Folius Ventures Founder Jason Kam: VC’s Reliance on Short-Term, High-Frequency Exit Strategies Needs Restructuring

Interviewer: Ruby, Growth Manager at RootData
Guest: Jason Kam, Founder of Folius Ventures
Compiled by: Lyric, ChainCatcher

On the evening of September 3rd, at the “Crossing Bulls and Bears — Tier 1 VC Reveals the Wisdom Behind Investment” space held by RootData, invited guest Jason Kam, the founder of Folius Ventures, expressed his views on the investment strategy of the current market.

Folius Ventures is a hybrid investment institution with a fund size of approximately US$230 million, with a team based in multiple regions of Asia, such as Shanghai, Shenzhen, Hong Kong and Tokyo, with a plan towards supporting Asia-Pacific and Chinese entrepreneurs. The investment area mainly focuses on the application layer, such as centralized exchanges, SaaS software, mobile applications, games and etc.

Jason Kam believes that the reason behind the current VC cautious investment is the pessimism about the current market cycle, and believes that the exit strategy that relies on short-term high-frequency investment projects for 6–12 months needs to be restructured.

Here’s the full story of the space:

Ruby: We had Jason kam, founder of Folius Ventures. Let’s ask Jason to introduce the features of Folius Ventures.

Jason kam: Folius Ventures was founded in September 2021 and was inspired by two friends. Compared to other investment institutions, Folius Ventures is a hybrid investment institution with relatively little investment in the primary market but a large number of secondary assets. The fund size is approximately US$230 million, and the team is based in Asia, with multiple regions such as Shanghai, Shenzhen, Hong Kong and Tokyo, inclining to Asia-Pacific and Chinese entrepreneurs. The investment area mainly focuses on the application layer, such as centralized exchanges, SaaS software, mobile applications and games.

Ruby: What is the investment frequency of Folius Ventures right now?

Jason kam: Folius Ventures hasn’t made many moves since March of this year, and it’s about as frequent as our peers. The reason behind cautious investing strategy is a pessimistic view of the current market cycle, and we believe that the exit strategy that relies on short-term high-frequency investment projects for 6–12 months needs to be restructured. In addition, due to number of entrepreneurs is unstable and irregular, and the fact that we focus more on the application layer track, so we don’t invest frequently.

Ruby: What do you think about the traditional “cast a wide net” approach to Tier 1 VCs and how do you think the ideal exit mechanism should be designed?

Jason kam: In the past, some VCs held a small amount of shares in the early stage, relied on the heat to speculate on the price, and went public quickly, although they could achieve high book returns, this investment method and its exit mechanism need to be restructured in the future. The ideal exit mechanism should allow early-stage investors, such as private equity investors, to achieve a partial or full exit and make significant returns even if the project is not fully developed or listed, through an advisory agreement or a pledge/airdrop. This means that even in the face of early lock-in, there is room for profit through the later liquidity premium.

Ruby: The relationship between retail and institutional investors seems to be getting strained right now, how do you think the relationship will evolve and what role will VC play in this?

Jason kam: There is a liquidity crunch and an influx of innovative projects in the current market, which has led to a scarcity of new innovation for investors, which has exacerbated the tension between VCs and investors. VCs may be given a challenging situation to some extent in the future, but when considering long-term value, there are still investment opportunities in business-model-centric tokens if the project can overcome liquidity issues, find a sustainable business model, and resist cyclical risks.

Regarding the relationship between retail and institutional investors in the future, I think the tension between these two groups is especially pronounced in the crypto industry.

In traditional markets, the interaction between retail and institutional investors is relatively soft, and institutions often help companies grow through early-stage investments and exit in mature secondary markets. In this process, companies usually have a clear profit logic, and retail investors will not be regarded as takers.

In the crypto industry, the challenges have increased significantly. On the one hand, strong liquidity has led to a variety of participants entering the market, resulting in a complex and risky market environment. More critically, the introduction of new elements like Web3 has made it very difficult to build a long-term sustainable business model. The value of the token is highly volatile, and retail investors can be hit hard after buying at the highs. In addition, despite the good business capabilities of the project team, the value might not be reflected back into the token. This is mainly due to the lack of requirements in the industry and the regulatory pressure that makes good companies reluctant to issue coins to realize value. Current token designs are also mostly based on industry conventions, which limits the possibilities for innovation.

However, in the future, there will still be investment opportunities if companies can reasonably unlock tokens and ensure that the growth of core business does not exceed the inflation rate. Therefore, we need to pay attention to these issues to help investors better cope with market volatility and challenges.

Ruby: What do you think about projects that are more commercially capable but don’t necessarily need to exit by issuing tokens?

Jason kam: My view is that, first of all, capitalization is the best way to monetize the team’s efforts for years to come. Second, in the cryptocurrency space, if a company is leading the way in its industry and attracting attention, it can convince investors that its business model is more sustainable and can be capitalized to obtain a high valuation. However, after the implementation of capitalization, the company needs to carefully consider whether the capitalization will have a negative impact on its business development.

Ruby: Tell us about your methodology for evaluating projects in the current market environment?

Jason kam: In today’s market environment, project valuations have become more complex. The evaluation should focus on two capabilities of the project team: first, the ability of execution, that is, whether it can successfully implement business logic and create competitive products; The second is the ability to tell a story, that is, whether it can build a business model and industry position that attracts investors. Only projects that perform well in both areas, especially those that dominate or are very leading in their segments, are more likely to cross the bulls and bears in future market volatility, and we may consider these projects to be more valuable investments.

Ruby: What tracks do you think are likely to be innovative in the future, and which tracks will Folius Ventures focus on?

Jason kam: We believe that the current infrastructure of the industry is relatively complete, but there is still room for improvement in terms of user experience. Therefore, we are interested in and willing to invest in companies that can provide UI/UX solutions that provide a seamless user experience, although this part of the exit mechanism is not easy to predict.

In addition, we are also looking for C-side applications that combine the advantages of Web 3 technology and traffic, and have a reward mechanism to maintain user stickiness in the long run.

At the same time, we look at new platforms that may emerge on platforms such as Telegram or X, and look forward to participating in them through the native growth path of Web 3.

Ruby: What are your thoughts on the Solana ecosystem?

Jason kam: For the Solana ecosystem, I think it’s important because it has the characteristics of being a low-level public chain and has a breakthrough in Layer 2 security. What’s more, the ecosystem needs to have strong investment attraction and service capabilities, and its team is focused on solving real problems and improving the user experience, which is where its value lies.

Ruby: As a Tier 1 investor, do you value the team or the project itself when choosing a project to invest in?

Jason kam: “Adults don’t make choice and sacrifice”, and I personally prefer both. Excellent teams and potential projects are indispensable, and they complement each other, so that they are more likely to shape successful investment cases.