An exclusive interview with Web3's top VC Cypher: Dubai's upstarts borrowing from China's Internet investment

Cypher Capital can be called the "a16z of the Middle East" or the "Hillhouse" of the Middle East Web3. Cypher Capital has a distinctive influence in the Middle East, North Africa and Asia, and according to public information, it has abundant funds. This institution was founded by Bitcoin mining (Phoenix). Bijan Alizadeh, the founder of Phoenix, established Cypher Capital on the basis of building Phoenix into the world's largest bitcoin network computing power, and diversified the allocation of the group. Cypher Capital, headquartered in ABU Dhabi and Dubai, has been engaged in Web3 mining, node, master fund and direct investment of projects in primary and secondary markets around the world. In 2022, Cypher Capital launched a VC of 100 million dollars focusing on the early stage of Web3. It is the only "Capital With Solution" in the Middle East, providing full-stack support of ecological resources including capital, Nodes, human resources and so on for first-line founders around the world. In Dubai, there are also many crypto VC with a scale of more than 1 billion US dollars, and the fund of Dubai government is also the largest fund power. Before that, the current sheikh also actively conducted investment layout through different government and semi-government agencies. For details, see the author's previous article "Dubai with 200,000 Chinese People: Asia's other great Web3 capital, but Cypher is unique because of its resources.

Cypher recently opened Cypher Hub, an offline 10,000 sq ft cryptocurrency networking hub in Dubai's seaside JBR, which is becoming a must-stop for founders and investors from all over the world.

Bill is currently the chairman /General Partner of Cypher and an independent director of the Ton Foundation, a public chain spawned by the 800 million month old Telegram. Prior to that, he was Head of M& A and Binance Labs), and before that, he was the head of investment in the global technology field of JD Group. He has complete experience in Web1, Web2 and Web3 technology cycles. He has also witnessed the rise of the Internet in China in the past 20 years. And the globalization wave of Chinese Web3 from 2017 to now. It's a pleasure to break down Bill's insights for readers.

Bill's career: From the rise of the Internet in China to Web3

BlockBeats: Can you tell me a little bit about how you got into the VC industry?

Bill: I started out in technology and healthcare at Zhi Xin Capital, a US dollar PE Fund. Later, with the rise of CVC in China, I stayed in Jingdong for six years and was responsible for the technology/fintech investment of Jingdong worldwide. Web2 itself slowed down in 2020, and at the same time it joined Binance and became the M& of Binance. A and the head of Binance Labs.

BlockBeats: How did you come to the Middle East?

Bill: Because the regulation in the Middle East is more Web3 friendly and there is a lot of high quality "offline traffic". It's like the Casablanca of Web3. Indians, Chinese, Europeans and Americans all come here for different reasons and it's easy to make friends. A lot of our teams were here, so I came, too. When I got here, it was pretty cool, so I stayed. I joined Cypher Capital after coming to the Middle East.

BlockBeats: What do you think is different between traditional VC and Web3 VC?

Bill: Traditional VC has been around for more than 50 years (Sequoia was founded in 1972). Traditional VC funds have grown from small to large. A dollar Fund might start out with a few hundred million dollars in Silicon Valley, and then the Vision Fund will grow to 100 billion dollars in its first phase and become a Growth Mega Fund. This is also related to the development of the TMT industry as a whole: by the end of the TMT industry, many of the businesses have become larger and larger, reaching the magnitude of 100 billion dollars. At this time, many investors said to the founder, it is better for you to take more money from me, build a high wall, accumulate grain, slowly become king (later to go public); In addition to the last 30 years of global interest rate reduction cycle, fund investors (LP) money is also more. Therefore, DST, Tiger and Vision all began to develop gradually after the late 1990s, making the scale of traditional VC bigger and bigger.

Of course 2022 I think is a hurdle, it's a paradigm shift year; In the foreseeable future, money will not be cheap, the whole VC industry will become different. I think traditional VC is getting bigger and bigger for two reasons. One reason is that founders and investors are willing to focus on raising a lot of big business in the primary market, which is what I mentioned before. The second reason is that over the past 20 or 30 years, global interest rates have been cut and money has become more plentiful. So there's more money in the alternative investment area. You're willing to do whatever it is, endowment or pension. So it is equivalent to saying that both the asset side and the capital side are willing to raise the enterprise in the primary market.

