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 fundi
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 about their successes and failures, and find out what gets them excited about a new project in the Web3 space.
This week, Cointelegraph spoke with Andrei Grachev, co-founder of crypto trading entity Digital Wave Finance (DWF) and managing partner of market maker and multistage Web3 investment firm DWF Labs. DWF Labs has been highly active since late 2022, having invested in the Telegram Open Network (TON), Orbs, Radix, Crypto GPT (now Layer AI) and others.
Cointelegraph: It feels like DWF Labs emerged from nowhere and started aggressively taking over the industry. Tell us more about the history of the fund and the background of the partners.
Andrei Grachev: DWF Labs started operating in late 2021, founded by experienced partners from DWF, a highly successful high-frequency trading entity that had been operating since 2018. We recognized the potential of blockchain technology and wanted to explore investment opportunities in the industry. After making several small investments and token allocations, we refined our investment strategy and risk tolerance. Since then, we have been actively investing in promising projects and providing long-term financial support on a regular basis.
CT: DWF Labs invests exclusively in tokens. Many players in the industry consider this approach to be market-making. Can you explain the rationale behind this decision and why you believe investing in tokens is the best approach?
AG: First of all, let me clarify that every project we work on has different deal components. While some involve pure venture investment, others may include token purchases. Over the past 12 to 18 months, we have seen an increasing number of market makers entering the investment space. While I cannot speak for the entire industry, it appears to me that market makers offer significant support to projects that is crucial to their growth.
For example, market makers typically have established relationships with exchanges, and they can help projects with listing introductions. However, it is up to the exchange to accept the recommendations or not. Another advantage of working with market makers is that they can provide liquidity support to tokens when it is needed. In other words, market makers offer value beyond just executing trades, and this is why we believe that investing in tokens is the best approach.
CT: How do you evaluate the risks associated with investing in tokens, and what steps do you take to mitigate those risks? Are there any particular metrics or criteria you use to assess the potential of a token?
AG: As a Web3 investment firm, we have developed various investment theses over time to evaluate the risks and potential of a project. While we cannot fully disclose our current investment strategy, we have identified several verticals that we are interested in supporting. On our website, we categorize our investments into nine macro-categories, allowing us to diversify our risks within each vertical by selecting a few projects with significantly different attributes.
For example, if we identify a growing vertical where multiple players are developing or building value, we look at the possibility of supporting more than one project. If a project has a clear emphasis on infrastructure, the next project we select might be more focused on the B2B side, and the next one on retail. This approach provides us with a comprehensive coverage of the spectrum of an industry vertical.
When evaluating the potential of a token, we use various metrics and criteria that are specific to each project and vertical. We analyze the market size, competition, team experience and track record, tokenomics, and community engagement, among other factors. We also conduct due diligence and consult with industry experts to ensure that the project has a solid foundation and strong potential for growth. While investing in tokens does carry inherent risks, we believe that a diversified approach combined with thorough research and analysis can help mitigate those risks and generate positive returns for our investors.
Portfolio companies
CT: What does the ideal portfolio company for DWF look like? What do you prioritize: The idea, personality of a founder, a team or traction?
AG: Our investment portfolio is diverse, but there are a few categories that stand out due to their weight in terms of the number of investments. Decentralized finance and trading, metaverse and GameFi, and infrastructure and enterprise are the categories that seem to have captured our attention the most.
When it comes to prioritizing investment factors,…
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