Risk and investment strategies with Shima Capital

Venture capital has been a key driver for myriad startups in the blockchain space. Founders know how competitive it can be to secure valuable VC funding that can keep the lights on and employees paid during the critical first days of a new project.

In a new interview series, Cointelegraph sits down with executives at some of the most active funds investing in the crypto space to understand their perspectives, hear their successes and failures, and know what gets them excited about a new project in the Web3 space.

This week, Cointelegraph spoke with Shima Capital’s founder and managing general partner, Yida Gao. He founded Shima Capital in 2021, and the fund has since been very active, investing in nearly 100 projects. Gao is also an adjunct professor at the Massachusetts Institute of Technology.

Cointelegraph: Shima Capital was founded relatively recently, yet the firm has already invested in some of the most prominent projects in the crypto industry. As of now, which investment would you consider to be the most successful?

Yida Gao: This feels like asking a parent to choose their favorite child! I would say it’s still too early to make that call, as you alluded to. We definitely have a few that have performed pretty well and attracted good traction, such as Wombat Exchange, Berachain, Magna, Monad Network, etc. We’ve also incubated several projects that we will announce soon. For now, we’re proud of all the portfolio companies for pushing through this continuing bear market. So, the fact that they’re still standing means they’ve successfully navigated one of the toughest situations they’ll ever face.

CT: Who were your initial investors, and how did you persuade them to invest in such a high-risk industry?

YG: Although some of our own investors were named in earlier announcements, we’ve since taken a more personable approach and prefer to respect their privacy. That said, I’ve been in the finance and venture space for a decade, so I have a track record in both traditional and Web3 investing. I believe having navigated through the ups and downs in terms of the market and market sentiment played a key role in gaining the trust of some of the most successful investors in the world.

CT: In the early days of Shima Capital, how did you attract your deal flow?

YG: Although Shima Capital itself was new, and still is to a degree, I — having been around the space since 2015 — have tried to build a strong global network and reputation in the industry. Additionally, we have a world-class team at Shima who individually bring additional credibility and esteem to our fund. Our motto of “running through walls for our founders” seems to help attract deal flow as well.

About the industry

CT: Given the recent volatility in the crypto market and high-profile cases involving companies like Celsius, 3AC, Alameda Research and FTX, how do you justify the risks to your investors?

YG: Most of our investors have been investing in Web3 and crypto for a while and are well aware of the risks involved in this industry — or any other industry, for that matter. We maintain quarterly regular updates to our investors and have frequent emails, messages or calls with them too. We believe that this is more about building up relationships and trust, and I work hard myself and as Shima Capital to maintain strong relationships and build lasting trust with everyone we work with.

CT: FTX was considered to be an industry blue chip for some time, but recent events have raised questions about the need for regulations. In your view, what kind of regulations could prevent such scenarios as happened to FTX, Alameda and 3AC from happening in the future?

YG: We invest in projects we believe to be upstanding and responsible, with or without official regulations. For Shima Capital itself, we are registered with the Securities and Exchange Commission and work daily to maintain SEC compliance. It’s debatable whether regulations could have prevented the aforementioned scenarios, but as long as we continue working in good faith to all stakeholders, our industry will not just survive but thrive.

CT: What is your vision for the ideal consensus between the crypto community and governments? Moreover, how will the potential tightening of U.S. regulations impact the development of the industry?

YG: As I mentioned previously, there can be a friendly co-existence between regulators and the Web3 industry/community at large. As long as we all strive to act responsibly and regulations do not become too restrictive, the industry will continue its rapid, innovative development.

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CT: One of the biggest challenges for the crypto industry is the lack of mainstream use cases. For many people, this industry is still synonymous with illicit activities such as money laundering and terrorism financing. What do you think needs to happen to change this perception?

YG: I think we’re already…