Dialogue with OP Crypto Founder: Navigating the Series of Crises in the Asian Market, Holding Ample Funds to Embrace the Primary Investment Dividend Period

Interviewer: flowie, ChainCatcher

Guest: David Gan, Founder of OP Crypto

Dedicated to becoming a connector between the Western and Asian Web3 ecosystems, David Gan, founder of the Web3 venture capital fund OP Crypto, visited over 30 countries during the pandemic and is active in Web3 hubs across Africa, South America, Europe, and Asia.

David Gan stated, "Western markets like the United States lack institutional funds with a relatively Asian background, and connecting Western innovative project resources with the large user base in the Asian market has always been their pain point."

Before founding OP Crypto in 2021, David Gan was the head of the overseas investment department at Huobi, where he led investments in several projects with over a hundred times return on investment and helped projects like Algorand and Polkadot enter the Chinese market. With prior investment experience at the domestic leading fund Qiming Venture Partners and three years of internet entrepreneurship experience, David Gan has accumulated advantages in project and institutional resources in both Asian and Western markets like the United States.

Compared to traditional VCs, most primary investment opportunities in Web3 are in the early stages of projects, so how to access high-quality project sources earlier is one of the key core capabilities of Web3 VCs. OP Crypto's approach is to connect the fund's investors with its parent fund.

In 2021, OP Crypto raised $50 million. To ensure the introduction of more well-known institutions from various regions, David Gan capped each investor's investment amount at $3 million and ultimately secured investments from over 30 well-known institutions or projects distributed globally, including Animoca Brands, Huobi Ventures, Galaxy Digital's Vision Hill, and Bybit's investment division Mirana Ventures.

At the same time, OP Crypto established a $100 million parent fund last June to invest in early-stage funds, thereby enhancing project reach and risk mitigation capabilities.

With a certain advantage in project resources, OP Crypto has currently invested in over 20 projects, including Scroll, Merit Circle, Connext, reNFT, and Spectral Finance, mainly covering infrastructure, gaming, NFTs, and other fields. Besides gaming infrastructure, David Gan, as a professional Dota player, is also optimistic about opportunities in niche markets like gaming coaching.

David Gan believes, "Looking at the overall quality of investment projects during the bear market of 2018 and 2019, after the turbulent year of 2022, the primary market investment will enter a period of dividends, and OP Crypto still has 80% of its funds available to capture opportunities in this cycle." Recently, ChainCatcher interviewed David Gan to discuss OP Crypto's investment logic and his judgment on this year's Web3 primary market investments.

1. ChainCatcher: What prompted you to enter Web3 investment? Can you share some important work experiences?

David Gan: Before investing, I worked in investment banking at Morgan Stanley for two years. After that, I saw some opportunities in social activities and started my own project, gaining three years of internet experience.

In 2017, I transitioned to investment, focusing on popular sectors at the time like video social, animation, and education at Qiming Venture Partners. However, during my investment phase at Qiming, I gradually realized that the internet had reached a relatively late stage, and I needed to find a new direction.

At that time, I saw Web3 gradually rising, and since I went to the United States at the age of 9 and was exposed to Bitcoin and other transactions through online games like Texas Hold'em during college, I began to shift my focus to researching blockchain and Web3, thus discovering primary market opportunities. However, large funds like Qiming were relatively conservative and cautious in Web3 investments, which did not align with my personal expectations.

So, in 2018, I joined Huobi as the head of the overseas investment department, where I led investments in several projects with over a hundred times return on investment.

Many people may invest well, but that doesn't mean they exit well. At that time, our exits were very successful, with the most profitable project being the major blockchain Terra, from which we exited during its peak phase; we also invested early in Blockfolio and exited at a relatively high point when it was acquired by FTX.

Additionally, we invested in several infrastructure projects, such as the public chains Oasis, Conflux, and Nervos. Although some did not fully realize their potential, the overall return on investment was still relatively high.

2. ChainCatcher: What are the differences between traditional VC investment and Web3 investment?

David Gan: Most large funds, especially those investing in later-stage projects, need to look at a lot of data to assess valuations, predict whether the sector is large enough, and forecast future revenues.

However, the Web3 industry is inherently early-stage, and Web3 projects do not undergo multiple rounds of financing like traditional Web2 projects; it is often uncertain whether a second round of financing will even occur. Therefore, the vast majority of investment opportunities are in the early stages, and missing the first round may mean missing many projects.

Moreover, many traditional VCs or large institutions prefer to invest in more certain models in the short term, such as the expansion of SaaS and payment models from Web2 into Web3. However, I believe these are not particularly promising sectors in the long run, so we invest very little in this area. We prefer innovative, on-chain models.

3. ChainCatcher: Why did you decide to establish your own fund in 2021? Why does OP Crypto position itself as a connector between Asia and the West?

