Jason Fang of Fenbushi Capital on blockchain investments – Ep001

In this episode, we talk with Jason Fang of Fenbushi Capital, a venture capital firm based in China that exclusively invests in blockchain-enabled companies. We discuss the typical process he goes through when investing in blockchain companies.

Full Podcast Transcript

[00:00:04] Hello I’m Philip Claudio and you’re listening to the Hashed Health podcast. This show is dedicated to everything health care and blockchain related. Here at Hash Health we’ve begun this incredible journey of developing blockchain solutions for health care. And we have the privilege of being able to talk with amazing people about this subject every single day. The goal of this show is to include you in these conversations. Join us as we host meet ups, attend conferences and conduct interviews with our friends and other industry thought leaders. You can find more content like this at hashhealth.com. That’s W W W dot H A S H E D H E A L T H dot com or connect with us on Twitter @hashedhealth.

[00:00:52] Here we go.

[00:00:59] Fenbushi is changing the way the world invests in blockchain solutions. Founded in 2015, Fenbushi Capital is a $50 million Chinese based venture capital fund. Fenbushi translates as distributed was the first China based venture capital firm that exclusively invests in blockchain abled companies. The firm was founded by Vitalik Buterin who was the blockchain guru and founder of the de-centralized contract platform Ethereum. Bo Shen who co-founded Invictus Innovations, the team behind the financial contracts platform Bitshares and Feng Xiao, who is the founder of the Chinese mutual fund giant Bosera Asset Management. Joining us today is Jason Fang, responsible for a due diligence in North America. Let’s talk about how Fenbushi started and what the firm is becoming.

[00:01:44] Sure.

[00:01:45] So Fenbushi started in late 2015.

[00:01:48] As you mentioned with the three founders. Uh, initially we wanted this to be more than just a blockchain investment. Of course we want to be the stepping stone for a lot of the foreign companies entering Chinese market but as we move forward we see ourselves more of literally in the frontier of Asia’s blockchain community. About a year ago there was barely any blockchain companies in Asia and just after a year we’re seeing a lot more investment coming in. We’re seeing a lot more blockchain come, uh, blockchain starts coming to us. And it really does feel special for, for starting something that is very new and in, in, in a market that has a lot of potential to grow.

[00:02:30] You know when you have a new space like this I think the a big question that we hear a lot of venture capitalists is talking about is you know, how do you do due diligence around these companies and, and what data are you looking at when you’re talking to a company and their their company needs a new model. How do you vet that, and what process do you go through?

[00:02:48] Yeah. Our industry is very unique. You know it’s not like any other industries where there’s already a lot of track records out there where you can compare, you know, startups with startups that has been there before for many years and companies who who usually run their own startup have done something very very similar in the past. But in our industry it’s almost entirely fresh. You know everything is new. Entrepreneurs are running this is completely new. It’s our first time doing blockchain.

[00:03:19] And so for us it’s really, more about, how can we nurture the community how can we find synergy between what the company that we’re investing and the resources we have. I think you’ve got to see this as more of a unique ecosystem where it’s not just you and the company but it’s about everyone around you. It’s about getting the community to be a part of it is getting the resources that you have. Traditionally speaking you know the companies, large companies but also like technical support, find the right developers for startups, helping out with marketing, branding, all that, you know about that, that requires a lot of resources, you know, from from our side. And so I think um when we do a lot of due diligence. We do evaluate what kind of resources we can provide on the table so that these companies can go to the next stage. But obviously you know it’s no different from in terms of going back to the basics. It’s no different from evaluating a company that’s not from non-blockchain community. It’s about team, it’s about getting the right direction and in the right community. It’s about getting the right traction. It’s about if the individual had track records in the past.

[00:04:45] All that boils down right but again like that usually takes time and we’ve been very lucky because we have the talent of Bo Shen and Dr. Xiao on board, and so we’ve been able to close a lot of deals a lot faster than, compared to a lot of VCs out there.

[00:05:03] That’s great. So what is that typical deal look like. Can you kind of walk me through the discovery to close process and talk about the size checks you guys write and the kind of returns you’re looking to generate for your fund?

[00:05:16] Yeah. So a lot of times when we when when we get approached by companies the first, the first thing is, we ask like, why are you in the blockchain industry right? What is it that you’re trying to solve that can’t be solved without blockchain? Um, what, what is so unique about what you’re doing, and how do you build a proper business model, or a model that you think will be scalable in the future and what you’re doing? And, you know usually these questions, will really break down on who this individual are and kind of like what his background how is it relevant to what he’s doing and his ability to, you know, to make things happen.

[00:06:00] A lot of our deals would go through me first if it’s North America, and then I would usually spend two or three weeks with the company. If it’s a big deal. I would actually fly to North America for that. But, if it is an early stage company, then we usually do a few you know a few Skype calls over  phone and then if they have, if they have customers and I’ll talk to their customers. If they had a start up that they kind of, um died, exited in the past I’ll actually even talked to their previous partners. And of course if they have no lead investor and are I’ll talk to the investor. So these agents are pretty standard. And you know after assuming that we like the company then it is a see round then we usually go from anywhere as low as 100k to two or three million depending on on the deal. And we do follow or lead.

[00:07:00] That’s awesome and do you guys typically look at is this a typical venture capital fund where you got a five year investing period and like a seven year wind down, or are you guys a little more long term than that?

[00:07:11] I think in that industry we definitely do expect a longer term just because I think everything is very, very new. There are some interesting ways of, of earning really fast revenue depending on how you break down your accounting. So for example I know some funds they actually count of crypto tokens as kind of like an asset. And so, in that case, then if the crypto token goes up then essentially the return would be proportional to that, to that, to that amount.

[00:07:44] There’s also companies that we invested in, which obviously have done really, really well. And so for that reason there’s also, were also making some money on that. But in general we like to see our investments of more strategic of what we can, our LPs can offer, in terms of, partnerships, in terms of, starting you know mimicking that business model or mimicking that use case into the Chinese market, uh, from our LP side. And then helping that grow into a more larger scale. And so that’s I think that’s where we will probably see the majority of a return from a fund.

[00:08:23] That’s great. And so let’s kind of switch gears and kind of zoom out and talk more about the macro blockchain landscape. You know where are we headed now in terms of this blockchain revolution? You know our, our, research shows that we’re seeing a 400 million plus U.S. dollars coming out of Chinese venture capital firms and that’s solely dedicated to blockchain investment. Obviously, financial services is on the downward slope of the Gartner hype cycle. Healthcare is now getting a lot of traction. What is that future blockchain landscape look like and where are you guys headed and what are some of things that you guys are looking at?

[00:09:00] I think, uh I think we’re definitely seeing a lot more traditional entrepreneurs, outside our industry, coming into our industry this year. I think there is going to be a lot more use cases around verticals that we haven’t discovered yet. And I think there’s going to be a lot more money flowing into the blockchain industry not only just from China, but I think in the rest of the world like Russia, Emirates, um Europe and this is obviously a very exciting year for us while last year I think it was mostly educational development getting people to understand what blockchain is. It was mostly the people who were in our industry, running the industry. This year I think we’re going to uh… this year we’re going to see a lot more diversity.

[00:09:47] So tell me really let’s talk about what’s, what’s on the cutting edge? I know you see all the stuff, you know Zcash with, I think Zcash was you know what we called the bleeding cutting edge of blockchain, which is in itself a bleeding edge technology. Really what’s what’s out there that you see as really being able to push the envelope, especially on like an operating system on a fabric layer?

[00:10:08] Yeah, so, I think from our perspective we are big on, number one uh one we’re big on Ethereum because Vitalik was on board uh, with, probably one of the more aggressive VC funds out there who’ve made investments in Ethereum. But also we were also the one the one of the first people the first kind of like the organization out there who really push Ethereum into Asia.

[00:10:34] And so we could probably be continue to be very bullish in the Ethereum community. In addition we will also be working with a lot of open source projects. We’re not expecting a lot more coming out. And so I mean a lot of these open source projects will take time and, there are  few that you know I am very very excited about. Very strong team. A lot of potential, great idea, great product, but it really boils down to what we can offer. Like as, like I mentioned a few minutes ago where I think this is not only just as an investor, or as our company relationship I think this is more of a global relationship where, you know, everyone in the community should take part of it. You know, it is a great product people should try to utilize it. If it’s a product that brings a lot of potential to a world and it should be user friendly. You know all these things, should be done in order for kind of like these low end protocols to work.

[00:11:34] And at this point we’re seeing a lot more, you know these low end open source projects to be more of, educational, like very high level educational and you know just educating people on what are the use cases and what they’re doing. They’re kind of like the business use case is that they can potentially disrupt and I think the next next level is definitely trying to make that happen. And I think this year is going to be one where it is going to be a lot more use cases on these, on different protocols and, and you know there’s going to be more in China and it’s going to be more in the U.S. And I think this is going to be where, you know, where a lot of the companies locally will try to, traditional companies will try to leverage over the year.

[00:12:19] That’s great. And so a lot of our listeners you know, majority of listeners are in the health care space a lot of them are very familiar with technology and they’re starting to really think hard about it. You know if one of them has an idea and there you know they’re deep deep deep in the trenches of health care. What, what advice would you give them as they get out that idea and they’re prepared to come talk to a firm like yours?

[00:12:41] You mean the blockchain space.

[00:12:43] Yes, in the blockchain space.

[00:12:44] So I mean to be honest there’s almost infinite amount of news cases out there in the healthcare space so it’s it’s rather difficult to, it’s rather difficult to, you know, to evaluate if this use case is prob… is going to work in the industry. I think what’s more important is that before you even show up to a VC and ask for money I think the most important thing is try to test your product before coming out, you know, to a VC, like make sure this is something that you are very very familiar with your customer are very familiar with and the market is very familiar with, so that you know when you speak, come to a VC you see there’s there’s there’s traction or numbers you can show that you know this is something that potentially would be, would be huge, in the world. I think one thing that blockchain is very very different from a lot of other technology is that it’s almost borderless, right. If, if, if. If, if you can find the right, right framework, it works in U.S. and will work in Asia, it will work, come, anywhere else in the world.

[00:13:47] And so there is there’s infinite amount of revenue potential. Once you get the right framework, but before that you’ve got to make sure that this use case is actually practical. That is it makes sense from a regulatory perspective perspective that the customer is comfortable using it and that is a good balance between the technology being very disruptive and what is, what is actually working for, for the business because, I think the blockchain industry is so new that it’s, it sounds scary to a lot of traditional businesses. They’re just not comfortable using it. And so as much as some technology sounds very crazy, some from, some sounds just disruptive. It’s also very hard for it to persuade people to use it if people don’t understand. And so you’ve got to find a balance between that.

[00:14:38] That’s great. So, you know Jason we’re seeing a lot of companies and entrepreneurs thinking of creative ways to fund their, their blockchain startup. You know one way that we’ve seen getting a little bit of traction is the the initial coin offering. Can you walk us through, you know what that is how that works, and how a firm like in Fenbushi, you know, perceives that or what’s your opinion on that model?

[00:15:05] Yeah, so, I see that essentially issuing, tokens. We start with tokenization, you know, assuring tokens to shareholders, exchange for, you know, the crypto that they’re trading and for example using Bitcoin or Ether. And so this is very different from their traditional IPO where instead of you holding a stake of the company you own essentially a token on the company which would essentially represents the company. And so when you grow, when you hold this token, and when you when you market this token you, you’re part of it and you’re incentivized to to help it grow. And once it grows the prices go up. And so, it gives, it gives a company almost, you know, a very fast way of crowdfunding, fund raising in the blockchain space.

[00:15:56] And of course unlike unlike IPO which is mostly restricted to one one region. The ICO is kind of like open to or around the world. And so this opens up a massive opportunity for blockchain startups to fund raise, you know, globally, and we are seeing a lot more ICO coming out this year. But what’s more interesting is we’re seeing, you know, traditional companies like non-blocking company or start ups or non-technical companies, trying to find ICO model to fund raise and that hasn’t really been, that hasn’t really have occurred in the past. But we are seeing this right now and I think this is going to be more becoming, we think this is going to be, be, be more popular this year, especially next year, which you know I think this is definitely one of the more interesting things that is happening in our space.

[00:16:53] You know from our perspective it’s, it’s, it’s, it’s obviously great because it shows that more people are more interested in our industry and more people are thinking of ways to adopt the block chain. You know, whether it is through existing protocols, existing open source project or essentially starting something that’s entirely new. I think it gives us an opportunity to, to, you know, even stretch further into into the traditional market. So we’re definitely very excited about that.

[00:17:32] That’s awesome. Is there anything anything else you’d like to add or any other questions you like to me to ask?

[00:17:39] That’s pretty much it. I think, own the ICO thing which I think is going to be a hype this year that’s pretty much it.

[00:17:46] That’s awesome. Yeah I’m excited about that. That’s awesome.

[00:17:50] You’ve been listening to the Hashed podcast, presented by Hashed Health. Find more content like this at hashhealth.com, or come to our next meet up and join our growing community of blockchain professionals and enthusiasts. Learn more at hashhealth.com. Thanks for listening. We’ll see you next time.

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