Dialogue with SevenX Ventures: Focusing on boutique investments, becoming the "Benchmark" of Web3

Author: Qin Xiaofeng, Odaily Planet Daily

In today's Web3 space, there are numerous active venture capital firms, including traditional funds like a16z and Sequoia that have transformed, as well as Web3-native VCs such as Binance Labs, Coinbase Ventures, and Alameda Research.

Looking at the investment styles of various firms, they can mainly be divided into two categories: one is to bet on sectors, broadly investing in promising niche areas; the other is boutique investing, achieving excess returns by investing early and accurately. The former often makes high-frequency moves and frequently appears in financing news. Recently, Odaily Planet Daily had the privilege of interviewing SevenX Ventures, which has chosen the latter path and has stood out in a short period.

SevenX Ventures has been an early investor in Web3 hits like YGG, Mask, and DAOMaker over the past two years, continuously following up during the growth phase of these projects, achieving returns of several dozen times.

In just two years, SevenX Ventures has already ranked among the top-tier investment firms. Currently, it manages two main funds and one FoF, with assets under management exceeding $250 million, and has invested in over 80 projects covering key sectors such as DeFi, NFT, DAO, as well as multiple ecosystems like AR, Polkadot, and NEAR.

In practice, SevenX Ventures has developed a unique methodology, drawing on the "Three Draft Theory" to grasp industry trends; proposing the "CIVIC" model to select quality projects: Contrarian, Innovation, Value, Idea, Connection; and post-investment, SevenX Ventures coordinates the overall situation with a supply chain mindset, promoting interconnection and collaboration among the invested projects.

Not following trends, but using unique insights to foresee industry trends, quickly identifying targets and taking action, being restrained yet sharp, and pursuing super returns—this is the impression SevenX Ventures leaves us. Additionally, SevenX Ventures always adheres to the "boutique investment" philosophy, benchmarking against traditional funds, and does not blindly pursue scale.

"The essence of venture capital lies in capturing that 1% of projects that can bring a hundredfold return. Once the pursuit of scale begins, it not only means an increase in the number of investments but may also lead to a decline in investment standards."

1. Getting to Know SevenX Ventures: Internal Mobility, Boutique Investment

What is the working state of the founders of a venture capital firm like?

The three partners of SevenX Ventures are busy every day, on the front lines, and their presence can be seen in all communication meetings with project parties. They personally review every financing BP to grasp industry dynamics and maintain market sensitivity. "If the founders only focus on fundraising and managing the team, their subordinates may become increasingly capable, but they will drift further away from the market."

Back in 2018, the three partners had not yet formally allied, as they were just getting to know the projects they were jointly investing in. Then the market entered a bear phase, and many new-generation investment firms faced losses and retreated. The three, who firmly believed in "value investing," huddled together to weather the winter. The turning point came in the summer of 2020, as DeFi liquidity mining heated up and the Federal Reserve continued to inject liquidity; they sensed that a crypto bull market was imminent and decided to establish a new Web3 fund to help blockchain startups grow.

In August of that year, SevenX Ventures launched its first fund, with a scale of $5 million. According to their disclosure, the first fund has achieved a return rate of 700%, with standout projects including asset issuance platform DAOMaker and Web3 application Mask Network, where SevenX Ventures was an early investor and continued to follow up. DAOMaker's highest return rate exceeded 8000%, while Mask Network contributed over 1500% in returns.

Due to the impressive performance of the first fund, the second fund launched in April 2021 attracted family offices from crypto trading platforms, well-known blockchain investors, and internet entrepreneurs as LPs, reaching a scale of $30 million.

Compared to large funds that often exceed hundreds of millions, SevenX Ventures is not large, which is intentional. The founding team positions SevenX Ventures as the Benchmark in the Web3 world, adhering to the "boutique investment" philosophy and not blindly pursuing scale.

"The essence of venture capital lies in capturing that 1% of projects that can bring a hundredfold return. Once there is more money, the fund must spend it within two to three years, which not only means an increase in the number of investments but may also lead to a decline in investment standards."

At the same time, SevenX Ventures implements a flat management structure, with only two levels, and has internal mobile teams managing project investments.

Specifically, each member can become a project manager to initiate investments and "hire" other members internally to participate in project management and post-investment, sharing profits according to agreed ratios.

Through this mechanism, the enthusiasm and motivation of each mobile team are greatly enhanced, and members gradually grow into versatile "pentagon warriors." Ultimately, these results also feedback into the development of projects and the fund, achieving a win-win situation.

