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Why do VCs invest in Sushiswap?

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The community and the investment institutions had a very open conversation.

Comment: 0xCC, beat BlockBeats

Recently, the community governance of Sushiswap has attracted the attention of the industry. Sushiswap co-founder 0xMaki launched the Phantom Troupe Strategic Raise, a vessary diversification plan, on the official governance forum, It is proposed to sell part of the approximately 51 million Sushi currently held by the Sushiswap vault to institutional investors at a discount of 20% to 30%, using the stabletoins in exchange for the vault reserves. The sale could be worth as much as $60 million.

Why bring in a strategic partner at this point?

"Sushi is at an inflection point," says 0xMaki. "After building a lot of groundwork, Sushi must now integrate quickly. We will continue to integrate the functions of traditional finance into a decentralized infrastructure to enable the project."

Having such a large community drives the vertical and horizontal expansion of protocol and product development. Sushiswap has evolved from a dedicated AMM into an ecosystem.

In addition, strategic partners can extend Sushi beyond Defi. They can help bring Sushi into the "real world." Strategic partners will also help Sushi in several key areas:

Legal and regulatory assistance from traditional players, increasing transaction traffic and partnerships, improving the user experience to compete with Web2 products, introducing more MCV2 and Bentobox integrations, brand building and awareness building, Tokenomics and governance.

In addition, the conversion of Sushi to USDC mitigates the potential downside risk of market volatility. Money management and consulting are key to a growth organization. Therefore, 0xMaki hopes to use this move to bring in strategic partners for Sushiswap. For a qualified partner, he also gave his own criteria:

Can partner provide additional technical resources and legal advice/implementation? Can the partners allow us to reach new audiences (DEFI is still very niche)? Partners are able to integrate our products into new partners or portfolio companies. Can partners share a long-term strategic vision (strong research department). Will the partners actively participate in governance and help drive discussions like this?

Community members also had their own thoughts on whether the massive acquisition of more than 20 strategic partners would result in too many Sushi not being taken seriously by the organization. What's more, with Sushi currently operating at less than a million dollars a year, does Sushi need to sell so many tokens? And the price of Sushi coins has been low recently. Will this move further impact the price of Sushi and bring harm to the community? These and other issues have led to questions from community members. The issue has sparked heated discussions in the community, and most community members have expressed opposition to it.

According to the proposal, Confirmated strategic investors include Lightspeed, Spartan, Dragonfly Capital, Polychain, Blockchain.com, and Pantera Capital, 3AC, Defiance, Parafi, Hashed, Multicoin Capital, CoinFund, CMS Holding and other 21 institutions.

In response to the community's questions, many crypto VCs such as Pantera Capital and Defiance Capital have explained and responded to the proposal, and many non-direct participants such as Arca Capital partners and UMA protocol developers have also participated in the discussion on this topic.

In this case, what is the perspective of the institutions that are expected to be involved? (The following are the views of the agency, and "we" refers to the corresponding agency and does not represent the views of the movement.)

Pantera: Investment can support Sushi in five ways

Source: Franklin, Director of Portfolio Development, Pantera

Pantera Capital is an investment firm that has focused on investing in the blockchain ecosystem since 2013. Pantera has made more than 100 investments in cryptocurrencies, early stage tokens, and venture capital firms. Franklin, Pantera's portfolio development director, said Pantera can bring Sushi hiring support, industry networking, market research, suppliers, and marketing.

Recruitment support: Sushi's team and community are great, but as they grow, the team will eventually grow, and Pantare's work committee and talent network can support them. Talent is one of the biggest bottlenecks for the DEFI industry to reach its potential and is therefore one of the most leveraged activities we can help with. Pantare has an internal recruitment team, a talent network of headhunters, and an active database of candidates -- all of which help Sushi recruit for everything from smart contract engineer to chief financial officer.

Portfolio/Industry Connectivity: Sushi has built a strong network of partners and relationships, as well as a proven manual for cultivating those relationships within the community. As a result, we can give Sushi the added value of connecting with potential partners, looking for partners who can help open up new markets or products.

Technology/Market Research: Cryptocurrencies are changing fast. Having a partner who constantly tracks new technologies and solutions is critical to discovering the next new market. For example, which Layer 2 should be deployed first? Which cross-chain bridge is a priority? What new tools can speed up delivery? While Sushi is focused on executing its product roadmap, we help it constantly look at key opportunities and key risks emerging in the crypto ecosystem.

Resources/Vendors/Best Practices: Over the years, we have built up a number of vetted vendors that specialize in providing services to crypto companies/projects such as security audits, law firms, market makers, insurance providers, etc. We will do our best to collect and share these lessons in real time. This can also save a lot of time for teams like Sushi.

Marketing: We have a user base of more than 100,000 institutional investors, CEOs, industry leaders and other practitioners. They are all interested in learning about changes and trends in the crypto industry. As Sushi grows, we will help it bring the latest information about its products to new audiences to help Sushi discover new opportunities and expand its popularity.

