Compiled by: WuBlockchain

This audio features Jason Kam, founder of Folius Ventures, participating in a Twitter space hosted by RootData. WuBlockchain has been authorized to repost the content. The audio transcription was completed by GPT and may contain errors.

Jason mentioned that he has hardly made any investments in the past few months due to a pessimistic outlook on the cycle. Previously, if one invested in an early-stage project with a valuation below $50 million, securing a 10% stake, and the project successfully listed on an exchange, it could yield significant returns, even without a product. As long as the project garnered attention and maneuvered its way onto Binance, it could achieve excellent paper profits. However, as this strategy became widely recognized, many “set-up” projects emerged. The industry is now facing an oversupply of projects without the ability to generate organic value, combined with a lack of secondary market buying, leading to the current situation. Platforms like Discord, Telegram, and even games on Twitter present substantial opportunities, with a high chance of a platform similar to 4399 mini-games emerging on Telegram.

Introduction of Jason and Folius Ventures

Ruby: Good evening, everyone. Welcome to the first session of the RootData-hosted “Crypto Fundraising 101” space series. I’m your host, Ruby. Tonight’s theme is “Navigating Bull and Bear Markets: The Wisdom Behind Early-stage VC Investment.”

We are honored to have Jason Kam, the founder of Folius Ventures, with us. Jason graduated from Carnegie Mellon University and worked on Wall Street before entering the crypto space in 2018. He created the Twitter account @MapleLeafCap, which now has over 45,000 followers. Jason will share his investment experience during market fluctuations and insights into the future trends of the crypto market.

Could you briefly introduce yourself and the key characteristics of Folius Ventures?

Jason: Hello, everyone, I’m Jason. Folius Ventures was established in September 2021. It’s quite interesting — after DeFi Summer in 2020, two of my friends, Ben and Santiego, suggested that I start a fund because the market needed more focus on the Asia-Pacific region, particularly founders with unique backgrounds.

Since its inception, we’ve managed between $220 million and $230 million over nearly three years, with a team of five people, mainly based in Asia, including Shanghai, Shenzhen, Hong Kong, and Tokyo. We differ from other institutions in three ways. First, although we’ve reduced our primary market investments this year, in the past two years, we were very active. We are a hybrid fund, making both primary and secondary market investments. In the primary market, we usually invest between $500,000 and $4 million per deal, leading or co-investing. In the secondary market, our positions are larger, investing in mainstream assets like Bitcoin (BTC) and Ethereum (ETH), but also smaller projects like Pump.Fun. We have a very open investment strategy.

The second difference is our preference for Asia-Pacific founders. About 80% to 90% of our investments are focused on this region.

The third point is that most of our investments are in the application layer, such as centralized exchanges, SaaS software, mobile games, and other consumer-facing products. I’m very honored to be invited to this event.

Ruby: We’ve noticed that Folius Ventures remains active in this market environment, especially with several well-known seed investments. Could you share why you continue to invest in this market environment?

Jason: Actually, our investment pace has slowed down a lot this year. Apart from We.Rich, recent examples like MegaETH, Catizen, and WSPN are projects we invested in, but many of these were funded last year, with news only being released recently. Since March of this year, we’ve become more cautious, and we’ve hardly made any investments in the past few months. This is similar to other firms. We’re being cautious mainly because we aren’t optimistic about the market cycle. Over the past few years, many VCs have profited from quick listings and exits, but this model is changing, requiring strategy adjustments.

Additionally, we focus on the application layer, where good opportunities are rare, and the appearance of founders tends to fluctuate. These factors combined have slowed down our investment pace this year. Of course, the timing of funding announcements isn’t controlled by us, so it might give the impression that we’re investing frequently, but that’s not the case.

Current VC investment model needs restructuring

Ruby: You mentioned that many primary VCs currently adopt a wide-net approach, planning to get listed on CEX within 6 to 12 months. You believe this exit strategy needs reworking. What would your ideal VC exit model look like?

Jason: First, I’d like to take a step back because there was a “nice little secret” in the past. In the early stages, if a project’s valuation was below $50 million and you invested to gain a 10% stake, as long as the project team could solve the issue of getting listed on an exchange, they didn’t even need a product. With enough market hype and buyers, the exit cycle could be measured in months. You could invest today, and the project could be listed in three months. The liquidity provided by the exchange, along with early trader involvement, would result in huge paper gains for early investors.

