Dialogue with LIF co-founder Nicole Zhang: After resigning from Binance Labs to establish a Web3 fund, what changes have occurred in the investment logic?

Interviewee: Nicole Zhang, Founding Partner of LIF

Interviewer: flowie, ChainCatcher

After more than two years of Web3 investment at Binance Labs, former Executive Director Nicole Zhang resigned in May this year to start her own venture, establishing a new Web3 fund—LIF (Lingfeng Innovation Fund).

LIF is a sister fund of Lingfeng Capital, which is a $400 million fintech venture fund that has invested in fintech unicorn projects such as JD Technology and Fourth Paradigm.

Despite the crypto winter, LIF has successfully completed a $20 million first round of fundraising against the trend, and in less than six months, it has invested in over 10 Web3 projects, including the crypto derivatives exchange ApolloX, the public chain ZetaChain, and the Web3 social gaming metaverse Ultiverse.

"When everyone is pessimistic, it is precisely a good time to invest." Nicole Zhang told ChainCatcher that although the crypto market has seen significant pullbacks this year, with incidents like LUNA and FTX causing varying degrees of damage to the industry, it is also a stage where many project valuations are returning to rationality. Therefore, LIF has maintained a relatively fast investment pace, with a selection rate of 5%, meaning that after reaching out to 100 projects, they can invest in 5.

In addition to maintaining a fast investment pace, what are the key focus areas for LIF during this downturn? What predictions does Nicole Zhang have for the trends in the crypto industry after the FTX collapse? On these questions, Nicole Zhang shared her views in a recent interview with ChainCatcher, discussing her investment stories at Binance Labs and the changes in her mindset after founding the new fund.

1. ChainCatcher: How did you first get involved in the crypto industry, and why did you join Binance Labs as a Web3 investor in 2020? What were your main responsibilities at Binance Labs?

Nicole Zhang: I studied physics and chemistry in my undergraduate, and my PhD is in quantum physics, but to be honest, I was never very interested in academia.

My first job after graduation was at Deloitte doing management consulting, where I helped small and medium-sized enterprises and governments transition towards artificial intelligence. This experience gave me a taste of the sweetness of commercialization.

However, I still found myself not interested enough in that, wanting to do something more analytical, so I transitioned into investment. I first went to a blue-chip listed company under Temasek, Singapore Press Holdings, where I spent two years doing standardized M&A, project due diligence, etc. But I still felt that the role was too replaceable, so I transitioned into venture capital. At that time, I also came into contact with some venture capital firms, but Binance offered a relatively larger space in this track, and since I was also a fan of Binance, I ultimately chose to join Binance Labs as a Web3 investor.

When I first joined Binance Labs, I mainly did post-investment work, responsible for market strategy formulation and financing support for the invested companies. Later, I began to conduct investments comprehensively, focusing on investments in Web3 infrastructure, gaming, and other areas.

2. ChainCatcher: Public information shows that Binance Labs has a very high investment return rate, possibly one of the best-performing funds in history. Do you think this is more due to platform resource advantages or your investment strategy advantages?

Nicole Zhang: The early Binance Labs is different from ordinary closed funds; it does not need to report to anyone and can decide for itself whether to exit.

The company's senior management or the Investment Committee (IC) is very long-term oriented. Even when faced with some temporary small benefits, they can resolutely choose not to exit in anticipation of greater industry benefits. The new fund led by He Yi, with a scale of 500 million, has, based on the information I know, investment returns that far exceed any other fund that was established during the bull market.

The platform advantage of Binance Labs is certain, but more importantly, the team chooses long-term oriented projects when selecting investment opportunities. Although it may not yield quick profits, the possibility of losses is also much smaller.

3. ChainCatcher: Looking back on more than two years of investment incubation at Binance Labs, what are some memorable investment experiences and projects? What unique investment thinking has Binance brought you?

Nicole Zhang: First of all, my experience in post-investment management has had a significant impact on my investment approach, as it provided me with many opportunities to track projects and participate in their development.

For equity projects, we help teams with market strategies, formulate reasonable SOPs, etc. This process has helped me understand what kind of founders to choose and the different operational costs associated with various projects. Once this process is clear, it benefits investors in creating more reasonable valuation models.

For projects going public, we analyze market trends and the reasons behind fluctuations weekly, which really helps enhance my macro and micro understanding.

For example, helping Certik was a profound experience for me; Certik has now become one of our LPs at LIF. When Binance invested in Certik, the market did not have a strong perception or definition of the blockchain security track. I was responsible for post-investment, and when Certik approached me, we began to think together about how to define the blockchain security track, what kind of business models it should have, and what products could help the projects we serve.

Additionally, we needed to customize some market strategies to establish advantages in project sourcing, such as facilitating the ecological cooperation between Certik and BNB Chain. At that time, there were many hacker attacks during DeFi Summer, and we did a lot of good promotion to make the market recognize the importance of this track and Certik's project advantages.

With Certik being an excellent project, our post-investment empowerment also helped it, and Certik soon developed very well, quickly becoming an industry unicorn. This experience indeed gave me a sense of accomplishment and accumulated a lot of reusable experience.

