Thursday Thoughts #15 (Matti - Zee Prime Capital)

Thoughts on Sushi's raise, diversifying stakeholders, and much more

Hello world, and welcome to the fifteenth issue of Thursday Thoughts.
Each week, founders and investors share their thoughts on fundraising trends and strategy.

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Zee Prime Capital is a private investment firm launched in 2019, its partners include Jakub, Fiskantes, and Matti. They are known for the early backing of projects like OlympusDAO, Perpetual Protocol, Pocket Network, Biconomy, and Orca amongst others. 

Matti sat down with us and dropped a ton of knowledge about how he thinks about investing.

You seem to be paying a lot of attention to strong organic early communities by mentioning projects like OlympusDAO and hydraDX - what advice would you give to founders bootstrapping communities ahead of a fundraise?

Talk about your ideas with as many peers as possible and see if they get excited about it as much as you. But I think we paid attention to these projects before there was hardly any community. We saw (what we thought is) a brilliant founder with bold ideas willing to execute - this was also what others saw and joined the community.

So I wouldn’t advise founders to “bootstrap community” but rather “have bold ideas and execute”. Plus leave some tendies for the community. That tends to help.

As you mentioned in this great Uncommon Core episode, Zee Prime Capital is very interested in the Polkadot ecosystem - what DeFi verticals on Polkadot most of the capital should be deployed to?

We’re definitely not one of the biggest investors in the Polkadot ecosystem but outside of the Ethereum ecosystem, we have focused on Polkadot quite a lot since 2019. Most of DeFi on Polkadot just copies what has been done on Ethereum. We’re keen on what HydraDX and Basilisk are doing since we’re involved in the project and we see it as an upgrade to what is already out there. (App-specific) Liquidity chain is a very interesting concept. 

Generally, we’re not that excited about DeFi anymore (I am not saying we’re not investing in the space still). The progress has become incremental and the space is overcrowded. We have identified a limited set of opportunities on Solana too - e.g. Orca Dex. Generally, waiting for the first real cross-chain DeFi use cases. 

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You guys are based in Eastern Europe, which is not a crypto high place - to what extent does it make deal sourcing and networking more difficult? Any tips for VC firms building from isolated areas?

The internet is a global arena. The era of Sand Hill Road dominance is over. In terms of crypto, they are losing touch. The VC game itself is changing. We will see more community/DAO bootstrapped projects. Look at the top 20 projects by market capitalization, there are many that did not take VC money.

VC funding and startups was rather a local game and it has been permissioned. The Series A/B/C equivalent of startup funding could now be done on a permissionless level. In 10 years, permissionless crypto investing will be an order of magnitude bigger than the rest of the VC funding.

I am skeptical of universal advice. But I think VCs have to become more genuine; everyone in their own way. The barrier between a founder and investor will become even more blurry than in the traditional tech sector. 

For sourcing projects, we just interact with people on Twitter, Telegram, Discord, etc. and opportunities present themselves. We are degen and anon-native, we speak the language of founders and we are (usually) quick in filtering out nonsense. We also backed projects that few were very willing to back early. We don’t really compete for oversubscribed rounds.

I have to give credit to Fiskantes who made it his full-time job to shitpost on Twitter. His brain got smaller (as his pockets got fatter) but he’s doing a great job making new frens who turn out to be really smart founders. But seriously, much of the pipeline is people reaching out on Twitter. And Papa Fisk is our superstar and he does an excellent job helping anons. 

Zee Prime Capital was part of the list of VCs for the Sushi Strategic Raise and your colleague Fiskantes suggested inviting non-VC participants (influencers, angels, founders, and members of crypto projects) - why is diversifying the type of investors so important for a fundraising round?

We were invited into the round and then very much supported 0xMaki’s decision not to do a VC raise. As a founder, I’d prefer to offer allocation to individuals, angel-type investors, because they are generally much more helpful than big firms. There are not many “Paradigms” or “Multicoins” out there who are willing to get their hands dirty and really get involved. I’d let VCs buy on the secondary market. But founders seek VCs because it gives some kind of legitimacy to their project (and it’s easier).

Diversification is important because it creates more stakeholders with a vested interest in the success of your project. I don’t want to jump on the “evil VC” bandwagon because I do not think VCs are evil. I think they are, more often than not, pretty useless and clueless (as I said before there are some exceptions). When choosing a VC go for harm mitigation. So the famed “value add” should change into “we don’t meddle much and hodl”.

Raising funds from the community first is the best way to do this. It’s much trickier because public sales carry regulatory risks. And no one wants to “sell securities to retail”. Anyways, tokens formalize tribal allegiance, and the bigger the tribe the more powerful the narrative and subsequent adoption. Also getting some experienced market makers along the way might help. 

You are one of the most underrated investors in the space even if insiders do know how sharp you are - is your weaker reach (compared to some very famous Silicon Valley-based VCs) detrimental to get in some competitive rounds?

We’re small and we can’t compete with billion-dollar funds. The good thing is that these sorts of competitions are not something we’re looking for. Competition is good for sports. I really don’t believe that “the next big thing” will be funded by a traditional household name VC although I admit that decent returns will be made through overcrowded rounds.

We had founders reaching out to us specifically. So those who should know, know. Also, I don't think we're underrated. We’re just much smaller than big-name VCs and therefore much more easygoing. We’ve made some decent investments but so did many other VCs. 

You are one of the only VC firms to have detailed a middleware thesis highlighting the idea that infrastructure now needs to catch up with DeFi applications - what specific infrastructure subcategories you guys are particularly interested in?

We don’t really know. Let the founders surprise us. There is no real segmentation in middleware yet. It's a vague term for various deep crypto primitives (which is just another buzzword anyway). But privacy could also be considered a middleware, not necessarily a base layer, solution. 

Many thanks to Matti for sharing such valuable insights.

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See you on Tuesday for Dove Dispatch #21,

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