Paradigm Partners: How to Conduct Research on Early-Stage Projects?

Written by: Caseykcaruso

Compiled by: TechFlow Intern

For the past 6 years, I have been investing in cryptocurrencies, and angel investors often ask me how to evaluate projects. Here are the steps I typically recommend during the research process for investing in early-stage crypto projects. (Disclaimer: These are my personal views)

Founders

In the early stages, the constant variable in the equation is usually the team. Find their representatives, who know the founders, and ask about their strengths, weaknesses, etc. Then ask yourself: Would I want to work with this person? If yes, that's a bullish sign.

Determine the Size of the Opportunity

Think about today's market size and theoretically speculate how large it could become. Be ambitious in your predictions, as crypto is one of the fastest-growing industries in the world. Also, familiarize yourself with Meme and reflexivity theories.

Use the Product

If there is a product, make sure to use it. While it's common knowledge, this step is often skipped. It will concretize the use case, value proposition, and product offering. It's also beneficial for founders to have investors who understand and use their products.

Talk to Users

This can be done quickly through Discord; you can ask users: How did you hear about the product? What were you using before? How does it compare to alternatives? What are your thoughts on ROI and value? What would make you leave? Doing this can help gauge the project's vitality and lasting utility.

Traction Analysis

In Web2, company data is private. In Web3, a significant amount of project data is on-chain and can be accessed through various products. Utilize on-chain data to look for the highest growth rates in KPIs (such as number of users, TVL, wallets) and compare monthly or quarterly growth with competitors.

"Why Release Now"

Many ideas in cryptocurrency have been tried before; think about how many types of products we've already seen in various sectors. Timing is crucial, so try to figure out why past attempts failed, and consider why it’s different now, such as the rise of alt L1s and the rotation of capital from DeFi to NFTs.

Community

Understanding the sentiment, quality, and longevity of a community is essential. Join the community's Discord and Telegram to assess the quality of its members. Additionally, it's important to distinguish whether Twitter followers are bots or real people.

Tokens and Value

If there is a token, take the time to understand how successful token mechanisms work. Key considerations include the token's value capture, such as lock-up amounts, issuance rates, release schedules, faucets, growth cycles, community promotion, and hype.

Competition in the Space

Identify who the biggest competitors are and what differentiates this project. Consider the moats they are building today and how they are expanding. If they are not the market leader, write a paper on why they could become the market leader or why this is not a winner-takes-all market.

Returns

According to MessariCrypto's analysis, there are only 80 assets in the crypto space with a fully diluted market cap (i.e., the market cap of assets accounting for known issuance before 2050) > $1 billion.

Sixth Sense

Sometimes you can skip steps 1->10 because you may need to make decisions faster than you think. Be flexible throughout the analysis process, prioritize, and be sure not to underestimate your intuition.

TL;DR

Early investment in Web3 requires a new mindset and standards compared to Web2. If it helps, feel free to use this checklist: