Yi He, the woman who helped found the Binance cryptocurrency exchange with Changpeng Zhao in 2017, now runs the company’s venture capital arm and sees slumping markets and tough economic conditions as just the time for identifying promising projects to invest in.
In an interview with Forkast, He — who was named head of incubator and investment unit Binance Labs last month — said she has aggressive plans for the operation, which manages US$7.5 billion in assets across more than 200 projects for the world’s largest cryptocurrency exchange.
He, 35, said she is looking at early-stage projects that offer long-term benefits to the industry and sees opportunities in the current bear market conditions, but declined to give specifics. She added it’s essential to filter out “copycat” projects that jump on a fad to make some quick money. Such projects lack solid business models and won’t last, she said.
Binance Labs last month said it has made a 2,100% rate of return since its inception in 2018 and has investments that include play-to-earn game Axie Infinity, layer 2 blockchain Polygon, metaverse game The Sandbox and move-to-earn app STEPN.
In June, Binance Labs closed a $500 million investment fund that includes partners such as internet investment firms DST Global Partners and Breyer Capital. The new fund also attracted private equity funds, family offices and corporations as limited partners (LPs), according to a June statement.
The following interview has been translated from Chinese and edited for language and brevity.
Timmy Shen: What’s your investment strategy? How is it different from venture capital (VC) investment in the internet industry or Web 2.0?
Yi He: We all know it’s a good investment opportunity in a bear market, as many teams that only look to make some quick money would be forced out of the industry. It’s good timing now to support those who really want to run a good business and believe in this industry.
A key difference in fundraising between Web 3.0 and Web 2.0 is that Web3 projects don’t necessarily need to raise money through VCs. They might as well just issue tokens and sell them to users. In such a scenario, a VC’s role can be more valuable in offering guidance rather than giving money. This can include guidance on technical, security aspects or on the model of tokens. This is important as users and the corresponding community are the core when it comes to running a Web3 company.
Shen: You said now is a good time to invest. How do bearish or bullish market conditions make a difference to your VC investment?
He: We generally figure out what we really want no matter if we’re in a bull or bear market. In a bear market, I think we should make investments more aggressively, but not just for the sake of investing.
There’s this tendency in the investing industry to follow the herd and many funds are concerned that they may miss a four-year or five-year investing cycle. Some of our LPs have also suggested investing in more projects and investing faster. I’ve told them not to be nervous.
Shen: How do you set preferences when deciding on which projects to invest in?
He: There are three types of companies we’re looking at. The first type are those that build the infrastructure.
The industry is still at its early stage. In the future, I’d envision one should be able to use blockchain-native products almost everywhere, just like how we’ve accustomed to using office software and social media. It’s just that there’s still a technical bottleneck. So, infrastructure is an area we would still make investments in, no matter if you’re a layer 1 company or a cross-chain protocol.
The second type of projects we’d invest in are those that run all kinds of blockchain applications. There are more and more projects emerging with large user bases, such as those adopting play-to-earn or move-to-earn models. We’re keeping an eye on products that come with innovative use cases.
For these projects, we’d ask questions similar to those you’d ask a Web2 company. What’s your business model? What issues or problems do you solve? What’s the innovation? These are the typical questions we’d ask.
The third type of companies we’re looking at are those that provide blockchain-related services to support the better development of the industry, such as data security. It’s rare to see an internet (Web2) company being hacked, but that happens all the time in the Web3 industry.
For a long time, people in Web3 repeated the catchphrase, “code is law.” If you don’t code well enough, then it’s your responsibility if anything goes wrong. I agree, but if we want wider adoption then you’d have to make your products easy to use in order to serve more people.
Also, I prefer projects that have their own innovative approaches over copycats. If you tell me you’re just like a certain trending project and share a similar user base, which could thus provide some quick money, this won’t work for me.
Binance doesn’t invest in projects just to make some quick money. We value “long-termism.”
There are still founders and entrepreneurs out there who find it easy to raise money in Web3 and start to “tang ping.” [Editor’s note: Tang ping is a phrase that translates as “lying flat” and refers to younger generations in China rejecting a work lifestyle that demands long hours to succeed.]
These entrepreneurs didn’t realize that once you make a promise to users as a founder, then you have to deliver. You can’t just put the money from users into your pocket and feel you’re now financially free, so you get to “tang ping.”
However, many in this industry are still exploring different ways to succeed and we hope to find those that value the long-term approach.
Shen: Before you took over Binance Labs, it invested in X-to-earn projects, such as Axie Infinity and STEPN. What’s your plan for X-to-earn models?
He: Companies running X-to-earn models need to realize that “earn” is not the key, the “X” is.
A typical example are play-to-earn games. If users join only because they want to earn money, then once the “pump” period is over, it’s pretty much over for the game, too, with user numbers shrinking and token prices falling.
You’d need to go back to the origin point of whether the game is still attractive if there’s no earning. Would there be enough people who would like to buy it?
Shen: Binance in February said it would invest $200 million in Forbes, but CEO Changpeng Zhao said in June that could change after a SPAC deal fell through. Can you give us any update on this and your media investment strategy?
He: We’re still following the Forbes case. This is an investment related to its initial public offering through a back-door listing, in plain language. But there seem to be some difficulties, so they’re making adjustments. Perhaps some of their shareholders might want to dilute holdings.
In terms of media investment, when Elon Musk said he wanted to buy Twitter, we thought it was a good chance as Twitter has a large user base and it’d be good for Web3 education. [Editor’s note: Binance said in May it will commit US$500 million to Elon Musk’s buyout, which has gone sour.]
Now, we don’t really list media as a specific investment target, but we’ll take a look if we do come across any good ones.