Thread by @Darrenlautf

Capital is abundant right now.

Everyone has money and they want to deploy it. Funds spin up every other week to satisfy that desire.

But what makes a good fund?

How should crypto founders choose from an ever-growing list of funds and angels?

Let's dive into it 🧵

Here's a sample framework I thought up on evaluating VCs. It will be broken down into five categories:

1. Value Add
2. Capital Support
3. Track Record
4. Allocation Size
5. Manpower

1. Value Add - identify what areas you need help with

Tokenomics:

Can they help brain it out? (e.g. @Delphi_Digital's work with @AxieInfinity)

Governance:
Have they voted or made any governance proposals? (e.g. @anjan_vinod's proposal to add @barn_bridge on @AaveAave)

Have they even commented on any with their support?

Some anons are more active than VCs in governance forum participation. (e.g. @MonetSupply)

Distribution:
How wide is the VC’s reach?

Do they have connections with institutions? Market makers? Exchanges?

Marketers? Podcasts? Newsletters? Youtubers? Tiktok?

(e.g. @mrjasonchoi with @theBlockcrunch and @spencernoon w @OurNetwork__)

Technical:

Do they have anyone technical to help with code reviews? Can they run validator nodes?

Do they have a Labs division - build products that support your project? (e.g. @hiFramework and @Delphi_Digital)

Can they make custom dashboards w @DuneAnalytics or @nansen_ai?

Hiring

Do they have a job board? (e.g. @DeFianceCapital and @MechanismCap)

Do they have a dedicated hiring manager (e.g. @dragonfly_cap) that can help you source people that would be great for your project?

Connections:

Look at their existing portcos:

Are there synergies there?
Are there any conflicts?
If so, why us even though you already supported competitors?

Compare them with others/previous investors in your round:

Are they providing the same value add?

Think of them as part of the same team / want them to be complementary.

Some VCs assume the bigger VCs will do all the work - end up adding less value.

2. Capital Support: Liquidity bootstrapping the protocol

Not sybil rather large and long deposits to bootstrap platform!

Most retail liquidity is mercenary:

Projects like @goldfinch_fi raised liquidity rounds
(i.e deposit for a year) for fixed share of tokens

Several DOT/KSM projects are also asking VCs to pledge their DOT/KSM for them to win parachain slots.

You want your VCs to be the biggest and most active users of your protocol.

3. Track Record:

What sector does this VC usually invest in?

What expertise can they provide to your project?

Ask for list of portcos that they have invested in so you can reference check!

Can also go to @dovemetrics to get publicly announced portcos list.

You want to look for any redflags:

- Trying to change terms
- Trying to squeeze the round
- Unfulfilled promises
- Instant nuking on distros

Ask your other investors in the round for their thoughts. Everyone knows each other in the crypto VC space.

4. Allocation Size

How much % of the network are you selling to this fund?

How are you aligning expectations?

Is this a large % relative to their portfolio?
VCs don’t always give the same level of support.
->$5m position gets more love than $50k.

Some VCs treat investments as call options.

Not particularly bullish but just commit small amount as a “support cheque.”

If it moons good for them, claim and farm clout.

if it dooms, it was a small cheque anyway.

5. Manpower
First and foremost, who is at the fund? What can you find out about them?

Check their Twitters and see what they’re tweeting about.

Listen to podcasts, read their blogs, understand why they do what they do.

The best investors in DeFi do this for more than money!

When looking at the fund as a whole, consider their team size.

As a founder, will you have a dedicated person staffing your project? Will you get access to other members of the firm for support?

Worth thinking about the specialties/focuses of the person on your project.

Culture is important too.

What is it like at the firm? Look into or ask if they spend more time sourcing deals or supporting their portfolio companies.

If you can find ex-staffers, worth reaching out to them and asking about their raw opinions.

Are you getting the fund for the analyst/partner you’ve been speaking with or do you want the whole team and brand?

If it’s really because of the person sourcing the deal, ask them to write an angel check.

Incentives w most funds are broken anyway, 🧵for another day.

Finally, who are these people really?

Will they be willing to answer a 3am phone call because something in your protocol broke?

Would you grab drinks with them if they were in town?

At the end of the day, by doing a raise you are selling shares of your company, of your baby.

Do you really want someone to freeload off the efforts you put in?

Or do you want someone that is down in the trenches with you?