Lightspeed: Support Sushi in addition to Defi

Credit: Amy Wu, Lightspeed Partner

Lightspeed believes that Sushi is one of the top teams in Defi from a product, vision, and execution perspective. The decentralized governance model and active community that the community has established is a long-term competitive advantage.

The value that light speed can provide to Sushi is mostly outside the crypto world. Expanding the current Defi audience to the millions, if not billions, of potential future users is a long way off. This will require a strong network outside of DEFI, which we have in other industries. For example, we can introduce various fintech products, game products, and more to the Sushi team and community.

Outside the crypto world, the Sushi brand is still poorly known (as is the case with almost all Defi projects -- this is not unique to Sushi). We were able to spread the sound volume of Sushi through our PR network and introduce the product to new partners outside the Defi world.

Lightspeed can support Sushi's company building. As mentioned above, we help our portfolio companies with recruitment, PR, marketing, BD, etc. Don't take our word for it. If it helps, many people from the Sushi community can share some stories, and/or we can bring some of them here to write posts.

The speed of light could also provide its own global network. Our investors are located in portfolio companies in the United States, Europe, Israel, China, India and Singapore, as well as other regions. We will help Sushi continue to expand globally. Capital is commoditized today, so being a VC doesn't make us different. The main asset we have is our reputation, which we have built with the companies we support.

Lightspeed does not currently own Sushi. We encourage the community to conduct due diligence on any investor (including us) who wants to participate in this round, asking about the projects they back and how the fund will ultimately help the companies they invest in. We really want to take the first step in building a long-term relationship with the Sushi team and community.

Spartan: Solve the selling challenge with a Sushi+Sushi Call composite token

Source: Jason Choi, general partner, Spartan Capital

Spartan has been in active contact with Sushi since the project started. With its growing team and extensive Defi project network, Spartan believes it can participate in the funding round as a partner to Sushi, and given the size of the investment committed, Spartan will be one of the co-leaders of the transaction. We would be happy to co-lead the deal with other major VCs and would suggest a community discussion on this forum. Over the past few days, we've been closely following the community discussions surrounding this proposal, and we wanted to share our views.

Spartan is an Asia-based cryptocurrency fund that has been investing in the sector for the past three years. We have been an active user and supporter of DEFI since 2019 and are one of the few funds dedicated to DEFI whose mission is in line with the venture capital landscape in Asia.

Spartan was an early owner of Sushi and an early user of Sushiswap. We drafted one of Sushi's earliest governance proposals. When Sushi was at its most difficult, we nominated ourselves as Chef Nomi Saga... To this day, we are still supporters of Sushi in most of our public statements.

Spartan believes the Sushi team needs to communicate more specifically about how and within what scope the money will be spent. In addition, the Sushi team should communicate how much buffer space they need to continue to expand in what could be a protracted bear market. Spartan agrees that the list of investors may be too long.

We recommend that each strategic investor list the contributions they have made to Sushi and let the community vote on who should be included based on those contributions.

On the issue of investor selling, which is of most concern to the community, we are evaluating a proposal from the UMA team: "Success Token". This seems to be a positive alternative. We are happy to be considered part of this community - if the community ends up strongly opposed to any type of expansion, it won't diminish our enthusiasm for DEFI.

UMA: "success token"

Given the community's opposition to discounted token sales. UMA designed the "success token".

A success token is a composite token consisting of 1 Sushi + 1 Sushi call option with a specific strike price and expiration date. This structure allows the Sushi team to avoid having to sell any tokens at a discount up front. In other words, the call option itself does not immediately pay a profit to the venture capital firm through an upfront discount. Unless the token exceeds a certain price before maturity (say 3-4 years), the VC will not make a profit. If the VC fails to inject value into the ecosystem within that time frame, the option may be worthless. Success tokens avoid paying VC investors an upfront incentive (in the form of a discount), instead paying VC investors an incentive only after producing a certain amount of results.

Our view: Sushi should definitely seek strategic funding from Tier 1 venture investors. But a better incentive structure should be devised than simply selling tokens at a discount. We should use the financial tools and knowledge of financial engineering we have to create a structure that benefits everyone (investors, DAOs, communities). Isn't the role of DEFI to invent these novel structures?

Arca: We encourage the community to reject this proposal

Source: Alex17, & NBSP; Jeff Dorman ( Arca CIO )

Arca's view is significantly different from that of other VCs. Arca felt that this proposal destroyed Sushi's value and encouraged the community to vote it down. Arca has even produced a counter-proposal to counter the proposal.

We believe that our expertise in capital markets and deal structure can bring more economic and strategic benefits to Sushiswap and its existing investors/community than are currently proposed.

Some of the VCs on the investor list boast of their "strategic value", yet they may sell a Sushi at a discount to the secondary market. In other words, it looks more like a carry trade than a strategic long-term investment.

As a big investor and a strong believer in Sushiswap, Arca is more than willing to hold on for the long term. If the Sushiswap community were to sell Sushi from its central vaults in this environment, we would be more than happy to be the buyer. We firmly believe that Sushi is already trading at a significant discount to fair value, so we do not need any further discounts. In fact, we will pay a higher fee than the current transaction level.