If these early private investors not only invested through the company name but also received additional shares through advisory agreements, staking, or airdrops, and could unlock them during the TGE (Token Generation Event), the exit cycle would be extremely short. Even if there was a standard cliff period (usually 12 months), in many cases, investors could break even in the first month, and the rest would be pure profit.

This strategy gained popularity around 2019–2020, and today, everyone sees through this model. Many projects, even if they don’t aim for a quick exit, are forced to operate in this way. We estimate that in the next 6 to 12 months, there could be 50 to 200 projects with valuations exceeding $500 million, all aiming to get listed on exchanges.

However, the problem is that after these projects list their tokens, their circulating supply might only account for 2% to 10%. Without exception, these projects will face massive unlocks in their circulating supply within 1 to 2 years after listing, increasing from 2%-10% to 20%-50%. In other words, the circulating supply could increase by 5 to 10 times.

If more projects list their tokens in the next six months, the supply of circulating tokens in the market will rapidly increase. But I don’t think the secondary market in crypto has enough liquidity to absorb it. We’ve observed that the capital willing to bet on non-Bitcoin, non-Ethereum assets is much lower than the fundraising capacity of the primary market. Therefore, I believe the whole industry faces a dilemma: there’s not enough organic growth, an oversupply of projects, and insufficient buy-side demand in the secondary market. This is one of the main reasons we’ve slowed down our investment pace.

Regarding the recent tension between retail investors and VCs

Ruby: Lately, there’s been increasing discussion about the tense relationship between retail investors and VCs, especially with the rising FUD sentiment. Retail investors seem to be growing less friendly towards institutional investors/VCs. How do you see this relationship evolving in the future? What role will VCs play in it?

Jason: I think one of the reasons you invited me today was to get a more “real” take on this issue, right? I’ll try to be as honest and open as possible. Regarding the relationship between VCs and retail investors, the first thing to say is that this binary conflict isn’t completely absent in traditional financial markets, but it’s relatively “softer.” In traditional markets, early-stage angel investors (VCs) provide capital to help companies grow, which then continue to raise funds until they exit through the secondary market. The key difference is that in traditional markets like A-shares, H-shares, or U.S. stocks, there’s a relatively mature secondary market, and companies themselves have a clear profit model, which reflects in their equity value.

Therefore, when companies go public, retail investors don’t feel like they are “bailing out” the VCs because the listed companies are valuable with clear profitability. This alignment of interests softens the tension between retail investors and VCs in traditional markets. However, the relationship is quite different in the crypto space.

Why “bad money drives out good money”

Jason: In the crypto industry, the issue of “bad money driving out good” arises for a few reasons. First, as we discussed earlier, market liquidity is easily manipulated, and the exit mechanisms are relatively simple. This environment allows many scam projects to enter the market with ease, which is a common problem.

But the core reasons are twofold:

First, after introducing Web3 elements, creating a sustainable business model that can weather market cycles is incredibly challenging. If you believe in tokens capturing value, that value capture is cyclical and highly volatile. A project’s revenue might drop by 80% during a market downturn, which severely impacts its valuation. As a result, even if you invest in widely recognized valuable projects, such as BNB or major blockchain tokens, these assets still take a heavy hit when the market shifts between bull and bear cycles. This leads many to believe that the quality of tokens VCs invest in is not high.

Second, although some project teams have excellent business capabilities, they may not necessarily want to reflect that value in their tokens. This industry doesn’t require them to, and even if they wanted to, they’d have to deal with the U.S. SEC’s regulations. If a project performs exceptionally well and falls under SEC jurisdiction, it could lead to even bigger issues. As a result, companies with real value are often reluctant to issue tokens, while those without solid business models are willing to, creating a situation where bad money drives out good.

Moreover, the prevalent token design model in the industry is also a problem. Typically, token distribution allocates more than 50% to the community, 20%-25% to the team, and the remaining 20%-25% to investors. This is an industry norm, and if a project doesn’t follow it, exchanges and investors might be displeased. However, this design is mainly to avoid SEC securities regulations, as the SEC is more likely to classify centralized tokens as securities.

The issue with this design is that many project teams, to meet VC demands for high valuations, issue tokens with low circulating supply but high valuations. This design makes it difficult for early-stage business growth to outpace the inflation rate of the token, leading to token sell-offs.

That said, I believe that if a project has a solid vesting schedule and its core business growth and value capture can outpace inflation, these tokens still hold investment value. Sorry for the long answer.