After more than two years of development, SevenX Ventures currently has two main funds and one FoF, with assets under management exceeding $250 million, and has invested in over 80 projects, including infrastructure, middleware, and DAPPs, covering multiple niche sectors such as DeFi, NFT, GameFi, as well as ecosystems like AR, Polkadot, and NEAR.

2. SevenX Ventures in Practice: "Three Draft" Theory + "CIVIC" Model + Supply Chain Layout

Looking at the investment styles of Web3 venture capital firms, they can mainly be divided into two types: one is to bet on sectors, focusing on investing in Web3 niche areas; the other is boutique investing, achieving excess returns by investing early and accurately.

The former is represented by firms like Binance Labs, Coinbase Ventures, and Alameda Research, while SevenX Ventures has taken the latter path. Undoubtedly, the second path requires a high level of professionalism from the firm, as the success rate is lower compared to betting on sectors.

Moreover, SevenX Ventures does not follow trends like other investment firms but has its own set of investment methods and rhythms; through values, concepts, strategies, and impressive performance, SevenX Ventures has defined a new template for "Crypto VC," reshaping the definition of "value" in VC. Specifically, this theory includes three parts: "Three Draft Theory" + "CIVIC" Model + Supply Chain Layout.

(1) Three Draft Theory

The "Three Draft Theory" is SevenX Ventures' summary of crypto investment in comparison to the traditional gaming industry, and this theory guides the fund's industrial layout.

In the gaming industry, the first draft proposes the worldview and value proposition, realizing the vision and mission; the second draft is the product and design derived from the first draft; the third draft involves specific implementation practices, closely aligned with users and the market.

For example, the first draft of "Minecraft" aims to achieve an open world, while the second draft adds various customization features to create combinable tool services, and after market launch, it continues to optimize based on user feedback, ultimately allowing players to build various scenes and supplement various tools in the game.

SevenX Ventures believes that many projects in the current crypto market lack clear planning and only have a first draft, with no follow-up. Of course, the value proposition conveyed by the first draft does not have to be grand; "it can also be a small value proposition." The key is whether there is consistency in the derivation between the first, second, and third drafts, meaning that the latter two must serve the proposition of the first draft, "not just adding whatever is popular," and the product that users ultimately experience must align with the initial goals set.

The "Three Draft Theory" is both SevenX Ventures' approach to project evaluation and a self-requirement. From the inception of the fund, SevenX Ventures has realized the philosophy of: adhering to early and value investing, hoping to achieve self-growth by helping others succeed, and continuously empowering the invested projects.

(2) CIVIC Model

In addition to the "Three Draft Theory," SevenX Ventures has also established the CIVIC model to select projects and help them grow.

C stands for Contrarian, which means reverse thinking/non-consensus. SevenX Ventures does not pursue already proven market hotspots but instead makes reverse investments based on its deep understanding of the blockchain world, capturing trends before they arrive through cognition. Looking at its portfolio, the vast majority of projects are deeply involved in the first round of financing, rather than following the trend after the project gains popularity. This approach allows SevenX Ventures to achieve returns far exceeding the market average, and the fund size does not need to be large, representing a typical boutique investment.

Last year, when many firms flocked to invest in Solana and Terra ecosystem projects, SevenX Ventures did not follow suit and still has no projects from these ecosystems in its portfolio, instead choosing to focus on the Arweave ecosystem.

Blockchains like Solana are more of a copy of Ethereum and do not bring fundamental changes to blockchain technology; Arweave focuses on decentralized storage, which can be considered the most powerful among various components of the Web3 hardware stack. As a protocol at the infrastructure level, Arweave's narrative, logic, and value support are vastly different from other public chains. Therefore, while capital chased other popular public chains, SevenX Ventures quietly chose to delve into Arweave. "After more than a year of cultivation, we have become one of the top investors in the AR ecosystem."

I stands for Innovation. SevenX Ventures believes that original innovations at the foundational level have more long-term value than substitutes and improvements, and does not invest in CopyCats. Some funds like to bet on sectors with a coverage investment approach, such as investing in dozens of decentralized trading platforms at once, where just one or a few can break through to yield returns. However, SevenX Ventures prefers not to make repetitive investments in the same niche area but to select the most innovative projects to bet on.

"Many funds make repetitive investments because they do not understand and cannot distinguish between good and bad projects, so they can only make broad investments. But for us, we have talked to all the projects in this entire sector, and we are clear about the advantages and disadvantages of all projects. In other words, we only invest in UniSwap and not in Sushiswap."

V stands for Value. SevenX Ventures hopes that the invested projects not only generate economic returns but also provide social value, which aligns with its mission.

