. On the contrary, start-ups will say that everything they earn is reinvested in developing themselves, which makes sense for expanding their business.
crypto: For DeFi startups, token holders are valuable, and they need to be given some incentives from fees or other aspects. One of the core reasons for token holders to participate in the project is to expect that when the protocol grows up, they will be rewarded for their early contributions. But I think the agreement should give their users incentives and feedback in real time (not after they grow up). This is an important part of promoting community governance. Taking Sushi as an example, we can see that the Sushi community is very active and effective.
This is a bit like the question of whether there is a chicken or an egg first. Some people think that if you want to guide and build a strong community, first you need to have a community and earn a lot of money for yourself in order to give the community rewards. But at the same time, some people think that early token holders should be linked as soon as possible, so that they can make a lot of money instead of themselves, they will become more loyal, and then they will continue to hold tokens, and the community will become more and more. powerful.
Yes, making your early holders (especially non-private round early investors) rich is important to the development history of the protocol and the community, especially for those who rely heavily on community development, do not have a core team, or tend to In terms of decentralized governance agreements.
Which projects you have missed that impressed you?
The biggest regret is that I missed the FTX of the private placement round. At that time, FTX was only on BP, and we doubted whether a new exchange could gain a share in the fierce competition. And because of the relationship between Alameda and FTX, we are not sure whether he has his own market maker. At the time we thought it didn't make sense, but it proved us wrong. Now almost all of my transactions are done on FTX. Their work with Serum is also impressive.
What characteristics do you think can attract founders to accept your investment?
There are not many outstanding funds driven by underlying technology that are completely based in Southeast Asia.
We are DeFI users and have rich experience in DeFi use and investment. Traditional VCs may not allow them to experience these products in depth, but we are crypto natives.
We are the media partner of start-ups and are very active on various social platforms. We try to help our project acquire their first users in the early stage.
When our investment portfolio encounters a crisis, we can be the first person to call for help. We hope to be able to help those who have been voted for a crisis in the shortest possible time.
In addition to Ethereum, what other ecosystems are you optimistic about?
Polkadot. We are early investors of Polkadot, and there are many developers who hope to build an ecosystem on Polkadot, such as Acala, a project we invested in .
Solana, and serum.
How to watch Binance Smart Chain? We see that many projects will initially choose to go online on BSC because the cost is relatively low. If they find that the market demand is confirmed, they may expand to more ecosystems.
From pancakeswap or venus, we can indeed find that they are currently PMF (product market fit), but it will take time to prove.
What big opportunities do you think DeFi will have in the next phase?
In mortgage products, the mortgage rate is too high and the capital efficiency is low, and efficiency needs to be improved, such as Alpha Finance or CREAM.
In order to introduce more traditional capital market investors, fixed income needs to be increased and risk tranching is required, such as Saffron Finance.
Super App, such as 1inch.
Part II
时间：2021.02.28
访谈人：Mable Jiang（Multicoin Capital）， Jason Choi（The Spartan Group）
嘉宾介绍
The Spartan Group基本上包含两个独立企业，Spartan Advisory和Digital Asset Management Fund。Spartan Advisory包含Fundraising、M&A、战略咨询等多个业务，M&A业务曾主导Blockfolio与FTX的并购案。
2018年我全职进入crypto行业。2018年5月加入The Spartan Group，成为其香港办公室的第一名员工。我通过偶然的机会认识了Kelvin Koh。我通过一个朋友认识了Casper和Melody（The Spartan Group的创始人），然后通过他们认识了Kelvin。那时候基金刚刚成立，刚搭建起自己的法律架构。
基金名称为什么叫Spartan？
Spartan代表着勇士文化，有着不屈不挠、高度纪律性等品质。
基金2018年成立，那时候只有很少的传统资本市场投资人进入crypto领域，有一种反叛的意味。
你的podcast经历给你的投资生涯给予了哪些帮助？
我开始想做podcast的时候Harry Stebbings做了The Twenty Minute VC，这个模型给他带来了很多好处：
他能接触到世界上几乎所有的大型VC，后来很多机构成为了他的LP。
与创始人建立了巨大的社交网络。
为被投公司提供了一个曝光的平台。
最开始我对crypto领域的大量内容都感兴趣，因此我阅读了大量的medium文章。后来我开始想跟作者们进行交流，但是很显然他们贼忙，因此我需要一个理由让他们愿意与我坐下来聊聊，比如我能给他们带来曝光，而他们只需要跟我坐下来聊一小时并让我问任何我想问的问题。我通过cold email联系了很多人，非常非常幸运，Adam Draper等等很多人来到了我的podcast，最后通过做到这些我走到了今天。
这让我想到了Marc Andreessen说的“We are not an investment firm. We're actually a media company.”