Using Pump.Fun and Banana Gun to analyze different project operation models

Ruby: Regarding projects that are reluctant to issue tokens, it could indeed be due to their stronger business capabilities. For example, Pump.Fun, which has robust revenue and doesn’t need to rely on token issuance for an exit. On the other hand, a project like Banana Gun, which also has its own revenue logic, still chose to issue tokens. What’s your take on these two types of projects?

Jason: In my view, capitalization is one of the best ways for a team to monetize many years of future efforts. In the crypto space, if a company is a leader in the industry, has high visibility, and can convince the community that its business model is sustainable, issuing tokens can lead to a high valuation.

However, the key consideration for project teams is whether capitalization would hinder business development. For example, if Pump.Fun issued tokens and its valuation reached $500 million or $1 billion, but then competition arose, such as someone launching Sunpump, causing Pump.Fun’s revenue to decline, the valuation could drop by 40% within days. Additionally, the SEC might view this as an unauthorized securities offering, potentially causing legal trouble for the project.

In contrast, a smaller project like Banana Gun, although it issued tokens, is smaller in scale and might not attract regulatory scrutiny. If it doesn’t target U.S. users, the risks are lower. So, whether or not to issue tokens depends on the project’s business model, market size, and its reliance on the U.S. market.

There are too many projects in the market, making it hard for retail investors to know what to buy

Ruby: Many projects in the market seem quite “copycat,” and for retail investors, it’s really hard to know what to buy.

Jason: That’s definitely a challenge. I once did some statistics, although it hasn’t been updated in a few years. Based on my observation, there might be 20,000 to 30,000 tokens in the market now, but only 2,000 to 3,000 have any real substance. Among these, perhaps fewer than 50 have the potential for long-term value capture. These are the projects with a real business model and that perform well in terms of user base and cash flow capture.

Many large Layer 2 projects are good examples, as their cash flow often goes to equity holders rather than token holders. As VCs, early investments in these projects typically yield returns through advisory agreements or airdrops, while retail investors often bear the brunt of the sell-offs that follow token issuance. So, shorting these projects through a defunding approach might be a viable strategy.

Folius’ Project Evaluation Criteria

Ruby: In today’s market environment, project valuation has become increasingly complex. How have your methods of evaluating projects changed compared to before? Do you have any new criteria or methodologies?

Jason: I think there are two key angles to evaluate a project. First, we need to assess the project team’s ability to execute two things:

The first is their ability to get things done — whether they can execute, bring their business logic to life, attract users to their product, and whether they have a cash flow mindset. This is about the ability to deliver, which determines whether the project can survive.

The second is their ability to “set the stage” and tell a compelling story. This determines how well the project will thrive and whether it can achieve a high valuation in the industry. Simply put, the first determines survival, and the second determines how well it will succeed.

If a project does well in both areas and is a leader or the only player in its niche, I would consider it a project worth investing in early. Such projects have a good chance of weathering bull and bear market cycles. Even if they are currently stuck at some point in the market cycle, we would still be willing to invest.

On the other hand, if the team is strong in execution but not as good at storytelling or setting the stage, they must be targeting a very strong market need or an underexplored niche. Even if their website, resources, or the founders’ public presence aren’t particularly impressive, as long as the business is making money, especially if it captures Web3’s mass users and generates cash flow, we would still consider investing. However, the exit strategy for such projects might be more uncertain.

As for companies that solely focus on setting the stage and telling a story, these are very common in the industry. Often, they can’t clearly articulate their core business, but they focus every day on getting listed on major exchanges like Binance, providing an exit for all participants, and inflating valuations. These projects carry too much risk, with too many uncontrollable factors, so we typically avoid them. After all, we often don’t have access to the core decision-making circles involved in such projects.

So, if a project lacks both strong execution and storytelling abilities, it’s difficult for us to invest.

Ruby: You just mentioned you prefer to invest in long-term projects. When choosing investments, do you prioritize the team or the project itself?

Jason: That’s a great question. To put it simply, adults don’t have to make choices — it’s best to have both a great team and an excellent project. Ideally, you want to have both.

Continuing to focus on applications, especially mini-games

Ruby: I’ve noticed that Folius Ventures’ investment approach is quite unique. I’m even tempted to follow your investment portfolio!

Jason: That’s a common thought, but I want to caution that even the companies we invest in carry significant risk when they first issue tokens. Many companies have high circulating market caps when they issue tokens, but the unlock speed is too fast, creating significant inflationary pressure. So while we do our best to choose teams with a long-term vision that can weather both bull and bear markets, we can’t guarantee that every project will avoid inflation problems when their tokens are issued.

Ruby: Got it. What areas do you think will see the next wave of innovation? What directions will Folius Ventures focus on?