David Gan: During the downturn in 2020, the group began tightening its investment business, making it difficult to promote many projects internally. Although looking back, the projects we invested in generated hundreds of millions of dollars in revenue, at the stage before exiting, it was just expenditure without any returns, which may have led the group to lose confidence.

In 2021, when the pandemic was at its worst, expanding overseas business was crucial for Huobi. However, compared to Huobi's exchange business, the speed of profit generation from the investment business was certainly slower, so the group's investment in the investment business did not meet my expectations, making project promotion quite challenging.

During this phase, I also discovered some pain points in Western markets like the United States, which greatly need Asian resources, such as exchange resources and user growth channels, as well as market promotion, etc. However, at the beginning of 2021, the pandemic policies were very strict, and many Chinese people who should return home had already left, making it difficult to meet this demand.

I felt we had an advantage in addressing these needs. There were no institutional funds with an Asian background in Western markets like the United States, and with my four years of investment experience, I had accumulated resources in China and various parts of Asia that I could bring to the U.S. At the same time, during my time at Huobi, I connected with many large institutions in the U.S., enabling me to help Asian entrepreneurs connect with suitable overseas resources.

4. ChainCatcher: The policies in China have always been strict. How do mainstream markets in the West view the development of Web3 in the Chinese market?

David Gan: Although China is temporarily closed, Southeast Asian countries remain quite active, and mainstream Western markets are very optimistic about expanding into the Asian market.

The closure of the Chinese market is not a permanent situation; as the economy gradually grows, a balance will eventually be found.

When I first started raising funds in 2021, the market was quite good, with many retail investors in China, a large amount of money, and a significant user base. The Chinese market is actually very promising.

On another note, the overall Asian market has not encountered too many pitfalls, unlike the U.S., which has experienced many failures. Chinese policies have also helped retail investors by preventing overly aggressive behaviors, so a lot of money remains in Asia, waiting for the next bull market to arrive, and good projects will emerge in Asia. After all, the cost in the Asian market is only about 1/5 or 1/4 of that in the U.S., making it relatively low-cost.

5. ChainCatcher: According to your website, OP Crypto has currently invested in over 20 projects, mainly distributed in infrastructure, gaming, and NFTs. What is OP Crypto's current investment logic? What are the strategic priorities?

David Gan: First, our investment principle is not to invest in whatever is popular but to stick to investing in sectors where the team is most skilled and can best understand.

As a professional gamer, I have invested in many related projects in the gaming sector. My previous entrepreneurial experience in social projects also provided me with relevant resources, and during my investment period at Huobi, I primarily invested in infrastructure projects, giving me relatively more experience. Our COO is an early NFT player, so we mainly focus on innovations in the NFT sector.

Secondly, we hope to become one of the earliest investors in high-quality projects as much as possible. If we don't invest early enough, we may miss out on primary market investment opportunities or face too high costs.

We were the first investors in Scroll. During their first round of financing, we made two or three calls each week, helping them with various investor configurations, modifying terms, and iterating on ideas. They developed quickly afterward, and entering later rounds would mean bearing higher prices.

Including the gaming guild Merit Circle, we were also one of their first-round investors. After raising $3 million in the first round, Merit Circle (MC) quickly raised over $200 million on Balancer and then went live on Binance. If we hadn't invested in that round, we would have had to buy their tokens on the secondary market.

6. ChainCatcher: Finding high-quality project sources early and investing in them requires higher resource expansion and decision-making capabilities. Can you share how you build project expansion capabilities and whether there are hard and soft indicators in your investment decisions?

David Gan: Regarding finding project sources, we maintain connections through OP Crypto's investors and the funds invested by OP Crypto's parent fund.

When we raised funds for the fund in 2021, all investors were capped at a maximum investment of $3 million, and the investments were relatively dispersed to connect mainstream investors and large institutions and projects in the industry as much as possible, allowing us to exchange resources in our investment projects.

Last June, OP Crypto launched a $100 million parent fund to support some early-stage funds. This fund directly helps us in terms of project resources.

First, the more funds we invest in, the more project sources we can access.

Second, the parent fund also helps reduce risks for our investors. Investing in one fund may not perform well, but if we invest in a dozen funds, it's hard to say that all of them will perform poorly.

Third, investing through this fund also greatly benefits the industry. When the secondary market experiences a bear market, the primary market can be a very good entry point, so this year and next year will be a significant dividend period for the primary market, just like the projects invested in at the end of 2018 and throughout 2019 performed very well overall.

7. ChainCatcher: Investing in early-stage projects often lacks extensive data references, making "investing in people" crucial. What is your logic for investing in people?