I stands for Idea. Entrepreneurs do not need to provide SevenX Ventures with a fully formed product; even a raw idea is enough, and SevenX is willing to accompany the project’s growth and help it succeed. "We believe that helping early-stage entrepreneurs has more long-term value than joining the capital feast, and it also brings additional benefits."

C stands for Connection, emphasizing connection and collaboration. SevenX Ventures hopes to help individuals within the system gain more resources through the power of the system.

The CIVIC model has been consistently applied throughout SevenX Ventures' investment journey, especially in its investment in YGG (Yield Guild Games). In its view, YGG has transformed resource allocation in the blockchain gaming world—Southeast Asia has a large number of poor individuals who have plenty of time but lack production resources, while some wealthy individuals monopolize production resources but lack time. This imbalance in resource and production relationships has given rise to the blockchain gaming rental market, with YGG acting as a coordinator and link, which can also drive local employment, providing significant social value.

However, at that time, YGG's business model was not favored by capital. As an industry pioneer, it was seen by many firms as an increase in risk level. SevenX Ventures chose to go against the wind and participated in YGG's early angel round.

A few months later, YGG's guild membership only grew to 1,000, and its performance data was not impressive, prompting some early investors to choose to exit. At this point, SevenX Ventures chose to continue following up with the Series A investment for two reasons: first, YGG had established YGG SEA, focusing on local investments in various regions to support locally developed P2E games, which SevenX Ventures believed would further expand YGG's customer base in the future; second, data is only temporary, and as long as the project's business model is sound, it is very easy to achieve good data.

"For many VCs, the first thing is to look at daily active users and data. Data will naturally explode as the project develops, and we can also provide assistance. Especially in the Web3 space, data growth can be exponential. So, compared to data, we place more emphasis on the Idea and the business logic behind the Idea."

In the following six months, YGG's performance was as SevenX Ventures anticipated, becoming the leading guild in the blockchain gaming market, continuously breaking user records, and no longer limited to just Axie Infinity. The investment return from YGG reached as high as 1000 times for SevenX. Capturing a dark horse like YGG is the inevitable result of SevenX Ventures' profound understanding of industry trends.

(3) Supply Chain Thinking, Holistic Layout

Looking at SevenX Ventures' investments across various sectors, it can be seen that these projects are not random but are interconnected. "Our investments are deployed along the lines of supply chain thinking; we will not invest in a dozen DEXs within a single public chain ecosystem."

For each niche sector, SevenX Ventures breaks it down into multiple structural foundations, dividing it into smaller parts and investing from different dimensions, thereby achieving interconnection among various projects within the entire sector and generating synergy.

Taking DeFi as an example, if it is likened to a pavilion, its structure includes two foundations, five pillars, one platform, one roof, and the cement, sand, and stones used to build the house:

The two foundations are stablecoins and assets. Stablecoins can be subdivided into fiat-backed stablecoins, collateralized stablecoins, and algorithmic stablecoins, while assets include crypto-native assets and real-world assets. Currently, the stablecoin sector is becoming increasingly mature, and SevenX Ventures has not yet seen any innovative projects that can break the existing pattern, so it is not a focus; in the asset field, SevenX Ventures has invested in KEEP (tBTC), which focuses on cross-chain BTC, and KINE, which brings real-world assets onto the chain.

The five pillars refer to trading, lending, asset management, payment, and derivatives. Among these, trading and derivatives are key areas for SevenX Ventures, which has invested in dozens of projects including Orderly, Ref Finance, Synfutures, Shield, Strips Finance, and Swivel. On one hand, trading has always been the core of DeFi and is closest to the foundational logic of DeFi; additionally, the decentralized derivatives sector is not in an absolute monopoly pattern, and new algorithms or product designs still have the potential to break through, so SevenX Ventures continues to bet on these two areas.

In terms of lending, SevenX Ventures continues to focus on credit lending, but currently cannot truly connect on-chain IDs with off-chain identities, and the oracle technology is also immature; for payment and asset management, it is easy to touch red lines, so investments are minimal.

The platform refers to the traffic entry point, including DeFi aggregators/dashboards. Users only need to manage and trade all on-chain assets through a unified and simple interface, without worrying about which trading protocol or lending protocol they are interacting with, or the complexities of liquidity, etc. In this regard, SevenX Ventures has invested in Debank and Zerion. "We believe this is a very good control point for the entire DeFi traffic, so we have made deep investments in this area."

