Special report on Chinese developers

Original authors: Chris Lu, Kenny Dong, Jason Kam, original source: Folius Ventures

Abstract

< p>China's Internet industry has given birth to countless technology giants and super applications in the past 30 years, and has accumulated a large number of engineers, technology entrepreneurs, and Internet talents who are good at consumer-oriented (2C) applications. This constitutes the formation of China's Internet entrepreneurship The basic market and background of the investor. We estimate that there are currently about 2-3 million Chinese Web2 practitioners who already have the knowledge and potential to start a Web3 business and will start a Web3 business in the next three years. This means that at least 200-300 potential leading projects with Chinese background will appear on the market at a rate of 1-2 per week in the next three years.

In recent years, due to the superposition of multiple negative macro factors such as the slowdown in China’s Internet growth, peaking traffic dividends, and shrinking financing and exit opportunities in the Web2 field, the Web3 industry, as an environment with a positive environment, abundant liquidity, and rising The emerging blue ocean market with huge space is in sharp contrast. Therefore, we expect that more Chinese-speaking Web2 talents will accelerate their transfer to Web3 in the future. For those Chinese Internet people who are full of competitive and innovative spirit, executive learning ability and sufficient background conditions, we believe that Web3 is just like the A shares in the 1990s and the H shares in the 2000s. Like Nasdaq in the 1910s, it is the next stop of their era and keeps pace with AI, thus starting a new wave of Internet entrepreneurship and innovation in China. At the same time, we believe that the Web3 industry has accumulated and accumulated infrastructure for several years, which has given the industry the soil to host super applications. The pendulum that will allow the development of the industry will be shifted from "strong infrastructure, weak applications" to "strong applications" , the end of "weak infrastructure". History shows that technology follows the application-infrastructure development law: applications appear before infrastructure and promote its iterative upgrades, and the improvement of infrastructure promotes the emergence of new application paradigms. Various signs such as the significant reduction in on-chain interaction costs, the popularization of customized solutions, the reduction of friction in fiat currency interactions, the improvement of data and middleware, and the iteration of financial gameplay all indicate that Web3 is currently on the eve of its application dividend period. , the turning point will come in the next 12-18 months.

Chinese Internet entrepreneurs should make good use of the Web2 methodology to form differentiated advantages, focus on the scenario of migration from Web2 to Web3, and expand the incremental market. Chinese Internet practitioners in the Web2 era have made great achievements in C-end application fields such as social networking, entertainment, and e-commerce. They have rich cognition and methodology, and are well versed in user psychology, product design, and operations. However, the knowledge of Web2 is a double-edged sword in Web3: these experiences are both wealth and constraints. Web3's smaller user base, different product strategies, financialization, and cultural differences are all new challenges for Chinese entrepreneurs. However, we believe that the methodology of Chinese Internet entrepreneurs in Web2 can still be reused. We have observed this group in the projects that have been laid out in Folius (StepN, Matr1x, SleeplessAI, Memeland, Metacene, Myshell, etc.) full potential. We encourage Chinese teams to leverage their advantages in Web2, especially to differentiate themselves from overseas teams in terms of user growth, community building, business model innovation, products and operations, etc., and should focus on exploring scenarios that promote the migration of Web2 to Web3. At the same time, we should also pay attention to cross-cultural exchanges and cooperation and broaden our international horizons to better adapt to the international environment of Web3.

1. Three factors for the explosion of Chinese entrepreneurs in this cycle

The huge consumer-side engineer bonus, the strong catalyst of internal and external factors, and the inflection point of Web3 infrastructure. Its advantages and disadvantages are equally outstanding.

China's engineer bonus for consumer Internet products since 2000 has laid a base of about 15-20 million potential Chinese entrepreneurs in Web3.

The total number of potential Chinese entrepreneurs in Web3: 15-20 millions

China's Internet industry started from scratch and accumulated  The number of employees is 15-20 million, and during the rapid take-off stage of mobile Internet after 2008, it has accumulated a large number of reserve talents for consumers and applications. This number determines the basic base for Chinese entrepreneurs to start a business in Web3.

