An in-depth Analysis of the Investment Strategy of Hashkey Capital
As one of the most comprehensive investment and financing databases in the crypto industry, Rootdata has collected information of over 3,300 investors and over 4,500 investment and financing records in the Web3 industry, presenting a comprehensive view of the investment and financing trends in the crypto industry.
Based on the data, Rootdata will analyze a series of well-known venture capital funds, including their development history, investment preferences and other information. We first take a look at Hashkey Capital today.
I. Overview
The history of Hashkey Capital can be traced back to 2015, when Deng Chao and Dr. Xiao Feng from Wanxiang Group decided to bet on a project that was still unknown at that time: Ethereum.
This was the group’s first investment in crypto, which directly lead to the establishment of Wanxiang Blockchain Lab. Today, Ethereum has grown to be the most significant infrastructure for platforms in this field. After investing in Ethereum, Wanxiang also has been following the progress of other blockchain platforms and infrastructures, and providing related technical and consulting services to an array of Chinese companies.
In light of the subsequent tightening cryptocurrency policies in Chinese mainland, Wanxiang has moved some of its operations to Hong Kong and Singapore and established a new brand called Hashkey, the origin of Hashkey Group.
Since then, Hashkey Group has established Hashkey Capital, Hashkey Custody, HashKey DID and other businesses. Recently it has been approved by the Hong Kong Securities and Futures Commission to conduct over-the-counter (OTC) trading of virtual assets, making it one of the most influential crypto companies in the Asia-Pacific region.
Among these businesses, Hashkey Capital is the most influential one, which has also obtained asset management-related licenses in Hong Kong and Singapore. In an interview this year, Chao Deng, CEO of Hashkey Capital said the team is currently located in Hong Kong, Singapore and the San Francisco Bay Area, with $1 billion in assets under management and investment in about 300 projects.
According to Rootdata, Hashkey Capital’s publicly disclosed portfolio of 224 investments ranks fourth among all venture capital funds, behind Coinbase Ventures, Animoca Brands and LD Capital. In the last year, Hashkey Capital has made 53 offers, ranking the fifth among all venture capital funds.
Typical examples of its investments include Animoca Brands, Celestia, Coinlist, Blockdaemon, Mina, Acala, Mask Network, FalconX, dYdX.
II. Portfolio analysis
Among the 225 projects in Rootdata’s portfolio, most of the investment of Hashkey mainly went to infrastructure, DeFi, CeFi and gaming. The infrastructure sector accounts for 33% of the projects, while DeFi and CeFi projects account for 19% and 10% respectively.
Since 2018 and 2019, Hashkey Capital has been investing in the infrastructure sector, with successful investment in the next generation of internet infrastructure protocol PlatON, Layer1 public chain Nervos, Stacks and Harmony. It also makes a successful investment in specific sectors including crypto wallets (WalletConnect, imToken, Burrito Wallet, AlphaWallet, etc.), privacy infrastructure (Aztec, NYM), Cosmos ecosystem (Secret Network, Nibiru, Evmos), modular blockchains (SKALE Network, Celestia).
In the DeFi direction, Hashkey Capital has invested in DEX (1inch Network, Krypton, DeltaFi, etc.), lending (Clearpool, Hubble, Credora, NAOS Finance), derivatives (dYdX, ZKX, Divergence SynFutures), and insurance (InsurAce, etc.).
The composition of portfolio can give us a broader picture of how Hashkey Capital has shifted its investment focus: on infrastructure and DeFi-related projects and then games, social, tools, NFT from 2018 to 2020. This also tells us the change in its investment logic: from being bullish on infrastructure building and innovation in the early stage of the crypto industry to betting on real use cases and tools in the middle layer and vertical sector.
However, it is worth noting that Hashkey Capital has very little presence in the Layer2 sector, with no investment in mainstream Layer2 scaling solutions. Perhaps to fill this gap, Hashkey Capital recently has invested in the emerging zkRollup scaling solution Intmax. In addition, Hashkey Capital is also bullish on crypto media as a traffic portal and has invested in a number of mainstream media outlets such as The Block, Decrypt and Foresight News.
