Chain Venturer: Melody He of The Spartan Group

📢 Sponsor | 💡 Telegram | 📰 Past Editions

Happy Weekend 🙋🏻‍♂️,

Welcome to Chain Venturer, a series of intriguing conversations with crypto investors. For this week’s issue, we have Melody He from The Spartan Group.

Melody is a Co-Founder and Partner of The Spartan Group, a leading blockchain investment and advisory firm based in Singapore and Hong Kong.

The firm was started in 2017 by former Goldman Sachs alumni and has since grown and expanded to three divisions: asset management, advisory, and venture studio.

If you would like to participate in a future episode, DM me here.

-Marco

Quick announcement: Launchy is launching (*ba dum tss*) a crypto investment syndicate.

The landing page will be released in a few weeks, but here are some quick facts:

💡 Why Us?

• Media arm: Newsletter with 15,000 subscribers including interview series with crypto investors that collectively manage $1 billion+

• Unique network: We have unique network access to investors, entrepreneurs, and family-office conglomerates in the Southeast Asian markets — which is one of the most promising regions with respect to crypto adoptions.

• Operational support: Relationships with a recruiting firm and offshore service providers that can help our portfolio companies scale while minimizing burn.

We’re sector-agnostic and will invest in angel, pre-seed, and seed rounds. If you know anybody who’s raising, feel free to reply to this email. Cheers 🍻 

Anyway, enjoy this week’s conversation.

Sorry for the constant Gwart meme — I’m a big fan.

Melody He, Co-Founder and Partner at The Spartan Group

Melody He is the co-founder and a partner at Spartan Group, a leading blockchain investment and advisory firm based in Singapore and Hong Kong. She also leads the group’s advisory business, Spartan Advisory.

Melody's professional journey commenced in the Investment Banking Division at Goldman Sachs in Hong Kong, where she contributed significantly to a plethora of financing and M&A transactions, including the noteworthy Baidu IPO.

With a decade of experience as an investment banker, Melody ventured into the forefront of early-stage investing, joining as an investment partner at MOX/SOSV, a global top-tier accelerator VC.

Eventually, Melody started Spartan in 2017. Through Spartan Group, Melody has collaborated extensively with prominent crypto projects such as SweatCoin, Pintu, WilderWorld, BitDAO, Qredo, Dapper Labs / Flow, Solana, Blockfolio, Blockstack, Origin, and Deribit.

Here’s my conversation with Melody He.

Quick takeaways:

• The Spartan Group has three unique divisions, which enable the firm to capture the longer life journey of entrepreneurs.

• The fast money associated with launching a token can actually lead to a quicker downfall, as it may not be backed by a deep market understanding.

• Despite crypto’s open-source nature, simply copying existing products and adding a token is insufficient for creating a competitive and differentiated product.

• Spartan Labs realised that the most innovative ideas often come from external sources - hence shifting their direction to a co-building model.

• The transparency and permissionless nature of tokens can expedite network growth, making them more agile than traditional models.

IN PARTNERSHIP WITH

Kirby Crypto Alerts

What if we told you that you only need 3-5 mins a day to stay up to date with the most important updates in #crypto?

Join Kirbs Crypto Alerts for carefully curated daily news & alpha content and edge in the crypto markets

Content is categorized into segments for easy navigation

• Actionable

• Project updates

• Tools/Reads

• News

KCA does the work so you don't have to.

What was the defining moment that drew you into the world of crypto?

In 2012, Melody founded a startup in Beijing. For her startup, she hired graduates from top Chinese universities to work as engineers. Coincidentally, these engineers spent some of their time experimenting with Bitcoin in the early days, which was Melody’s first exposure to cryptocurrency. However, she didn’t pay much attention to it at the time, as her focus was on the mobile technology revolution.

Following the iPhone boom, Melody and her team dedicated themselves to developing innovative mobile experiences. They were exploring different ways for users to interact with mobile-first products and experimenting with new business models. Because of this, they didn’t prioritize cryptocurrency or see its potential.

In late 2014, Melody moved to Singapore, where there was a small but growing startup scene with a particular interest in FinTech. Melody attended many FinTech events and noticed an increase in startups working with blockchain technology. However, these startups primarily focused on blockchain technology, such as managing company shares and fundraising (cap table), instead of focusing on the tokens themselves.

Around the same time, Melody also came across a company that was trying to use Bitcoin as a central currency for global payments. This idea appealed to Melody because she had experienced high bank fees and exchange rates when transferring money from China. As a result, Melody delved deeper into understanding Bitcoin’s potential applications.

In 2017, Melody decided to invest in an ICO as a learning experience. This experience deepened Melody’s understanding of token sales and their potential to raise funds globally, as well as how tokens can be used to build a user base.

Later that year, Melody and her team founded Spartan, an investment and advisory firm that aimed to do more than just invest in crypto startups. With their background in investment banking, they also aim to help and advise companies in structuring their token issuance and distribution, especially in Asia.