As the world's largest single user market, China has seen the emergence of many world-leading innovative application categories in the past golden decade of mobile Internet, including social media (such as WeChat), mobile payment (such as WeChat Pay) , Alipay), entertainment platforms (such as Bigo, Huya, Douyu), content sharing platforms (such as Xiaohongshu, Douyin), and e-commerce retail (such as Alibaba, Pinduoduo, Meituan). Each of these fields has developed innovative models and product forms that are completely different from those in overseas markets, and each has its own characteristics in terms of interaction methods and gameplay. The teams behind leading products all stand out after sufficient market competition. They have accumulated rich and proven methodologies in user insights, product design, operational strategies, traffic acquisition, growth fission, and commercialization. This group of Internet talents is the most competitive group of people (Volume). We have observed that many Internet people are beginning to join the encryption industry, and we expect this trend to continue to accelerate in the future.

Based on this base, we believe that the potential core head group has 2-3 million people. This group has initially possessed the foundation for entrepreneurship and the ability to successfully obtain financing.

Chinese core head group: 2 – 3 million people ( 10-15% )

Many well-known Web2 Internet companies are not only technology The cradle of innovation is also an important source of Web3 talent ecology. In our initial assessment of the talents of China's top manufacturers, even conservative estimates indicate that there are already more than hundreds of thousands of product technology elites with high quality, rich experience and excellent innovation capabilities. These talents include not only a wide range of grassroots developers, but also many executives from the top of the industry. Their levels are equivalent to or exceed Bytedance's level 3-2 and Alibaba's level P9. They devoted themselves to the Web3 field, and the projects they created not only demonstrated the efficient execution of the teams of major manufacturers, but also demonstrated the ultimate pursuit of fine polishing and perfection of products.

In addition to the leading Internet companies, China’s game talents deserve to be discussed separately: China has 1.5 million game industry practitioners, of which R&D personnel account for about 70%  China has grown from the Shanda/Giant era to Game companies have demonstrated top-notch development and commercialization innovation capabilities, especially in the new production pipeline innovation and transformation brought about by the mobile game era. They have the ability to quickly iterate products in a short period of time, maintain a development rhythm of fine-tuning while entering the market, and deepen Listening to user feedback for improvements, multi-product matrix trial and error and other methods have produced a group of developers with strong execution capabilities. This group of game developers is naturally more adaptable to the development of Crypto.

Therefore, we believe that of the  15-20 million people working in the entire industry, about 15% , or 2 – 3 million people, have Initially possessing the vision, ability and background to start a business and successfully obtain financing and attention. This group of people is also the group that Web3 needs to win over most.

Under this base, we believe that the current Web2 -> Web3 conversion rate is about three years 1% . In the next three years, the Chinese Web2 industry will provide 200-300 head teams for Web3, which is about an average of 1.5-2 high-quality teams emerging per week.

Web3 enthusiasts: 20 ​​- 30 Ten thousand people ( 10% )

In the head In the circle, we believe that there are currently  10  people who do not hold too much prejudice against Web3, are very curious, and then have enthusiasm for learning, and finally have a deeper understanding of the industry and interact on the chain (not pure hype) There are about 1 people in it. This ratio will change with the cycle.

Having the conditions and willingness to start a business in the next 3 years: 2-3 million people ( 10% )

Among the enthusiasts, we I believe that if I finally have the desire to go overseas, my personality, wealth accumulation, industry accumulation, and family background are suitable for starting a business in the Web3 industry in the next three years under an unfriendly macro environment, 10 enthusiasts may not exceed 1  ;personal. In other words, we believe that within the core Web2 circle, the conversion rate for Web3 entrepreneurship is about  1% .

The average founding team is 5 people: 4-6 thousand teams emerge in a three-year cycle. Head 5% Teams: 200-300 teams, an average of 65-100 per year, 1.5-2 teams per week

Given the relatively irregular nature of the industry , the team level is uneven. We believe that teams that have polygonal combat effectiveness, long-term values, reliable business models and insights, the ability to go global in culture and language, and a better understanding of the Web3 financial field will have a better chance of running. Come out and be the head. This ratio may be as high as 1 out of 20 teams.