But Web3 VC is very different. First, because Web3 projects are judged according to the stage, in fact, most of the time according to the definition of Web2 so that the A round alive B round of the market; From this perspective, the pool of money left for the primary market is itself small. Second, in the past, a project, such as Didi in China or Uber in the United States, had to find the best local investors. Therefore, many Web2 projects are not global issuance in nature, but a model that can provide you with a set in several economies around the world. However, Web3 companies have little demand for capital and global capital, so there is not much room for each VC in the end. So this is why the Web3 industry will only have 13 years of history until 2022. Suddenly, it seems that the VC of this industry feels as internal as the VC of web2, which has developed for more than 50 years. This is caused by a different industrial pattern.

But the same point is that I think it will not be easy to get money in the future. After all, Web3 is still a small point in front of global macro and interest rates today. The current market may be better for investors, but good assets will always be scarce. Even in a bear market, there is plenty of capital to go after the best companies.

An investment site for Cypher Capital, a top cryptocurrency investment fund in the Middle East

BlockBeats: Can you tell me a little bit about how you got involved with Cypher Capital? You've been involved with Cypher for almost half a year now. What have you done under your management that you are proud of?

Bill: I was introduced to Cypher by CZ in 2021. Later, I became friends with several founders of Cypher and Phoenix. We gradually talked about whether we should do something together. In addition, I define myself as a maritime chinese. Perhaps I divide Chinese people into two groups, one is more continental, the other is more oceanic, and I am the latter. I think it's fun to take the Silk Road. My partners all come from different places, such as the Middle East, Europe and India. We cooperate in an open way.

One is that we started investing in funds. After all, we are a very young institution, but at the same time we have the cash flow generated as a mining company, so I think why don't we support and link with more young GP investors who are very complementary to us in the bear market. It's a process of strategic positioning and making friends.

Second, we opened Cypher Hub, which is our 60-plus seat maker space under the Ferris Wheel in Dubai. In the last three years, because of the pandemic, it felt like our industry was all online, but people eventually had to come back offline and to the community. Offline is a great catalyst for building trust. We see our center as the meet up place for the future Web3 community in the Middle East. We recently hosted events with Polygon and INSEAD Business School, as well as other public chain sharing sessions (TON, Mysten Labs, etc.).

And the third one is that we voted Mysten, which is going to be expanded after this.

BlockBeats: What did you put in when you came to Cypher?

Bill: What we do now is we look at the best projects in the global pool. So far, it's mostly US, central and Eastern European founders, but also in Asia. In direct investment, one of the most typical deals we did was Mysten Labs (Sui Blockchain) as the only fund in the entire Middle East and Europe. There will be a lot of people asking us, as a young fund, why do we choose to take your money? How do you compare with a16z? My style of play is that there is no comparison. This is one of my mentors that I often share with the founders: "me different, instead of me too, or me better."

An American fund would have to answer the question ----, "What's the difference between me and a16z?" and we're nothing like a16z. If the founder wants to diversify his captable and investor resources, he should take a16z or Sequoia money in the US, and take our money in the Middle East and Europe. I was the last person to talk to SUI's founders, and the project was several times subscribed, only to be granted a special grant the next day to make us their only investors in Europe and the Middle East.

BlockBeats: Will Cypher Capital define it more as a MENA + Asia Fund? Your Unique Selling Point and what you've been up to?

Bill: We don't really compare ourselves to other funds. Being ourselves has always been our core strategy. For example, even in Asia, we may have special Web2 resources. For example, our partner Elaine Liu, a former CHO of Meituan, is also an HR veteran who joined Tencent in 2003. As CHO who has managed tens of thousands of employees, she should be the HR with the most experience among Web3 entrepreneurs in the world. On the one hand, Smartdeer, which she invested in, covered 20 million of the world's best TMT talent resources through the recruitment platform, especially Chinese engineers. It also helps companies quickly deploy global teams through compliance hiring services. As part of our ecosystem, Smartdeer has helped over 50 Web3 companies do global recruiting and global hiring for over 100 positions, providing a one-stop solution to the talent needs of WEB3.0 startups worldwide. In addition, we recently established SociaFi's Lens Chinese-speaking Community in collaboration with a group of Asian youth, making Lens a global hubVery surprised by the value creation ability of our landing.