Since its inception, Spartan has collaborated with industry giants like Solana, Flow, Dapper Labs, and Stacks.

What is The Spartan Group?

The Spartan Group is a blockchain advisory and asset management firm. There are three components of the firm.

Spartan Advisory: the advisory arm of the group helps crypto companies with capital raises, M&A, and other advisory/dealmaking activities.

Spartan Capital: the asset management arm with both hedge fund and venture fund vehicles.

Spartan Labs: the venture studio arm of the group that helps co-build companies with founders.

What makes The Spartan Group different?

While Spartan Advisory targets later-stage companies and Spartan Capital focuses on Seed to Series A, Spartan Labs is targeting the pre-seed stage.

With the three divisions, Spartan is able to capture the longer life journey of entrepreneurs from pre-seed to later-stage companies. The structure also provides Spartan with more potential revenue streams during different market cycles.

Spartan Labs is the group’s newest entity, can you elaborate a bit more on the idea behind it?

Spartan realizes that infrastructure projects need a thriving ecosystem by attracting developers to build applications. To address this problem, the Spartan Group launched Spartan Labs, a venture studio that incubates projects to an MVP stage before hiring the right CEO and spinning them out with external funding.

However, Spartan Labs subsequently realized that the most innovative ideas often come from external sources and that the most effective founders are not necessarily hired CEOs

Shifting gears, Spartan Labs now employs a co-building model, taking a 15-20% equity stake in companies while actively participating in the early stages of ideation, development, business strategy, and marketing.

Why hasn't a “Rocket Internet” venture studio model emerged successfully in crypto?

Melody believes that the new Spartan Labs approach adds more value than the previous strategy. She highlights the shortcomings of a Rocket Internet-like venture studio model in the crypto space, as success in web3 entrepreneurship often stems from original insights and a deep understanding of the industry.

Simply copying existing products and adding a token is insufficient for creating a competitive and differentiated product. That is why even though a lot of the popular products’ codebase is open source, the Rocket Internet model still does not work very well.

Spartan's experience also suggests that the fast money associated with launching a token can actually lead to a quicker downfall, as it may not be backed by a genuine vision or deep market understanding. Melody notes that even initially successful projects like Sushiswap have struggled to win against Uniswap in competition.

Which sectors or types of projects is Spartan Group currently interested in?

On the Spartan Labs side, the entity is actively pursuing opportunities in consumer crypto.

The team, which primarily consists of individuals with product and agency backgrounds, is enthusiastic about exploring the integration of NFTs in consumer engagement, specifically in areas such as memberships, loyalty points, and engagement programs. The goal is to foster development in sectors that are highly relevant and directly impact consumers.

On the investment front, Spartan Capital maintains a broad mandate, exploring a wide range of opportunities across the crypto spectrum. However, Melody notes certain areas that the group does not focus on, including investments in exchanges, brokers, and market-making teams.

Instead, Spartan operates three distinct funds, each with a specific focus:

• Hedge Fund -> DeFi

• Venture Fund -> Infrastructure

• Venture Fund -> Metaverse, Gaming, and NFT

With the Uniswap UI fee situation, we’re seeing debates about whether value can accrue to both tokens and equities, what are your thoughts?

Melody believes that the transparency and permissionless nature of tokens can expedite network growth, making it more agile than traditional models.

Additionally, tokens are jurisdiction-agnostic. It offers flexibility and speed for global operations, which is much harder to achieve via equity due to its bounded jurisdictional nature. Moreover, tokens are also purely digital with smart contract integration.

However, while tokens can be an excellent tool for acquiring participants, revenue might still flow to the equity side. The challenge arises when there's a conflict of interest between token and equity holders, especially during market downturns, when vulnerabilities in a company's foundation become evident. Such conflicts could reveal inadequacies in the investor base and cap table designs.

For Spartan's investment strategy, Melody expressed a preference for straightforward models. Either a direct investment in equities with the tokens acting as user rewards; or a pure token-only investment for infrastructure projects where the primary value generally resides in the tokens.

Rapid Fire Questions

1. What’s one book that any aspiring investment professional should read?

   • The Power Law: Venture Capital and the Making of the New Future - Sebastian Mallaby.

2. What’s your biggest investment mistake?

   • Missed OpenSea’s initial funding round.

3. What’s the most underrated use case of crypto?

   • Applications that prioritize user experience and pragmatically choose not to fully decentralize in order to deliver high-quality, consumer-centric products.

4. What’s your most contrarian view in crypto right now?

   • The next successful wave of user-centric companies will likely establish their own chains, with infrastructure development driven by specific use cases.

5. What’s the biggest risk that the crypto space is facing?

   • The pervasive crypto boom-bust cycles, frequent hacks, and negative publicity could hinder widespread adoption and turn users, applications, and regulators away from the technology.

If you enjoy reading this issue, please consider subscribing. It takes 1 minute of your time but it would mean the world to us 🙇

Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.