聊聊DeFi Venture Fund吧！
基金成立的背景：
Spartan最初是一家crypto hedge fund，这意味着我们有灵活的投资策略，可以直接从交易所购买token、可以通过OTC购买token或者直接投资项目团队，同时我们既可以执行1-2周的交易，亦可以多年不退出。
当我们从长期的角度看时，我们发现alpha通常来自早期开始押注crypto领域的核心团队，从早期便与他们建立联系。
我们意识到我们的main fund投了太多需要长期持有的早期项目，这让我们基金的流动性降低，因此我们想建立一个独立的工具让我们能耐心持有早期项目3-5年。
我们募集了5000万美元，通常一个项目投资25万-50万美元，如果项目真的很棒我们想领投的话，我们可能会投更大的金额。
为什么是DeFi？
我们意识到，虽然有很多真正爆炸性的想法和改变世界的想法，这些想法与web 3和world computer中的去中心化互联网有关。许多这些事情可能在5-10年后仍然存在，而我们今天看到的是用户实际上在付费使用的产品，而这些产品形态还处于早期，这意味着在用户端仍有强劲的需求。
我们（Multicoin Cap）有着共同的经历。我记得早在2017年，Multicoin也是作为hedge fund成立的。后来直到2018年末，那个时间点实际上市场不太好，但是同样有一些投资机会存在。所以在那个时候我们决定建立这个Oppotunity Fund，因为本质上市场中有很多有趣的小机会。然后我们便开始同时运行两个基金，分别是main fund和venture fund，所以本质上与你们的经历非常相似。
接下来，我想多谈谈你们的标准。当你看项目时，你考虑的因素是什么？你寻找的一些品质是什么？
Long-term view。因为我们投的是早期阶段，创始人很重要。最重要的是，我们对创始人创业的动机非常好奇。因为在加密技术中。你经常得到快速得到回报的允诺。我们想确保创始人有非常长远的眼光，而不是投机分子。
Fundamental innovation。我们不是想找在现有技术上进行边际改进的团队，我们正在努力寻找那些想打造创新产品的人，这些产品可能将定义行业的发展。
快速PMF、快速迭代的能力。founder既要有一个足够大的想法，也要有一个能在当下打入市场的想法。企业家的第一个想法实际上是次要的，因这些成功的协议，它们很少像最初提出的那样发展。它们总是在中间有某种变化。相比企业家们早期提出的具体想法，我更愿意赌企业家拥有企业发展过程中必须的应变和持续改进能力。
Alpha Finance就拥有这样一支队伍。首先团队顶级，其次从最初的leveraged yield farming发展到今天，迭代速度极快。
Synthetix 项目的市场误读和投资逻辑：
市场误读：
资本效率过低，严重超额抵押（750%）
代币设计中存在ponzi风险。
投资逻辑：
团队强；产品创新：零滑点；社区：非常活跃；足够早期。
Paradigm投资的原因其中之一也是因为活跃的社区和优秀的团队，项目的一切都是基于治理的，活跃的社区将会剔除他们不感兴趣的部分，从而使协议变得更好。
Sushi在早期也是很有争议的，你们什么时候开始看好这个项目的？
团队+愿景+估值。最初采用吸血鬼攻击吸引了大量的TVL，这个阶段看起来仅仅是因为sushi的inflation带来的高收益，而不是token的实际用途。直到我们发现团队实际上正在构建丰富的路线图并积极推进，他们不是只想做一个uniswap的拷贝，而是想做一个社区版本的uniswap，这令我们感到兴奋。另一方面，因为今天uniswap产生了很多的trading fees，但是这些fees与代币持有者无关，因此uni仅仅用作治理用途。但是sushi的代币持有者大概从赚取trading fees中赚取30%的收益。昨天他们赚取了1500万美元的收入，过去30天他们赚取了450亿美元的收入，这其中的一部分分发给了代币持有者。基于收入和代币模型，我们认为sushi的价值是被严重低估的。Sushi服务了uni没有服务好的人群。