We're probably the most solid, high-quality ecological presence in the Middle East. If a founder only wants to take American money, we may not be able to get in, but in fact, I have never met such a founder. Any founder wants to have the best funds from three or four continents on my cap table. We seldom have a headache in the competition of cap table, because we thought clearly about this strategy at the very beginning.

Phoenix technology now has the world's largest bitcoin network computing power; Our compliance exchange had Kraken executives, KuCoin's ex-CTO, and our Fenix Game, also a $150 million Web3 gaming company based in the Middle East. In the end, every organization in the world will say that there is ecology, and we are not exempt from the custom. But in the end, is your ecology the ecology on the PPT or the ability to deliver? I think we're the latter.

BlockBeats: What is the current AUM size of Cypher and its preferred investment allocation?

Bill: We prefer not to disclose our AUMs. Our Asset allocation will be mining, investment fund (GP), first-tier direct investment, Distressed Asset acquisition and so on.

For direct investment, our check size is between $200,000 and $10 million. We still prefer early projects, but at the same time, we will also participate in the growth stage /OTC round of many projects. We think that the current market is a little similar to the Internet, with many opportunities of long slope wet snow and compound interest growth. We also hold some secondary market projects based on long-term vision, but ultimately based on quality and value.

Regarding geographical selection: Ultimately, our investment logic is based on value, and we have no geographical preference. Our partnership team itself comes from several continents. When we talk about projects, we don't talk about the region.

BlockBeats: What kind of hard metric do you look at? What is the most important thing, soft metric?

Bill: A lot of people invest based on price and sentiment. Maybe because of my background, we've always been value-based in this industry. I think common sense itself ultimately goes through the technology cycle, whether it's a non-technology investment, whether it's a TMT investment over the last 20 years, whether it's a web3 investment more recently, the ideal is a good track, car, driver. But at different stages in the process, the judgment factors will have different weights. When you look at a late-stage event, basically the data itself can help you decide whether it's a good track, a good car, a good driver. But if you go back, say, to the Angel Wheel project, you might still use this judgment framework, but your judgment will be based more on qualitative observation. Middle and late projects are more like science, and early projects are more like art. Mid - and late-stage projects are more about establishing a coherent judgment system within an organization, but early - and middle-stage projects are more about respecting contrarian (non-consensus).

Here I take Layer one's Mysten investment as an example.

For example, the "Layer One" operating system of Web2 mobile Internet, there are only two operating systems in the mobile Internet, one is iOS, and the other is Android, their competition actually ended as early as 2010 (after 2010, you will never encounter Symbian and window mobile edition again, Because they have been eliminated in the Layer One competition of the mobile Internet). In Web2, winner-takes-all, one is called economies of scale, and the other is network effects. These are the two characteristics of monopoly economy, so I often joke that the most severe tax on enterprises in over 190 countries and regions in the world is actually not in the list of over 190 countries and regions, but ios and Android. Because they charge a 30% sales tax on businesses in their jurisdiction. (Please note, sales tax, which is a direct tax on income. The UAE has a 5% consumption tax, such is the power of monopoly.) However, in the realm of Web3 operating systems, network effects can also occur, but Web3 operating systems are limited by their technical characteristics, so it has been trying to enhance their scalability for a very long time. So, this business, it might be a little different from the operating system of Web2, it's a little bit of "diseconomies of scale"; Second, it is decentralized in the process of evolution. From an ideological point of view, why can't the industry have more operating systems? Why can't a big app run its own operating system? Even in 2022, we still think we have a chance to bet on operating systems, even though the Web3 industry is 13 years old. Our internal research system is a time-lapse comparison that we share with our founders and help them rethink their strategy for the future from a historical perspective.

The second is to the car, on the car we will feel that the Meta technical precipitation is strong, I will not expand the details. And so far in the industry, for the first reason I said, the winners are far from taking all, and the industry still has opportunities.