4. ChainCatcher: From Binance Labs to starting your own Web3 fund LIF, have there been any significant changes in your mindset and investment logic?

Nicole Zhang: Initially, there was a sense of fear, as Binance is a great platform. Previously at Binance, I could review three to four dozen carefully selected projects each week. Starting my own fund, especially in an early stage with an overall poor market, I certainly do not have the same advantage in project sourcing as Binance, so I felt a bit nervous and anxious at first. But I quickly reconciled with it; after all, our team only has three or four people, and we really do not have the capacity to handle that many projects.

In terms of investment logic, it is more flexible than before. On one hand, when I was investing at Binance, as an employee, I had my own KPI pressures and inevitably had to consider the preferences of the IC; now that I am the IC, as long as one of the other two partners approves a project, it can go through, allowing for more flexible choices. On the other hand, I did not have the opportunity to invest in very early-stage projects at Binance, especially those that follow an incubation route; now I can participate at all stages.

5. ChainCatcher: The initial fundraising target for LIF is $30 million, and the $20 million fundraising has been completed. What are the key investment focuses for this round? What are your strategic plans?

Nicole Zhang: Our investment focus is on three major trends—"ABC" Narrative.

"A" stands for Access. There is currently no strong incentive for users to enter Web3, so we believe that providing an entry point for users is very important.

"B" stands for Better Blockchain. We focus on who can truly innovate in blockchain technology, such as privacy, data, oracles, etc. Currently, our most investments are in infrastructure.

"C" stands for Content. The current Web3 does not have enough points to retain users; you cannot expect to rely on financial attributes or highly speculative content to retain users on a large scale. Therefore, we hope that Web3 can, like Web2, attract users to invest a lot of time through high-quality content such as games, novels, music, and short videos. Currently, we have invested in some metaverse and SocialFi projects in terms of content.

6. ChainCatcher: Regarding entry points, wallets and mobile phones have been seen as one of the entrances to Web3, but you mentioned on Twitter that "neither is a Web3 entry point." What is the reasoning behind this? What should be the ideal Web3 entry point?

Nicole Zhang: Wallets currently have the largest user base and are a necessity, but they should not be defined as an entry point.

First of all, it is a bit difficult for wallets to serve as an entry point due to the "threshold" of mnemonic phrases, which can deter many people from developed internet regions. Everyone has been spoiled by WeChat login and Google OAuth, getting used to more convenient methods.

My understanding of an entry point is that it needs to start from the product itself, allowing the product to retain users through its superiority, making the entire user experience very comfortable. The underlying technology should remain "low-key," serving application products at the bottom layer. Using good DApp products, middleware in the form of APIs and SDKs, and convenient payment gateways to attract the next billion users.

7. ChainCatcher: Have you already laid out plans for "better-performing blockchains"? What specific sub-tracks will you focus on for innovation?

Nicole Zhang: We have invested in data, security, Layer 1, multi-chain cross-chain, oracles, decentralized storage, and other directions. We are not overly concerned about specific sub-tracks; as long as a project can prove its innovation, we are very interested.

We may prefer teams with excellent engineers, including during our search for LPs, we are looking for core founders of very strong companies because they have access to such excellent engineering resources.

We believe this experience is very important; an engineer who has proven their ability to navigate through cycles seems more reasonable for creating an infrastructure product. It’s not that a Stanford prodigy can necessarily achieve great things; when I was investing at Binance, if the founding team did not have solid engineering experience or had not led a team of over a dozen engineers, they were often easily passed over.

8. ChainCatcher: In terms of Web3 content, which "content" directions are you particularly optimistic about?

Nicole Zhang: Broadly speaking, we are interested in content that can engage users and has a wide market impact, such as games, metaverses, music, and art curation projects.

For example, we invested in the move-to-earn project Gritti, which is essentially the Web3 version of the running app Yuepao, which has 120 million real users. "Running" is something that allows users to feel a sense of value, and it empowers them through the Web3 economic model. Additionally, we also invested in the AAA-level social metaverse Ultiverse, which has a very high visual quality, almost Hollywood-level production, making it easy for users to feel immersed.

9. ChainCatcher: Web3 social has been a hot direction in the Web3 content sector this year, but no Web3 social project has yet emerged with a valuation exceeding $1 billion. Recently, Elon Musk's acquisition of Twitter has drawn significant attention to Web3 social. What are your thoughts on Musk's entry and the future trends of the Web3 social track?

Nicole Zhang: First of all, Twitter may not really transform into a very decentralized social media platform because I think Musk is a very practical person who values efficiency, and decentralization and efficiency are somewhat conflicting.

The reason why there have not been good social products in Web3 is that the products are not good enough and not user-friendly. We invested in a Web3 social project called SENDING.ME, which attracted us because the team has very strong product experience. Experience is indeed very important; some key experiential details need practical knowledge.

However, the main excellent product experience still resides in large Web2 companies, and many of those people have not yet figured out the product thinking for Web3 and have not participated.

10. ChainCatcher: Having discussed three clear directions you are optimistic about, are there any directions you currently do not favor or are not considering? Why?