The roof refers to wallets. DeFi aggregators/dashboards are just one of the traffic entry points; another important entry point is wallets—everyone's first step into Web3. Considering that some wallets may not connect to aggregators, SevenX Ventures has not abandoned this sector from a supply chain perspective, and has invested in multiple wallet applications such as Blocto, BitKeep, and Sender.

With the main structure in place, building a tall DeFi building relies on cement, sand, and stones, which represent technologies like cross-chain, privacy, and oracles; without these technologies, or if technological development is limited, only small houses can be built. For example, oracles are needed for bringing on-chain assets on-chain and are also used in credit lending, as well as in various aspects of DeFi trading and derivatives. They act like an adhesive, firmly binding all components together. On these foundational protocols, SevenX Ventures has invested in projects like O3 Swap, Parastate, Zecrey, and Integritee.

In addition to DeFi, the five niche sectors of NFT, Web3, GameFi, Arweave, and Multi-chain Ecosystem have all been dissected by SevenX Ventures using supply chain thinking. "Each niche sector has its own mapping, and we will also supplement projects that we have not covered based on this, as well as identify projects with higher ceilings in advance. Of course, such divisions may not be complete, and we will strive to improve them."

3. What Can SevenX Do for Projects?

Today's investments are no longer limited to financial investments; entrepreneurs also need support in various aspects.

First is the cognitive level. SevenX Ventures hopes to understand what entrepreneurs are thinking. Especially in the early stages of entrepreneurship, when projects are not yet popular, every entrepreneur is like an isolated island in the deep sea, on the fringes of the industry. SevenX Ventures truly recognizes the value of entrepreneurs, "understanding what entrepreneurs are thinking, what they are doing, and the value of this in the Web3 world."

Furthermore, providing comprehensive post-investment services. The three founders have different focuses and are skilled in strategic planning, marketing, economic model design, and other dimensions, which can help project entrepreneurs clarify their thoughts and truly promote project implementation. For example, SevenX Ventures has deeply participated in designing token economic models for over a dozen projects, including Rangers and ArDrive. Post-investment services also run throughout the entire project development process, responding promptly whenever projects need assistance. "Our communication with project parties is very frequent; when they encounter strategic, operational, or funding issues, we are the first to know, providing timely warnings and helping projects solve problems."

SevenX Ventures believes that providing resources is not just about laying out available resources for projects to choose from, but rather about understanding needs and even predicting demands to provide targeted funding and resources. Moreover, these resources connect the entire supply chain. For example, in GameFi, SevenX Ventures brings together upstream producers (production companies, tools), midstream guilds (YGG), and publishers, as well as downstream applications. When a new game project enters its industrial layout, the services it can enjoy far exceed what other firms can provide, making it easier to create hit applications.

Additionally, having experienced two complete bull and bear cycles, SevenX Ventures places greater emphasis on risk management and control. For organizers, these experiences are unquantifiable yet significantly influence the future development of new projects.

If we categorize crypto VCs, they can generally be divided into two types: one is Pump & Dump, where everything is for greater financial returns, even selling off immediately upon listing; the other is Diamond Hand, which not only holds continuously but also provides value-added support.

SevenX Ventures clearly belongs to the latter. As an angel investor in Octopus Network, its token surged over 10 times in the secondary market, yet SevenX Ventures has consistently held its position without selling. Of course, as the project matures and becomes strong enough, no longer needing SevenX Ventures' assistance, or achieving a complete closed loop, SevenX Ventures will consider a gradual exit.

"Octopus Network surged 40 times during its first curve, and our investment grew from $400,000 to $16 million, roughly half of the second fund. But we still did not exit. Because I believe it has completed its first curve, and there is still a second curve; the logic of the second curve is what we truly want to see, aligning with the initial design of the first draft. Therefore, it must meet the goals I had when I invested in it for me to exit; if it only meets the price criteria, then I will not exit."

4. Conclusion

Not following trends, but using unique insights to foresee industry trends, quickly identifying targets and taking action, being restrained yet sharp, and pursuing super returns—this is the impression SevenX Ventures leaves us.

In the interview, the three founders mentioned the lesson that "investing cannot be biased." "We have actually suffered too much from biases in this industry. So before making judgments, it is essential to look without bias and then make decisions."

Today, the Web3 landscape is changing rapidly, with new projects emerging endlessly, posing a significant challenge to investors' knowledge, logic, and learning abilities. The three founders of SevenX Ventures consistently maintain synchronization with entrepreneurs, grasping industry dynamics and maintaining market sensitivity. We also look forward to SevenX Ventures' boutique investments accompanying and promoting the continuous growth of the Web3 field.