Third, I got to talk to Evan Chang of Mysten Labs about the racer. I think he is one of the rare L1 founders with platform development experience across three technology cycles. Finally, what I just said is quality, but quality without price is useless. It's like saying that we all see Ethereum as a decentralized Aliyun in the long run, but you bought Ethereum for $4,000 and you're probably feeling pretty depressed now, so talking about quality without price is always a rogue. We think the valuation at that time is also reasonable, because any first-line L1 should have a market value of more than 15 billion in the future, no matter it is Aptos or others today. Put it all together, and we think it's pretty obvious when we pull the trigger in the end.

Let me start with what I think is the biggest challenge in this industry right now.

Compared to 2001, DAUs were increasing worldwide, despite poor asset prices. Netscape and Internet Explorer were growing because users didn't care if you were a bear or a bull, and the Internet was valuable to me, so I would surf it. However, the Web3 bear market in 2022 is not only the decline of asset prices, but also the growth of global users. In a sense, it is also in a plateau. At the end of the day, people around the world are betting that there's a ceiling on DAU, and we're actually going to look at how many users are on Robinhood or Futo globally. So back to what is the biggest common divisor of the third generation of the Internet, except for the current fintech, which should be the same as the first and second generation, namely social and entertainment; Eventually, the enablement industry might start, but maybe it's the third wave. If we open the big business of global Web2 today, the biggest business is Infra and Application, with trillion-dollar applications at one end, trillion-dollar Infra at the other end, and various sub-circuits of billions and billions of dollars in the middle.

In the field of Web3, many investors today also invest in the Infra of Web3, that is, the airport. When we don't know what the aircraft looks like, it is safer to invest in the airport. On the other hand, we need to invest in both "airport" infra and "aircraft" applications, which refers to our cooperation with TON, which is the Layer One incubated by Telegram which is 800 million months old, and we support the ecology of TON, which can become an airport incubating many aircraft in the future. In addition, we have been dealing with the Ton team for a long time. They are a very solid and hard-working team. We hope to do something interesting for their ecology and for the 5 billion Web2 users entering Web3 in the future through our own efforts.

BlockBeats: Because the airport is still under construction, we still invest in public chain infra L1. You're less likely to go straight to SocialFi and GameFi, right? Don't you want to say see if you can throw the next StepN, Nostr?

Bill: Of course we will. We will announce a few deals soon.

BlockBeats: What do you think about the current market situation of Web3? Do you think the bear has turned into a bull trap or a bull trap?

Bill: The macro environment is an objective condition that we need to accept. We are not usually willing to make predictions about the macro environment. In my opinion, we will assume that there will not be a big bull market in the world. In this environment, we should control the quality and price, so that we can remain invincible.

But I think the macro picture is a lot better than I was expecting, because one, the rebound in China right now is a bright card for the world. Two, interest rates themselves haven't gone up any further, so I think it's all fine.

BlockBeats: What do you think of Chinese Web3 startups? Have you seen any good projects with Chinese at the helm? Of course, SUI must be that they also have an Asian team. What would you say to a Chinese Web3 entrepreneur who wants to start a business in Dubai?

Bill: First of all, Chinese entrepreneurs have reached the world's top level in most technologies. Chinese Web3 should also learn from predecessors and catch up with the progress. For example, all kinds of manufacturing industries, from the present mobile phones to the future electric cars, are dominated by Chinese. Joyoung soymilk machine and Huawei mobile phones are sold all over the world. For Web2, for example, SheIn, Tik Tok and Zoom are all Chinese founders. So last year I saw some pessimistic opinions that Chinese could not do well in Web3 because they could not speak English. I would think that this is actually an unambitious statement, because English is not as successful as those post-90s Chinese in the 1970s and 1960s in their international career, then why all of a sudden the post-85 and post-90s founders think they can't do Web3? It's really weird. Although there will be regulatory restrictions in China, the user base of global Chinese includes the user base of the whole global Confucian culture circle. When I say Confucian culture circle, it includes global Chinese + Japan, South Korea + Southeast Asia, plus the Chinese have the development ability and product experience to create world-class products in Web2. Based on the above, I don't see any reason why Chinese can't do Web3 well.