Nicole Zhang: I wouldn’t say we are not optimistic, but there are indeed some directions we are still observing or have not fully understood. One is DID (decentralized identity), which has been very popular this year, and many projects have emerged. However, my understanding is that DID is a feature and should not be a standalone project.

The so-called social graph data is similar. For Web2, data is indeed a reasonable track because the sources of data in Web2 are relatively difficult to obtain, which can create monopolies. For example, financial data and insurance data can become core barriers for Web2 companies. However, Web3 data is public, and those doing social graph data may just be doing an ETL (data warehousing technology), and the technical barriers may not be that high, raising questions about its value.

In Web3, we currently do not have enough data to support projects to run recommenders for precise targeting. This is very difficult; you need to have very good interactions off-chain, which cannot be achieved purely on-chain.

In my view, although these topics are hot, they are still too early. We first need to solve the core major issues of the "foundation" before discussing the upper-layer content.

11. ChainCatcher: Since June, you have invested in about 10 projects, and the investment pace is still relatively fast. As a new fund, how did you manage to cold start?

Nicole Zhang: The projects I collaborated with during my investment at Binance provided significant support. Because we provided a lot of support to many projects during our collaboration, trust was established, and the project parties believed that we had the capability to help them.

However, fundraising is indeed quite challenging, as the overall market is really poor. But my partners have been very supportive, introducing many external founders who want to enter Web3 to directly invest in our fund. Once the initial few million came in, subsequent fundraising became smoother.

12. ChainCatcher: How difficult has fundraising been this year?

Nicole Zhang: It may not be entirely accurate, but I can share my feelings. In fact, a few numbers can show that most funds have not raised money.

Our fund is expected to exit within six years, while many projects, especially infrastructure projects, have a lock-up period of 3 to 4 years. I cannot complete investments before the lock-up period ends. Basically, we need to finish investing within two years.

If we follow this pace, for a $30 million fund, investing in early seed rounds with an average investment of about $500,000, we need to complete investments in 60 projects within two years. This investment pace is very tight, even if we do not take breaks during holidays. So, think about those who claim they want to raise one or two billion; can they really achieve such an investment pace? It is possible that everyone is just bluffing and does not have money.

13. ChainCatcher: After interacting with a large number of project parties, what qualities do you look for in Web3 entrepreneurs?

Nicole Zhang: I don’t necessarily think there are specific qualities required, but we do prefer teams with engineering experience from large companies. Experience is very important; there needs to be a sense of reverence. Companies like Facebook and Google have been able to scale the market so large for a reason, and there are capable and experienced people leading them. Therefore, having engineering experience from traditional Web2 companies can sometimes be a significant advantage in Web3.

14. ChainCatcher: This year, the crypto industry has experienced major collapses, including Luna, Three Arrows Capital, and the recent FTX incident, causing significant losses for many investment institutions. What warnings and reflections do you have as a new Web3 fund? Will this impact your investment strategy?

Nicole Zhang: I am fortunate that my partners have very good investment banking backgrounds and financial experience, with a strong understanding of regulations. Additionally, our LPs are quite strict, and the requirements for our fund's asset management model are very clear. Every step of our investment decision is constrained; where to custody tokens or fiat is done according to regulations, while some funds may not operate in a regulated manner.

The risks in processes are quite important; do not shy away from complexity. It is essential to have very standardized and reasonable processes for every link or detail. Many investment process norms are clearly defined in the LP contracts, and traditional finance has already accumulated a lot of experience in defining these processes very well. What everyone needs to do first is to comply and have a sense of reverence.

15. ChainCatcher: Many crypto KOLs have made very pessimistic predictions about the aftermath of FTX. What are your thoughts on this?

Nicole Zhang: We cannot escape the cycle; FTX is insignificant in the face of the cycle, and its impact on the market is a temporary fluctuation. What truly affects us is the global macro economy. When everyone is pessimistic, it is precisely a good time to invest. Many project valuations are returning to rationality. We have been moving quickly recently, and after careful selection, we are investing in about 5 out of 100 projects.

16. ChainCatcher: As an investor dealing with entrepreneurs and a founder of a Web3 fund, what experiences and advice can you share with Web3 entrepreneurs during this bear market cycle?

Nicole Zhang: First of all, an open mindset is necessary. When we were investing in the security track, we encountered many project parties who would start by saying that leading companies are not good companies and that they are better than them. However, since competitors can emerge as industry leaders, there must be a reason for it, and they have contributed to the industry. At the very least, they provide imagination and valuation references for industry investors.

Therefore, everyone should have an open heart and avoid mutual hostility. Web3 is an open community, and many projects are open-source. Collaboration is more beneficial for personal growth than backstabbing.

17. ChainCatcher: What advice do you have for Chinese investors and entrepreneurs in the crypto space?

Nicole Zhang: When encountering obstacles, it is essential to look for reasons within oneself and not blame it on the US-China rivalry or the unpopularity of Chinese individuals. In fact, many Chinese crypto entrepreneurs are very well recognized.

At the same time, learn to embrace criticism; the process of criticism is also a learning process. It is necessary to think about why Western projects and entrepreneurs receive favor and to learn from their strengths to overcome them.