Therefore, we believe that in the next three years, the Chinese Web2 industry will provide 200-300 head teams for Web3, which will emerge at an average rate of 1.5-2 teams per week. We are extremely looking forward to in-depth exchanges and cooperation with them at the earliest possible stage.

Since 2020 a new world pattern of confrontation between China and the United States has taken shape. The traditional Web2 Internet industry is in sharp contrast with the starry Web3, which will make the latter the successor to these outstanding Web2 teams (especially the Chinese team) ) the best cradle.

Web2 to Web3 singularity appears, and the gradual improvement of Crypto infrastructure has given the industry the soil to host super applications. The pendulum of Web3 development is about to swing to the "strong application" end.

Looking back at the history of technology, the iteration cycle of App – Infra  is like a pendulum: App  always appears before infra  and encourages the latter to iteratively upgrade, and the improvement of infra  prompts new  app The paradigm comes out. Email preceded TCP/IP, which prompted the emergence of early portals; portals prompted the emergence of browsers (Mosaic) and high-level programming languages, which brought the prosperity of Web1.0; to meet the needs of Web1.0 The birth of high-speed networks (broadband) and cloud service providers (AWS) have made more complex social applications and streaming media possible, which has brought about the prosperity of Web2.0. At the same time, the demand for better and faster promotes unlimited technology and Further iterations of semiconductors have made the application of AI / AR / VR possible.

We believe that Web3 also follows the above rules, and with the technological iterations in the past few cycles, the cryptocurrency industry pendulum is about to shift to the "strong application" end.

In the past cycle, the Web3 industry has developed infra components that can carry explosive consumer applications. We are in the transition from an accumulation period to a dividend period, and expect the inflection point of application explosion (LTV> ;=CAC) will arrive in the next 12-18 months.

In the past cycle, the industry has developed infra components that can carry hot-selling consumer applications. We are moving from the accumulation period to the dividend period. transformation. The driving factors include: 1/The cost of interaction on the chain is greatly reduced, making user conversion possible; 2/The development and customization solutions are civilianized, allowing most developers to quickly trial and error; 3/The friction of fiat currency interaction is reduced, greatly Increase users' willingness to pay; 4/The improvement of financial and token models can boost ARPU in all aspects, improve retention, and reduce user acquisition costs. These factors greatly contribute to the unit economics (LTV/CAC) of dApp and can form a positive flywheel. We expect that the inflection point of application explosion (LTV=CAC) will arrive in the next 12-18 months.

Seven major advantages and seven major disadvantages of Chinese entrepreneurs

But we remain optimistic and see many advantages from Chinese entrepreneurs , and these advantages will continue to shine in Web3 in the future:

1. The grasp of human nature and matching mechanism design: Chinese major manufacturers are good at cultivating Excellent product managers with exquisite human perception and aesthetic pursuits. They have not only explored different interaction methods and gameplay strategies in the mobile era and those in Europe and the United States, but are also extremely good at fission growth. They use WeChat’s social interaction and Pinduoduo’s innovative shopping model as the basis. For example, these strategies not only accelerate the expansion of the user base, but also increase user activity and brand loyalty. These product strategies that have been tested in actual combat are particularly prominent in the face of the relatively monotonous and rudimentary growth methods in the current Web3 field. It is a general consensus that Web3 urgently needs excellent and high-quality consumer products that can be promoted to the public. How to identify the native needs of the web3 user group and the obstacles to the migration of web2 users is an important issue.

2. Comprehensive operational capabilities: China’s Web2 platform operational capabilities and business closed-loop capabilities in markets with low ARPU are eye-catching, whether it is a complex creator ecology or diverse income The distribution mechanism and the advanced algorithm-driven content recommendation system all demonstrate the team’s deep foundation in platform operations. The achievements of Chinese entrepreneurs in the field of platform operations such as cryptocurrency exchanges have proven their excellent ability to build and manage complex platforms. While Web3 content creation and operation are still in the exploratory stage, the Chinese team should focus on measuring how to combine the incentive effect of the token model on the original basis to further amplify the network effects on the creator and consumer sides.

