The Golden Age of VC is Over: Insights and Reflections from the Hong Kong Consensus Conference

After recently attending the Hong Kong Consensus Conference, I feel that the venture capital industry is experiencing unprecedented challenges. In stark contrast to the flourishing development in other fields, the venture capital sector is indeed facing a dire situation. Some institutions are unable to raise a new round of funds, some have made significant layoffs, and others have shifted to strategic investments while abandoning independent investment operations. There are even venture capitalists considering issuing meme coins to raise funds, which undoubtedly reflects the difficulties in the industry.

In the face of this situation, many peers have chosen to change careers. Some have joined project teams, while others have transformed into opinion leaders, as these seem to be more promising choices. In this transformation, everyone is exploring new ways to survive. This inevitably raises the question: what exactly went wrong with venture capital? And how can we break through the current predicament?

First, we must acknowledge that the golden age of venture capital as an investment asset class has passed, whether in China or the United States. Taking a well-known venture capital firm as an example, its fund invested in 2012 achieved a 3.7 times distributed return rate, investing in several successful projects. However, since 2014, even recovering the principal has become a daunting task.

China's venture capital industry has also experienced a similar trajectory. Leveraging the demographic dividend, the rapid growth of mobile internet and consumer internet has given rise to several companies valued at hundreds of billions. The year 2015 may have been the last glorious moment; afterward, due to factors such as stricter regulations, tightening liquidity, a decline in industry dividends, growth bottlenecks from changes in industrial cycles, and restrictions on IPO exit channels, the return rates for venture capital institutions have significantly decreased, leading to a large number of professionals leaving the industry.

Venture capital in the cryptocurrency space is no exception. With changes in the macro environment, evolution of market structure, and decline in capital returns, venture capital faces significant survival challenges.

Everything is about cost and liquidity

In the past, the value chain of VC investments was very clear: project parties proposed innovative ideas, VCs provided strategic support and resources, opinion leaders amplified market voices at critical moments, and finally, value discovery was completed on exchanges. Each party provided different value at various stages, assumed different risks, and received returns that matched, forming a relatively fair value chain.

As a venture capital firm, the value we provide goes far beyond simple early-stage investments. We help project teams quickly connect with key resources in the ecosystem to drive business development, offer timely advice when market trends shift, assist project teams in adjusting their strategies, and even help build core teams. In order to establish long-term partnerships with project teams, we typically face a one-year lock-up period and a 2-3 year vesting period. Our goal is to participate in a win-win game together with the project teams.

However, in the current market environment, the core contradiction lies in the extreme lack of liquidity, the intensification of market games, and the traditional model of venture capital is difficult to sustain.

The Changing Landscape of Capital Flow: Where Does the Dilemma of Venture Capital Stem From?

The main driving force behind this round of bull market is the Bitcoin spot ETF in the United States and the strong entry of institutional investors. However, the transmission path of funds has undergone significant changes:

1. Institutional funds mainly flow into Bitcoin, Bitcoin ETFs, and even indices, but rarely spread to other cryptocurrency markets;
2. Without genuine technological or product innovation support, other cryptocurrencies find it difficult to maintain high valuations.

This directly leads to the VC model being questioned in the current market environment. Retail investors believe that VCs enjoy an unfair advantage, being able to acquire chips at a lower cost and possessing key market information. This information asymmetry leads to a collapse of market trust and further depletion of liquidity. In a competitive environment, retail investors demand "absolute fairness." In contrast, the strategies of secondary market funds do not create a strong opposition to market sentiment, as retail investors can also enter the market under the same conditions.

The current criticism of venture capital is essentially a counterattack of "absolute fairness" against "relative fairness" in the context of liquidity scarcity.

The Rise of Meme Financing Models

If we previously regarded memes as a cultural phenomenon, now we need to see them as a completely new way of financing. The core value of this financing method lies in:

• Fair Participation Mechanism: Retail investors can track information through on-chain data and obtain early tokens under a relatively fair pricing mechanism;
• Lower entry barriers: During the rise of decentralized finance, we supported numerous independent developers who relied on product innovation to drive value capture. Now, the meme model further lowers the barriers, allowing developers to "have assets first, then products".

This logic itself is not problematic. Looking back in history, many public chains conducted token generation events without a mature ecosystem or mainnet. Why can't memes do the same, attracting enough attention first and then advancing product development?

Essentially, the evolution of the "asset-first, product-later" approach is a wave of populist capitalism sweeping through the entire financial ecosystem. The prevalence of attention economy, catering to the public's desire for quick wealth, breaking the monopoly of traditional financial institutions, lowering capital thresholds, and ensuring transparency of information are all unstoppable trends in the new era. From the confrontation between retail investors and Wall Street, to ICOs, NFTs, and the evolution of meme financing, this is all a financial interpretation of the trends of the times.

Therefore, the cryptocurrency field is just a microcosm of this era.

The Role of Venture Capital in New Models

No financing model is perfect. The biggest problem with the meme financing model is its extremely low signal-to-noise ratio, which brings unprecedented challenges to trust:

• Extremely low signal-to-noise ratio: Fair distribution leads to very low costs of asset issuance, resulting in a proliferation of low-quality projects.
• Insufficient information transparency: For high liquidity meme projects, the fact that everyone in the market can enter early means that whether the project is built for the long term has become less important; what matters is how to profit in the game.
• Trust costs soar: High liquidity means high stakes. Starting to circulate on the first day means that we have no mechanism to bind interests with the founders for long-term win-win outcomes, and participants can become adversaries at any time, serving as each other's exit liquidity. This trust structure is both dangerous and unsustainable.

The differences in thinking patterns among different participants are also worth noting:

• Participants in meme projects believe: narrative > chip structure ≈ community or sentiment > product technology;
• Primary market participants believe: narrative > product technology ≈ chip structure > community or sentiment;

The meme mode is essentially a more opaque on-chain world than the venture capital model. Due to the lack of product and technical support, "absolute fairness" often serves merely as a facade. Observing certain projects reveals that every meticulously planned public positive news from the core team behind the market ultimately turns ordinary investors into targets for precise harvesting. They always seem to anticipate the public's predictions, making it difficult to identify true long-term builders in a highly gamified environment.

I don't think venture capital will disappear because this world is filled with huge information asymmetry and trust asymmetry. For example, certain collaborative resources are not easily accessible to ordinary developers.

However, in the face of such a populist capitalism wave, it is unrealistic for VC to fantasize about easily profiting from information asymmetry like in the past. Adapting to change has never been easy, especially when the market paradigm is completely restructured and previously effective methodologies are quickly eliminated. The rise of meme financing is not a coincidence, but rather the result of deeper liquidity transformations and a reshaping of trust mechanisms.

When the high liquidity of memes meets the short-term gaming mentality, and is confronted with the long-term support and value empowerment of venture capital, finding a balance between the two is a problem that current venture capital must face. On one hand, flexible institutions are grateful for the freedom and flexibility they have to respond to market changes, but recognizing structural changes and adapting their investment strategies is by no means an easy task.

But no matter how the market changes, one thing remains constant — what truly determines long-term value are those outstanding founders who have vision, exceptional execution abilities, and a willingness to continuously build.