Jason: Our investment style is a bit unique, maybe even a little “quirky.” One of our LPs once said, “You invest in projects that no other GPs are investing in.” It could be because we tend to like projects that seem a bit “weird” (laughs).

I believe the infrastructure in the industry is already mature enough, but there’s still a lot of room for improvement in user experience (UI/UX). If a company can truly achieve that, we’d be very interested. A lot of our current investments and evaluations are aimed at preparing for the next market cycle, driving more people to use Web3+ products. I’ve always believed that the reason applications haven’t taken off yet is not because of a lack of creativity, but because the infrastructure hasn’t been strong enough to support them.

In the ToC (consumer-facing) space, we’re focusing on a few key areas:

1. Projects that tap into human weaknesses, such as greed, addiction, or even the vanity of wanting to look better than others in games. These human flaws often drive consumer behavior, which helps projects move away from pure speculation.

2. Platform-wise, I see a lot of potential in mini-games on platforms like Discord, Telegram, and even Twitter.

3. In the past, we invested in a lot of projects that attracted users with economic models. Some of those projects, with Ponzi-like structures, tend to collapse at certain points. In the future, we want to find projects that offer entertainment and can create consumer behavior, even if they rely on some sort of economic incentive model.

Additionally, we want projects to build up network effects and user communities over time, as this is key to long-term value. We are particularly optimistic about ToC products that combine human weaknesses, traffic, and Web3 elements.

For example, we really like the team behind Catizen, which has been working in the ecosystem for a year and a half. We believe there’s a strong chance that a product similar to the 4399 gaming platform will emerge on Telegram, and Catizen has the potential to occupy that space. If they can maintain their long-term vision and continue improving, the market will recognize them.

Also, a project like WSPN shows a lot of promise. Considering that Tether and Circle have market caps of $100 billion and $30–40 billion, respectively, I think there’s an opportunity in the future to share stablecoin equity with users via token mechanisms. This space needs teams with both industry clout and execution ability — someone like Richard from Binance might be the right fit, especially since BUSD reached a $20 billion market cap before.

Another project we’re watching is Puffpaw on Berachain, which is a Web3-supported e-cigarette project. It involves product design, aesthetics, D2C (direct-to-consumer) sales, and integrating Web3 elements. Each step is challenging, but the tobacco market is a real need, especially for smokers where consumption is continuous. So, while this kind of project is difficult, it’s also incredibly worth pursuing.

Solana ecosystem has strong potential

Ruby: Yes, projects like Catizen and the Puffpaw e-cigarette project on Berachain are indeed fascinating. Recently, the Solana ecosystem has been a hot topic. Some people think it might end up like the BSC chain, which had its meme craze but then faded from attention. Jason, what do you think about the future of the Solana ecosystem?

Jason: First, let’s take a step back and consider what makes a blockchain or Layer 2 truly attractive. A successful chain needs strong business development and support capabilities. It has to attract not only developers but also think about how the companies within its ecosystem can make profits. This might involve things like fiat on-ramps, optimizing user experience, and especially lowering the barriers and friction for users to enter and interact within the ecosystem.

On the technical side, I believe that beyond independent innovation, a blockchain also needs to be open to “adopting” ideas from others. There’s no need to stick to rigid principles — any technology that can drive the ecosystem’s business growth should be adopted. Ultimately, a blockchain should be evaluated based on factors like the friction users face when entering the ecosystem, the amount of capital involved, real user interactions, and the quality of on-chain applications.

From this perspective, Solana is undoubtedly one of the most outstanding ecosystems today. I think it firmly holds a place among the top five blockchains. The Solana team, particularly Lily (President of the Solana Foundation) and her team, have done an excellent job of ensuring real application adoption. They are constantly thinking about how to better serve applications and users.

Furthermore, Solana’s ecosystem also integrates with Telegram and Coinbase. For instance, tools like Telegram’s Wallet Stars, full-chain applications on Coinbase, and fiat on-ramp solutions all showcase Solana’s potential to support a robust on-chain commercial ecosystem. While some projects like Blinks haven’t performed as well, smaller tools like Tiplink still highlight Solana’s potential in driving on-chain commerce. If Ethereum doesn’t push harder in this area, it might lose its competitive edge in the next cycle and even be forgotten by history.

So overall, Solana’s ecosystem shows immense potential in terms of commercial adoption and user experience. If other chains don’t keep pace, they may eventually fall behind.

