Web3 venture capital strategy that does not stop momentum even in crypto winter | CoinDesk JAPAN | Coin Desk Japan

Two years after its establishment, Shima Capital has already supported over 100 early stage companies. The company hasn’t stopped its momentum even in recent industry turmoil.

“We think of the current trend as a barbell,” Shima Capital founder Yida Gao told CoinDesk.

After working in traditional finance, he founded Shima Capital in 2021 and spoke about the current crypto venture capital (VC) landscape constrained by the bear market.

“Infrastructure deals generally take a long time to build and require a lot of people, but now they are holding up the crypto winter partly because they are cheap to hire,” he said.

“On the other side of the barbell, consumer apps, especially games, continue to dominate the portfolio. People are playing more games during the bear market. The nomics and digital assets are a good fit for a well-designed game.”

Shima Capital typically invests between $500,000 and $2 million, Gao said. Last August, Shima Capital announced its first VC fund, $200 million to support the Web3 project. Investors in the fund include crypto-focused VC Dragonfly and hedge fund billionaire Bill Ackman.

investment strategy

After working for Morgan Stanley, a U.S. investment bank, Mr. Gao was active as a technology investor at New Enterprise Associates, a VC with over $25 billion in assets under management. . After that, Mr. Gao became personally interested in crypto assets and realized there was an opportunity for venture capital in this area.

“There was a situation where the existing crypto funds had become too large and stopped funding the early stages of Web3 companies.On the other hand, angel investors and small funds fully supported the founders. We didn’t have the resources to do so, and we founded Shima Capital to fill that gap for Web3 founders who were in the early stages of their projects.”

Shima Capital has invested in analytics company Web3Go, blockchain game company Intuition, and DeFi (decentralized finance) startup Maverick Protocol. An early-stage focus with low valuations provides some isolation from market-driven fluctuations in valuations.

Shima Capital mainly focuses on token investment. Tokens typically have a lockup of 2-4 years, with an average holding period of around 4 years.

More than half of the team is in charge of supporting the operations of investee companies. Shima Capital has built a unique platform that allows investee companies to receive support for talent acquisition, community building, tokenomics, etc.

Due to the current situation surrounding VC, Shima Capital is also investing in early stage Web3 companies and incubating selected projects.

Anxiety about banking

The prolonged bear market in crypto assets has already created a difficult situation for venture capitalists, with the collapse of FTX, for example, creating another billion-dollar turbulence in the market. As the industry tries to gain a foothold, three more crypto-friendly banks (Silvergate Bank, Signature Bank, and Silicon Valley Bank) collapsed, taking another blow.

Gao said Shima Capital didn’t have significant exposure to these banks, but several portfolio companies were affected, albeit at “relatively small amounts.” Shima Capital has always sought to conduct more rigorous due diligence on both its investees and third party partners like banks. That strategy has been strengthened this year.

“To mitigate these risks in the future, we are building relationships with more banks than we originally thought when we launched the fund,” Gao said.

“Recently, it has become difficult for Web3 companies to open bank accounts, but we also encourage founders to spread their funds across multisig wallets, bank accounts, and brokerage accounts over time if possible. are doing”

｜Translation: CoinDesk JAPAN
｜Editing: Takayuki Masuda
｜Image: Yida Gao, Founder and Managing Partner of Shima Capital (Shima Capital)
｜Original: Web3 VC Shima Capital Didn’t Slow Strategy for Crypto Winter