The Dilemmas and Transformation of the VC Industry: Observations and Thoughts from the Consensus Conference in Hong Kong

Recently attended the Hong Kong Consensus Conference, I deeply felt the severe challenges faced by the VC industry. In stark contrast to the flourishing projects, VCs are generally in a difficult situation. Some institutions find it hard to raise a new round of funds, some are experiencing significant personnel losses, and others have to transform into strategic investors. Some VCs are even considering issuing Meme coins to raise funds, which shows how severe the situation is.

In the face of this situation, many peers have chosen to leave the VC industry. Some have joined project teams, while others have transformed into opinion leaders. Everyone is looking for a new way to survive. This inevitably raises questions: what exactly is wrong with the VC industry? And how can it break the deadlock?

It must first be acknowledged that, whether in China or the United States, VC as an investment asset class has seen its golden age come to an end. Taking Lightspeed as an example, the fund they invested in 2012 achieved a 3.7 times distributed return, but since 2014, even breaking even has become a challenge.

The VC industry in China has also experienced a similar trajectory. Relying on demographic dividends, the rapid growth of mobile internet and consumer internet has given rise to a number of giant enterprises. However, after 2015, due to factors such as stricter regulation, tightening liquidity, and the decline of industry dividends, the return rates for VC institutions have significantly decreased, leading to a large number of practitioners exiting the field.

Cryptocurrency VC has also not been spared. With changes in the macro environment, evolution of market structure, and decline in capital returns, VCs in this field are also facing enormous survival challenges.

Liquidity Shortage and Intensified Market Game

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

The value of VC goes far beyond providing early-stage funding. We assist project teams in connecting with ecological resources, providing strategic advice, and supporting core team building, among other things. We often face long lock-up periods and hope to achieve long-term win-win relationships with project teams.

However, in the current market environment, the core contradiction lies in the extreme lack of liquidity, intensifying market games, making the VC model difficult to sustain.

Changes in Capital Flow and the Dilemma of VC

This round of the bull market is mainly driven by the US Bitcoin spot ETF and the entry of institutional investors. However, the flow of funds has undergone significant changes:

1. Institutional funds mainly flow into Bitcoin, ETFs, and indices, with very little going to other cryptocurrencies.
2. The lack of genuine technological and product innovation support makes it difficult for other cryptocurrencies to maintain high valuations.

This has led to doubts in the market regarding the VC model. Retail investors believe that VCs have an unfair advantage, being able to acquire chips at a lower cost and grasp key information. This information asymmetry has resulted in a collapse of market trust and further depletion of liquidity. In a highly competitive environment, retail investors demand "absolute fairness". In contrast, secondary market fund strategies do not strongly oppose market sentiment, as retail investors also have equal opportunities to enter the market.

The current strong skepticism towards VC is essentially a counterattack of "absolute fairness" against "relative fairness" in the context of a liquidity crunch.

The Rise of Meme Financing Models

Meme is not only a cultural phenomenon, but should also be regarded as a new type of financing method. Its core value lies in:

• Fair Participation Mechanism: Retail investors can track information through on-chain data to obtain early chips at relatively fair pricing.
• Lower entry barriers: allowing developers to "have assets first, then products".

There is nothing wrong with this logic itself. Many public chains issue tokens before their ecosystem matures, so why can't Meme projects use the same method to attract attention first and then develop products?

Essentially, this evolution of the "asset-first, product-later" path reflects the impact of populist capitalism on the financial ecosystem. The prevalence of attention economy, catering to the desire for quick wealth, breaking traditional financial monopolies, lowering funding thresholds, and the transparency of information are all unstoppable trends of the new era. From the retail battle of GameStop against Wall Street, to the evolution of fundraising methods through ICOs, NFTs, and Memes, these are all financial interpretations under the tide of the times.

The Role of VC in the New Model

The meme financing model is not without its flaws. Its biggest problem is the extremely low signal-to-noise ratio, which brings unprecedented challenges to trust:

• The signal-to-noise ratio is extremely low: the lowered threshold has led to a surge of low-quality projects.
• Insufficient information transparency: In high liquidity projects, long-term construction is no longer as important as short-term speculation.
• Trust costs soar: high liquidity means high gaming, making it difficult to establish long-term interest alignment with the founders.

Different participants have different thinking patterns:

• Meme participants believe: narrative > chip structure ≈ community or sentiment > product technology
• The primary market believes: narrative > product technology ≈ chip structure > community or sentiment

The Meme mode is essentially more complex than the VC mode. The lack of product and technical support often makes "absolute fairness" merely superficial. In a highly gamified environment, it becomes difficult for true long-term builders to distinguish themselves.

VC will not disappear because there is a huge information and trust asymmetry in the world. Certain collaborative resources are difficult for ordinary developers to obtain.

However, in the face of the populist capitalist wave, VC can no longer rely on information asymmetry to profit easily. Adapting to change has never been easy, especially when market paradigms are being restructured and previously effective methodologies are rapidly eliminated. The rise of meme financing reflects deeper changes in liquidity and a reconfiguration of trust mechanisms.

Finding a balance between the high liquidity and short-term speculation of Memes and the long-term support and value empowerment of VC is a challenge that current VCs must face. Recognizing structural changes and adjusting investment strategies is no easy task.

But no matter how the market changes, one thing remains constant: what truly determines long-term value are those excellent founders who possess vision, strong execution ability, and are willing to continue building.