sushi对社区的做法也体现了传统VC视角和crypto VC视角下初创企业的一些不同（traditional VC mentality vs crypto VC mentality）：
traditional：不支持初创企业第一天就从股权中支付股息的想法。相反，初创企业会讲他们赚取的一切再投资于发展自身，这对扩大业务是有意义的。
crypto：对于DeFi初创企业来说，token holder是有价值的，需要给予他们一些来自手续费或者其他方面的激励。token holder参与到项目中的核心原因之一是期待这个协议长大之后会因为他们早期做出的贡献给予他们奖励。但我认为协议应该实时给予他们的用户以激励和反馈（而不是长大之后），这是促进社区治理的重要组成部分，以Sushi为例可以看到Sushi的社区是非常活跃且有效的。
这有点像先有鸡还是先有蛋的问题。有些人认为，如果你要引导并建立一个强大的社区，首先你需要有一个社区同时自己赚很多钱，才能给予社区奖励。但同时另一些人认为应该尽早链接早期的代币持有者，让他们而非自己赚很多钱，他们就会变得更加忠诚，然后他们会继续持有代币，社区因此变得越来越强大。
是的，让你的早期持有者（尤指非私募轮的早期投资者）变得富有对于协议和社区的发展史很重要的，尤其是对于那些十分依靠社区发展、没有核心团队或者倾向于去中心化治理的协议来说。
哪些你曾经miss掉的项目令你印象深刻？
最大的遗憾是错过私募轮的FTX。那时候FTX还只是在BP上，我们怀疑一家新的交易所能否在激烈的竞争中取得份额。并且由于Alameda和FTX的关系，我们不确定他拥有自己的做市商这件事是否成立。当时我们认为这不make sense，但是后来证明我们错了。现在我几乎所有的交易都在FTX上完成。他们与Serum的工作也令人印象深刻。
你觉得你们的哪些特质能够吸引创始人接受你们的投资？
没有很多底层技术驱动的优秀基金完全base在东南亚。
我们本身是DeFI用户，有着丰富的DeFi使用和投资经验，传统VC可能不允许他们去深度感受这些产品，但是我们是crypto native。
我们是初创企业的media partner，在各个社交平台上非常活跃，我们试图在早期帮助我们的项目获取他们的第一批用户。
我们的投资组合遇到危机时，我们可以成为他们第一个打电话求助的人，我们希望能够在最短的时间内帮助被投读过危机。
除了以太坊，还有哪些生态是你们看好的？
Polkadot。我们是波卡的早期投资者，有很多开发者希望在波卡上建立生态，比如我们投资的一个项目Acala。
Solana，以及serum。
如何看Binance Smart Chain？我们看到有很多项目最初会选择在BSC上线，因为费用较为低廉，如果发现市场需求被印证了，他们可能会拓展到更多的生态中。
从pancakeswap或者venus确实可以发现他们当下是PMF（product market fit）的，但还需要时间来证明。
你们认为DeFi下一阶段会有哪些大的机会？
在抵押产品中，抵押率过高，资本效率较低，需要提高效率，比如Alpha Finance或者CREAM。
为了引入更多的传统资本市场的投资者，需要增加固定收益，需要进行风险分级（risk tranching），比如Saffron Finance。
Super App，比如1inch。