Opinion: Venture capital remains abundant, and project founders as well as token issuance service providers continue to profit

Author: wassielawyer

Translation: TechFlow

Some thoughts on the 'first round of VC' and why the most profitable business in Web3 today is providing services to teams issuing tokens.

While altcoins have performed disappointingly, the venture capital market remains extremely active. As an advisor and investor, I can clearly see that significant capital continues to flow.

In recent weeks, an interesting phenomenon has been the increased demand for fundraising.

Despite poor performance from major TGEs in June 2024 and many teams still planning their TGEs in Q3 this year, the venture market remains highly active.

For seed-stage startups, it's still relatively easy to raise funds at high valuations—albeit with substantial concessions on cliff periods and investor unlock schedules.

Even though it's obvious no one will buy into VC-backed projects, many participants continue betting that retail investors will purchase their projects months later.

I can only describe this phenomenon as a failure of market structure.

Participants in these still-booming VC rounds include not just major VCs but nearly everyone who holds over $500,000. They either add capital under their Web3 alias, label themselves as angel investors or KOLs, or participate in $20,000 allocations with $2,000 checks.

These investors are bullish on the space but don't want subpar ETH/BTC returns. They don't want to buy altcoins and become someone else’s "exit liquidity," and they consider memecoins “too risky.”

These are the “mature retail” investors who have evolved into what I call the first round of VC. These individuals bought altcoins last cycle but were smart enough to learn from it.

They recognize that altcoin designs this cycle are profoundly unfair. But they may not fully understand what venture capital entails—they simply observed successful VC deals last cycle and now view it as “free money.”

This phenomenon ultimately benefits two types of participants in the Web3 ecosystem.

The first group is project founders. The reality now is that regardless of how weak your project is, as long as you offer short cliffs and vesting periods and create (no matter how flimsy) the illusion of a fictional retail sucker ready to buy, seed investors will offload—and you'll find funding.

If you can't secure funding, lower your valuation, increase the TGE unlock percentage, shorten cliffs/vesting periods—repeat until funded.

This is truly terrible for the ecosystem.

Unscrupulous founders will take seed funding and quickly shut down operations.

Honest founders will see their projects utterly compromised by having to adopt劣质 tokenomics just to compete for funding.

Either way, investors themselves are unlikely to see real returns, because the very retail buyers they’re counting on are also busy participating in meaningless seed rounds, each hoping someone else will be the greater fool.

The second group benefiting from this meta narrative are the token issuance service providers.

The key insight is recognizing that Web3 today is primarily about issuing tokens. Everything else is just storytelling designed to justify that primary objective.

So the real profits come from extracting fees from founders who primarily raise funds through early-stage venture capital (VC).

There's a clear selection bias here. Strong founders/teams get oversubscribed by top-tier investors and usually have some experience.

Weaker founders are funded by first-round VCs and typically lack access to those networks and expertise.

These founders often pay premium fees for services like "tokenomics consulting," "marketing and GTM," "launchpad services," "KOL management," "legal," "market making," and "community management."

Since everyone is launching tokens, it seems everyone uses these service providers. For any inexperienced founder, following the “playbook” feels almost inevitable.

But what these founders fail to realize is that this “playbook” is neither foolproof nor transparently priced. In fact, one could argue it's largely untested—because many tokens running this playbook haven’t yet faced major investor unlocks.

Many service providers are doing this for the first time too, sometimes just as clueless as the founders—but they fake it till they make it. After all, if nobody knows, who’s going to call out your mistakes?

As a tokenomics consultant, why not copy-paste a tokenomics plan and charge 1.5% of supply plus a dollar fee?

As a "marketing and GTM" consultant, why not copy-paste a broad "market strategy" from ChatGPT or a previous job?

As a "general legal counsel," why not reuse transaction documents from a completely different deal you saw during your internship?

Since service providers are typically paid in both USD and token incentives, they are often the first to get paid in any token project (unless dealing with bad-faith founders).

Therefore, while it sounds cynical, the best ways to succeed within this meta-narrative are:

(a) Become a bad-faith founder,

(b) Try to become a "subject matter expert" for early seed-stage projects.

Randomly investing in VC deals is unlikely to yield returns, because everyone who entered Web3 around mid-2022 is now randomly investing in various seed projects.

Investing in projects no longer automatically equals profit.