3. Core technical strength: The technical strength of the Chinese team is a key point that people easily forget. The Chinese have many possible future technical directions for innovating Web3 such as ZK, ML, and AI. Very advanced technology accumulation and research, Chinese scholars/technical talents in related fields account for a large proportion, but Chinese teams are often the technology providers behind many front-line projects, and we should focus on exploring the key to the technical guru standing in the center of the stage. Talent.

4. Fast iteration methodology: The Chinese are diligent and well versed in the rolling methodology. They are not stupid overtime workers but have the strong execution ability to quickly deliver products. Facing China’s Some have the dual blessing of supply chain dividends and engineering dividends, abandoning the big factory mentality, and taking advantage of strong execution capabilities in the Web3 era where rapid growth in the future requires rapid PMF and rapid trial and error.

5. The insights and pursuits of Chinese entrepreneurs: a very valuable natural advantage. The ten-year growth rate of China Mobile Internet is a miracle. Chinese entrepreneurs born in the "high-speed system" Those who pursue system efficiency, have strong learning ability and the fastest response speed, can be pragmatic when facing demands, have experienced large-scale, systematic and efficient business systems, and practical experience in high-speed environments is more important , this group of people is a generation born of globalization.

6. Understanding of the latest consumer application routines: Copy from China has proven in the past few years that it can be successful and continues to create new greatness. The time machine theory has changed its subject and object. , refer to the models, products, and businesses that have been verified in the Chinese market, and seek blue oceans in overseas markets. In the future, Chinese entrepreneurs are very likely to have strong copy from Web2 advantages in 2C/games and other fields.

7. For the group of Web3 entrepreneurs who are certain and can only go overseas to start a business, another advantage is the Chinese community all over the world. The Chinese have had the spirit of adventuring into the world since ancient times, and they have innate The population base has resulted in gathering areas and fellow villagers all over the world. For example, Singapore/Hong Kong have gathered a large number of Web3 OGs from the previous era. Chinese even dominate in fields such as mining and exchanges, giving full play to their racial resources. The advantage will be twice the result with half the effort.

2. Advantages of Chinese developers

Large DAU base, creator economy, strong operation platform economic system, and A proven business model in Web2.

We believe that a track with the following characteristics can unleash the greatest potential of Chinese entrepreneurs:

1. 大 DAU base, strong social attributes: it can form a strong network effect by combining token incentives and gamification gameplay. Compared with traditional marketing and customer acquisition, this model does not require close cooperation, high costs, and increasingly low efficiency, and can especially unleash the potential of web3 decentralized marketing/distribution .

2. Creator Economy: China has a huge group of content creators and abundant human resources, and the breakthroughs of  ai have further improved individual creativity. In such an environment, everyone has the possibility of becoming a traffic node or a creative node, becoming a "super individual/node".

3. Platform economic system with strong operation: a platform economic system that can make full use of the capabilities of China’s operating experts, especially by providing new value exchange methods and incentives through crypto  Mechanisms to promote broader participation and collaboration.

4. Business models that have been successfully verified in Web2: Business models that have been successfully verified in Web2, especially those with the characteristics of high ARPU , good cash flow and high profit margins potential direction. If the vertical user behavior, user relationship chain, user data, etc. can be superimposed on the possibility of being capitalized, and at the same time, the scene can be embedded in transactions, and probabilistic gameplay models such as blind boxes can be added, the business potential can be further released. .

At the same time, we believe that the entrepreneurial tracks selected through the above dimensions combined with the web3 token playbook (wealth effect/revenue share) can greatly amplify this flywheel effect:

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1. Lower user acquisition cost;

2. Higher user ARPU and Retention;

3. Lower group operating costs, especially multi-sided network platform systems;

4. More diversification The business model has the potential to bring more income, and the addition of over-the-counter liquidity is further strengthened;

However, it should be noted that different types of direction focus will have The difference is that, for example, high ARPU products are easier to drive user growth through revenue share, thereby getting rid of dependence on traditional channels.

Game categories with large user base 

Creator Economy and UGC Content Platform 

Heavy vertical social scene

Hardware supply chain advantages and platform economy