In terms of investment pace, Hashkey Capital made very little investment in 2018 to 2020 and only started to invest more frequently in Q2 2021, with 18 investments in that quarter and most of time 10 to 20 investments in subsequent quarters. In recent months, Hashkey Capital’s investment frequency has also declined slightly due to the weakening market.
In terms of the size of funding, for most of the projects that Hashkey Capital has participated in, the funding size stayed at the range of $1–5 million and $10–30 million. In terms of the number of rounds it has participated in, 48% and 25% of the disclosed rounds are seed rounds and A rounds respectively. This indicates that Hashkey Capital prefers to bet on earlier stage projects.
In terms of lead investments, Hashkey Capital has led 19 public rounds, while the total number of its led rounds is 156. This ratio is at a middle level among the major venture capital funds. It has led well-known projects including Mask Network, Stacks, PlatON and .bit.
In terms of co-investment, Hashkey Capital has made many co-investments with SNZ Holding, Fenbushi Capital, SevenX Ventures, Hash Global, IOSG Ventures and other institutions, all appearing together in at least 15 investment rounds of projects.
In addition, more than 12 projects in Hashkey Capital’s portfolio have ceased operations, including FitRT, Paladin Pandas, Cykura, EdgeSwap, Smoothy, Numio, BitWell, KEY GROUP, 1475, Lucidefi, BlockFi, and CryptoMate.
III. Outlook
In January, Hashkey Capital announced the completion of a $500 million fundraising round for its third fund, one of the largest recent funds in the crypto market. However, not all of these funds were raised recently, as Hashkey Capital CEO Chao Deng told Bloomberg in an interview last January: the institution planned to raise $600 million for its third fund, and had already raised $360 million at that time.
The story also reveals that HashKey Capital’s first two funds have raised a total of $100 million and have brought 11 times return on their clients’ capital to date. In addition, equity investment accounts for about 20% of Hashkey Capital’s capital allocation, with the rest going into cryptocurrencies, which will continue to account for a larger amount.
In terms of market opportunities in 2023, Chao Deng said he will pay close attention to modular blockchain, account abstraction, MEV, DeFi, institutional infrastructure, Web3 infrastructure, DID, decentralized data storage, ZK technology, and tokenization of RWAs.
In March this year, HashKey Capital released HashKey Capital Report: Top 5 Tech Trends to Watch in 2023 and it proposed some hotspots such as major technology upgrades of Ethereum (Shanghai, Cancun), staking-related technologies and product services, optimization of modular blockchains and ecological development such as “L3” specific applications Rollup, ZK applications in non-scaling areas such as ZK cross-chain bridges, AA+MPC, Lightning Network and other iterations in end-use applications.
Other interviews with the HashKey Capital team show that they believe the market is at the bottom of its cycle and it is not likely to have many changes in 2023. However, there are three factors to focus on:
First, the maturity of the product building in the last two years: whether some of them will actually be put into use and trigger a new wave of boom; Second, development of macro economy, which will affect the cost of capital, the size of funds, and the progress of financing; Third, the regulations on the whole crypto market.
HashKey Capital believes that the industry has evolved to the point where many innovative infrastructures have emerged, and the next major issue to be addressed is how to adopt them. So the next opportunity may fall on middle layers and tools in vertical sectors.
In the case of data analytics, for example, there are now a variety of relatively generic data analytic tools available, and the next step is to figure out the real needs of the niche market. For example, what kind of data needs to be analyzed in an NFT transaction, or what kind of data is needed in the gaming space？HashKey Capital looks for teams that best understand the real use cases and real business logic.
Also, the ability to make products out of existing services and infrastructure matters. HashKey Capital believes that attracting users from the traditional world and creating a better user experience (or at least one that is not significantly inferior to its comparable Internet product) will trigger the next wave of crypto products.
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