Entrepreneurs are advised to utilize resources from multiple ecosystems as much as possible

Jason: Regarding project founders, while the current state of “chain abstraction” technology is not yet fully mature, founders still need to choose which chain to align with in the early stages. For example, the development difficulty on the TON chain is quite high, and even developing a small game on Solana is easier than on TON. Although Solana requires higher expertise from programmers, developers in the EVM ecosystem are relatively easier to find. However, developers in the Base ecosystem might sometimes seem “aloof” and less responsive to entrepreneurs. Every chain has its own challenges.

My suggestion is to avoid tying yourself entirely to a single chain before your business model is fully validated. The ultimate goal should be to remain application agnostic. However, this does not mean that entrepreneurs can’t take advantage of the resources available in Layer 1 or Layer 2 ecosystems. On the contrary, they should seize every opportunity to utilize these resources, whether financial or technical support. Even if you do need to choose sides, you can first tap into available resources and then consider other directions once your project scales up.

The market will continue to reshuffle over the next 18 months

Ruby: Lastly, I’d like to ask you to give everyone a bit of confidence. As a primary investor, how do you think the upcoming bull market will differ from the past? What’s your outlook on the market?

Jason: If you remember 2019 or even earlier, it was relatively easy to invest in primary projects back then. At that time, there weren’t as many crypto VCs, and the number of projects in the market was limited, like The Graph, Circle, and FTX. The entire market was so small that even an intern could research all the projects within two weeks. Most investors were still focused on the secondary market.

However, from 2019 to 2023, we saw a massive influx of entrepreneurs into the crypto industry. Many came in because they truly believed in the space, but it’s undeniable that many were driven by speculative motives. Behind them, we investors also rushed into the market.

The result was that the number of projects capable of capturing long-term value didn’t significantly increase, but the number of projects aiming to get listed, issue tokens, and cash out surged by 10x, 100x, or even 1,000x. In such a scenario, if market liquidity isn’t as abundant as it was in 2021, the entire industry comes under pressure.

Currently, if you take the $1.1 trillion market cap of crypto, remove BTC, ETH, StableCoins, and a few surviving projects from the last cycle like Dogecoin and ADA, the remaining Altcoin market may only be worth $150 billion to $200 billion. This portion of the market has already fallen below its early-year levels. If another 20% of new projects enter the market and each project increases its circulating supply by 50% to 100%, the average decline in the Altcoin market could range from 15% to 80%, which is what we’ve been seeing this year.

Jason: I believe the market will continue to experience reshuffling over the next 18 months. Many VCs need DPI (Distributions to Paid-In Capital), so they will sell tokens once they get them, and project teams are also eager to cash out. Although I have high hopes for the projects we’ve invested in, hoping they can build business models that transcend market cycles, I think the market might get worse before it gets better.

That said, the outlook isn’t entirely bleak. Looking ahead to the next 12 to 14 months, especially after next year’s U.S. election, if Trump is elected and appoints a new SEC chair, we could see clearer token policies and regulatory sandboxes around June 2025. With a clear policy framework, savvy lawyers and projects could design compliant ways to capture value. If all goes well, the next 24 months could bring improvements in Web3’s user acquisition models, monetization strategies, and the last-mile conversion process. By then, I believe we’ll see a wave of strong secondary projects emerging.

Once the secondary market becomes active, the investment environment for the primary market will also improve, similar to the entrepreneurial ecosystem in Silicon Valley today. So, while the market may undergo a shakeout in the coming year, I believe if these expectations materialize, the future will be brighter.

Ruby: Understood, while there may be short-term lows, the long-term outlook for our industry is still very promising. It will require continuous effort from us as builders.

Jason: You’re welcome, but I’d like to add one more thing. In this industry, entrepreneurship doesn’t have to follow the common path of building a complex financial model, creating a product that fits the market, and then listing on Binance to cash out. That’s one path, but it’s not the only one.

There are many companies with very strong cash flow that you may not have heard of, but they have very solid business models. For example, exchanges and stablecoins are very “positive cash flow” businesses that can generate massive profits as long as they get regulatory approval. Additionally, there are other lesser-known but highly profitable companies, such as DEX Screener, a tool for monitoring memecoins, which makes tens of thousands of dollars a day. There are also well-known SaaS companies, like Elliptic, which provides KYC services, Certik, which does audits, and Chaos Labs, which simulates protocols — all of them have steady revenue streams.

So, entrepreneurs don’t necessarily have to take the token issuance and cash-out route. Digging deeper into clear business logic and choosing directions with stability and cash flow is also a good option.

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