David Gan: You need to consider how long you've been deeply involved in the industry—I've been in the industry for six or seven years, and most project teams are either known to me or known to people around me. Moreover, compared to Web2 projects, due diligence in Web3 is actually easier. What they have done and the code they have written are easy to verify, unlike researching a traditional entrepreneur where much of the content is vague.

8. ChainCatcher: As a professional gamer, how does this influence your investment decisions? What specific Web3 gaming opportunities do you find most promising?

David Gan: True gaming enthusiasts are more sensitive to functional pain points, and because of their passion, they are willing to invest more time.

We first invest in some foundational infrastructure for gaming, focusing on how to enhance future gaming experiences and strengthen ecosystems, such as interoperability of gaming assets, cross-chain bridges, and gaming guilds.

In terms of niche opportunities, gaming coaching is a significant sector. There are still relatively few coaches in specific gaming areas. This coaching is not about teaching us how to play, but more about how a coach can maximize the strategic advantages of our five-person team and how to achieve profit maximization.

For example, when P2E first emerged, many people wanted to take advantage of it but lacked methodology, so gaming guilds were needed to provide the corresponding assets and guidance.

Additionally, the virtualization of sports games in real life is also a great niche opportunity. For instance, we can play basketball, horse racing, soccer, etc., in the virtual world, participate in betting, and blockchain can provide better anti-cheating mechanisms.

9. ChainCatcher: In a mature traditional gaming environment, what do you think is the greatest value that blockchain or Web3 brings to gaming? How do you view the current growth bottleneck for Web3 gaming users?

David Gan: In a sense, when you play traditional games, the character you embody in the game does not represent you, and the items in the game do not belong to you. Web3 games can create another subjective world, allowing us to experience extreme sports that we cannot experience in the real world, such as jumping off buildings or firefighting, while ensuring that the achievements gained in the game belong to you.

Currently, Web3 games are too crude in combining fun and profit-making systems. But in terms of gaming experience, I bet that in the next five years, it will be at least ten times better than now. With a tenfold improvement, will people be willing to play? If ten times isn't enough, how about a hundred times?

This construction can only move forward, not backward. As long as you keep moving forward, you will eventually reach a point where everyone accepts mobile games on the internet, even though the early mobile games were quite cliché and unplayed. Therefore, we also invest in many foundational projects with a 3-5 year cycle that can create the future.

As for monetization, current Web3 games, while not engaging enough, also cannot ensure that everyone makes money, making sustainability difficult.

10. ChainCatcher: Last year, many well-known VCs suffered significant losses in assets and reputation due to the collapse of certain projects. What reflections should Web3 VCs have? What specific impacts does this have on your investment strategy?

David Gan: Projects like FTX, which have raised funds very late in the game, can also go to zero. So, Web3 investment should not assume that investing later is safer; the probability of going to zero is not significantly different between late-stage and early-stage investments in this industry. Therefore, for us, it reinforces our commitment to early-stage investments, as the upside is higher and the costs are lower.

11. ChainCatcher: Recently, a16z has received negative feedback regarding its voting proposal on Uniswap. What is your view on VCs' participation in governance for Web3 projects? Besides financial support, what role should VCs play for their portfolios?

David Gan: Any voting mechanism has its pros and cons; everyone has more claims regarding their own interests, and conflicts between investors and project teams are quite normal.

Thus, for entrepreneurs, it is crucial to find an investor who understands your project's goals and future direction and can align with you.

In addition to financial support, VCs need to invest effort in post-investment management. During my time at OP Crypto and Huobi, I helped many projects expand user channels and worked on enhancing brand presence in the Asian market, among other things.

12. ChainCatcher: What are your expectations for the Web3 primary investment market in 2023?

David Gan: This year is a dividend period for primary market investments. Similar to the end of 2018, when there was little confidence in the secondary market and the entire industry, the first entrepreneurs to emerge are often not those looking to take advantage of the situation but those genuinely willing to persist in this industry, resulting in a much higher quality of entrepreneurs.

Secondly, the valuations for investors entering now will be much lower, generally around 75% to 80% of what they would be in a bull market.

Thirdly, when many others are unwilling to enter the market, competition is not very fierce.

So in 2023, there will be many good investment opportunities in the primary market. From 2021 to 2022, our fund only invested 20%, leaving 80% of the funds to capture opportunities in 2023 and beyond.

13. ChainCatcher: In this cycle, as an investor and serial entrepreneur, what experiences or advice do you have for Chinese Web3 entrepreneurs or investors?

David Gan: I wouldn't say I have any specific advice, but I encourage everyone to explore overseas more. During the pandemic, I visited over 30 countries, spending two months in Africa, two months in South America, and several months in Europe, and I plan to stay in Asia for another two or three months.

The biggest problem for Chinese people is still being easily limited to the Chinese or Asian markets, but Web3 is a very international matter. If you don't engage with people overseas and pay attention to information channels from various regions abroad, your thinking will be very limited.