In terms of regulation, I think you definitely have to follow your own local laws and regulations, but on a global scale, this is a big direction worth trying. About 70% of the global centralized exchanges, or the global centralized CeFi, are now controlled by Chinese. In the decentralized Web3 native, the proportion may not be as large as that in CEX, but we can already see a lot of these Chinese. Do a lot of these projects, whether it's in the infrastructure or the application layer. In addition, I think that when Chinese take the helm, they should not label themselves as Chinese. When you label yourself, it means that you have a different heart and you are not international enough.

Zoom of Web2 was named the most popular employer for employees in Silicon Valley last year. Many of its senior executives are not Chinese, but Yuan Zheng, as I remember, came to the United States at the age of 28. He is a relatively old Chinese, but he is finally successful in internationalization. Of course, everyone has a local complex. Personally, I think it is very good for Chinese Web3 founders to start their own business in Dubai. Now people will choose Hong Kong and Singapore by default, which is OK for me, but I think Dubai itself will give the project and team a completely different experience, you may contact with a new market, and make some new local friends, and I think the supervision is also very friendly and supportive. As an entrepreneur, you can choose to go to the South Ocean, of course, the Silk Road is also a good choice.

Web3 Chinese Entrepreneurship advantage in Dubai

BlockBeats: You currently choose to be based in Dubai, or at least fly between Dubai and the country or around the world. What are the advantages of Dubai? Like Singapore or North America or something like that? What do you think of Dubai?

Bill: First of all, Dubai is like the Casablanca of Web3. There are teams from the CIS, which is Central and Eastern Europe and the former Soviet Union, as well as Indian, European and American founders, so you see more diversity and inclusion here. Living here, you get a sense of history.

People will say that Dubai doesn't have a lot of developers, and I think that's true, but Dubai has one thing that no other center has. It's a hodgepodge. It's a melting pot. This is a point that I think no other center, whether it's the center of the United States, the center of Asia, or the center of Europe, can match. This is also one of the reasons why I like this city from the perspective of choosing a city to live in.

Second, in terms of time zone, although our Cypher Hub itself is a card below our line. But online is an important part of market life. In Dubai you will find that you are the king of time zones. Because people in Asia work half a day, you can get up in the morning and have a meeting with them, which is probably better for all the urban areas, and we can also have meetings with the European and American time zones.

Thirdly, I think it means that Dubai itself will have a lot of offline traffic. Although Dubai has not had some high-quality world-class forums so far, because many world-class forums are still in Denver, Lisbon and so on, but a lot of people will stop in Dubai. For example, most of the time our team doesn't need to travel, just stay in Dubai, and meet a lot of people from other places. In the end I think it's the regulation, the tax advantage of the place, and the safety of the city, which I think is one of the reasons why I would particularly like to stay in the Middle East and Dubai.

But another point that may have a little bit to do with my own background is that I've spent most of my career in technology and Asia Web2, and in fact now we're going to see more and more cooperation between Asia and the Middle East in the whole pan-tech sector because of geopolitical and economic paradigm shifts. Cypher is now becoming a "receptionist" for Asian tech giants in the Middle East. It's great to make friends in this way. I feel that in this place you will personally experience a lot of geographical, economic, cultural collision of this kind of change, this change will also give me a sense of historical participation, engage in an epic game.

BlockBeats: What books or movies do you recommend?

Bill: I would recommend Vitalik's Proof of Stake. He should be regarded as an opinion leader in our industry. Everyone has a different way of expressing a thing. You can either make meritorious service, or you can choose to be virtuous and make a statement. There are some people who do a big business by meritorious service. I think Vitalik is probably more of the latter, and I think it is because of his leadership that Ethereum is a very strong ecosystem today. I think this is an anthology similar to his own, and I would recommend anyone who is interested in this industry to have a look.

postscript

Bill's investment logic draws lessons from the rise of Web2 Internet, and attaches importance to users, user estimation and track selection. After the interview, Bill said that this was his first interview in Chinese about crypto investing, and that he felt a little "trepidation." When asked why they did not invest in another excellent GP in the industry, Bill said that they would prefer to invest in the region or complementary style, but they could not invest in that GP for the time being. I think, to the Middle East cryptocurrency project and GP growing, the next excellent opportunity is always in front of the horse.

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