Arca is one of the largest holders of XSushi, with 7.51 per cent of the supply in circulation. All of these XSushi are purchased on the secondary market without any discount.

With no lock-up period, we could sell XSushi whenever we wanted, but instead we kept buying on the dips. Because in more than 20 years of professional investment experience, I have never seen a company with hyperbolic growth and such a healthy balance sheet with an average dividend yield of 16.4%.

Generally speaking, companies need to raise capital for three reasons:

1. Companies need money. Obviously, Sushiswap is not.

The company thinks it will need money in the future to compete in the fierce Red Sea market. And apparently it's not.

3. The company sees a strategic interest in raising capital from certain investors. It is not clear in the proposal what the strategic benefits of these venture capital investments would be, if Sushi needed them.

Right now, Sushiswap's Sushi token has plenty of public liquidity and there is no reason for private financing at a deep discount (PIPE). Sushiswap has access to millions of potential investors and does not need to find a few to invest privately. Instead, every investor interested in a Sushi, if they really want to own it, can buy it on the secondary market.

DeFiance Capital 8

Source: Wangarian

Defiance admits that its current round of about $60m is too large. Considering the size of Sushi's finances and the financial requirements of Sushi, $20 million would be ideal. But the deal was scaled up several times because of strong investor demand. Defiance believes that the number of institutions will not affect the quality of the round.

Defiance has been one of Sushi's biggest supporters since October 2020, when Sushi was priced below $1.00. As a crypto investment fund with a liquid position, our nature requires us not only to buy tokens, but also to sell them occasionally. We do not feel the need to explain to the public every operation we undertake.

Looking forward, Defiance will not participate in the financing. But we hope that the Sushi community will be able to build a large stablecoin-denominated vault, which will provide meaningful financial support to the Sushiswap team in the years to come.

GSR: Four strategic values

Founded in 2013, GSR is a long-established crypto native company with more than 125 employees worldwide. We have deep trading expertise that comes from years of experience and relationships spanning nearly a decade in the global crypto market.

When Sushi considers adding strategic partners, each investor should contribute to Sushi's growth and ultimately bring value back to the community. There are several strategic values we can bring to Sushi:

Liquidity. Investment partners in the ecosystem can bring new liquidity to Sushi, which will help Sushi build a deeper pool of liquidity.

New capital. We have a deep relationship with the institutional capital of the wider Tradfi world, which still has trillions of dollars waiting to enter the market. Partnering with these institutional capitals ultimately benefits the Sushi ecosystem, benefiting both the finances and the community.

Product strategy. Most of the investors in the proposal have extensive experience working with a number of leading teams inside and outside crypto to help provide market advice on product strategies and road maps. This experience and expertise will provide value to the community if these partners are formed based on long-term considerations.

Marketing. Having an active and respected group of investors across the crypto ecosystem will help raise awareness of Sushi and expand its success, which will lead to a range of benefits.

We intend to be a strategic partner for Sushi, and it's great to see the level of community engagement with this proposal.

Zee Prime: The emphasis is on diversification

The proposal should make it clearer that the main objective is to diversify against the risk of a prolonged bear market.

It makes sense to require each investor to write down what strategic value they can bring, but focusing too much on KPIs and deliverables can miss the point -- capital diversification. Investors should be selected based on their alignment with the values of the Sushi community. For example, have each participant sign a statement of conformance -- for example, they will continue to behave in the same way as their Sushi, and will not dump or hedge their Sushi tokens.

The proposal should be scaled down to $30 million to $50 million and set a maximum investment quota for a single investor. At the same time, the lock-up period will be extended by 1.5 to 2 times to filter out more short-term investors.

The community is still debating and voting is expected next week

After nearly half a month of discussion, combined with the views of the community and the feedback of the organization. 0xMaki believes Sushi has the ability to become a leading market player. Building network effects between VCs by bringing in strategic partners will enable Sushi to compete effectively at the institutional level. Not all strategic partners need to be venture capital firms; some angel investors should also be included.

"With the expansion of Sushi, we have the opportunity to set standards in Defi." 0xMaki believes that strategic partners not only support the inclusion of new projects in the ecosystem, but also promote Sushi to a wider audience. You can bring Sushi not only into traditional finance, but into traditional industries as well. In addition, cooperation with strategic partners will be improved in terms of infrastructure, law and products. As a result, current strategic partners will be more inclined to "seek coherence".

Omakase, the developer of Sushiswap, has released a timeline for the proposal. A vote on the expansion of the vault is expected on Monday. Holders who follow Sushiswap can then actively participate in the governance vote.

Attachment: Weekly Schedule for this proposal

Monday, July 19

Core response - what is the strategic partner? Integrate all outstanding proposals, companies, and participant launches.

AMA: Define Sushi's strategic partners and projects that need to be executed immediately

Tuesday, July 20

Core Response [Amendments] - General revisions based on integrated discussion and community feedback & NBSP;

AMA: Insights on strategic value

Wednesday, July 21

Discuss revised terms, coordinate meetings to provide implementation and pricing details & NBSP;

AMA: A discussion of new protocols and future use cases

Thursday, July 22

Across Partners and Communities