September 1, 2022

Nose for news sniffs next Web3 unicorn

A journalist has to sort through countless leads to identify what’s newsworthy or find that obscure yet promising company, all to craft an interesting story.

An investor has to pick the next investment-worthy start-up out of a sea of candidates and, most importantly, find it before other investors.

The skillsets necessary for the two professions are similar, which is why we see more and more reporters trying their hands at investing. Jon Russell, the recently appointed partner of Capital, is one such example.

From journalism to venture capital

A former journalist, Jon began his Southeast Asia stint in 2008 stationed in Bangkok, Thailand. He spent the next eight years covering Southeast Asia business and technology for renowned media such as The Next Web and TechCrunch. In 2019, he joined startup The Ken, a subscription-driven technology media, as the Southeast Asia editor.

In early 2022, Jon made the jump to venture capital. He joined Capital, the cryptocurrency exchanges’ investment unit with USD500 million under management, and now oversees investment opportunities in Southeast Asia. Since its inception a year ago, Capital has invested in 60 Web3 start-ups focusing on blockchain infrastructure and DeFi, closing one investment deal every 1-2 weeks.

South Asia, very promising

Compared with western markets, what are the challenges and opportunities of Web3 development in Southeast Asia? And with a reporting background, how does he make investment decisions in this highly technical sector? In this podcast episode of Knowledge Surfing, Jon shared his observations and thoughts on the Web3 space in Southeast Asia.

He pointed out that there is nothing inferior about the Web3 market in Southeast Asia, bringing up the popular game Axie Infinity, which Vietnam-based Sky Mavis developed. According to data from Chainalysis, cryptocurrency holders in Singapore account for 10% of the country’s total population, compared with just 8.3% in the US.

Jon shared an anecdote about cryptocurrency’s high penetration in Southeast Asia. While taking a motorbike taxi, he noticed that the driver constantly had a cryptocurrency trading app on his phone screen to get the latest market action.

So does Southeast Asia have what it takes to be a leading region for Web3 development? Jon pointed out that Singapore, an Asia financial hub, already has many tech talents involved with De-Fi and blockchain infrastructure projects. However, countries like India, Indonesia, Vietnam, and Thailand still need to foster human resources in this sector.

He added that tech talents need to catch up with the opportunities created by the massive population. When that happens, Southeast Asia can be a breeding ground for “homegrown” Web3 giants instead of playing a supporting role to more prominent international companies.

What is he looking for?

With past journalistic experiences, Jon has his own approach to selecting investment targets. For example, many Web3 projects are in blockchain infrastructure, so the product pitches are often full of technical terms and not the easiest to follow. Though Jon has a team for inspecting the technological aspects, he believes a good founder should be able to clearly communicate what the company does and why it’s essential regardless of the investor’s technical knowledge. “If a person can’t explain what they’re doing in an hour, there’s obviously some kind of issue there,” Jon said.

Jon further pointed out that some Web3 start-ups built viable business models via the flywheel effect. NFT app Floor is a good case in point.

Users must first pay a USD100 fee to access the app, establishing a solid foundation and momentum for an NFT community. The users are not only interested in NFT; they are passionate and willing to pay to join. Floor further rolled out podcasts, newsletters, and social engagement services, all tailor-made for these paid users. Jon believes effective management of loyal users will create other business opportunities in the future. The app currently has over 3,000 paid users.

He added that designing a friendly UI, minimizing annoying advertisements, and building a user-centric business are enough in this early stage to stay ahead of many Web3 offerings.

Web3, down but not out

Everyone is looking for the next thing that could lead us out of a down-cycle. Jon thinks gaming has the potential. However, the game has to look and feel like a conventional game, not a blockchain-based product with entry barriers such as purchasing expensive NFTs or setting up a crypto wallet. No such killer product exists at the moment, he said.

Again, take play-to-earn Axie Infinity as an example; its true essence should be the game. It must be fun to play, first and foremost. Cryptocurrency and financial concepts should be secondary.

A bearish cryptocurrency market has dampened overall enthusiasm for Web3 projects. Start-up funding valuation is also on a downward trajectory. Investors that are not true believers in cryptocurrency are looking elsewhere. Yet, Jon believes this is a good time to invest, “We’re mostly just prudent. We feel like everything has reached a certain level. I think that’s when we’ll be looking at more outrageous deals as well.”

*The contents of this episode are not investment advice. Careful research and risk assessment should be made before investing.

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