Chain Venturer: Tze Donn Ng of Tioga Capital

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Happy Weekend 🙋🏻‍♂️,

Welcome to Chain Venturer, a series of intriguing conversations with crypto investors. This week, we have Tze Donn Ng from Tioga Capital.

Tioga is a European VC firm dedicated to backing exceptional Web3 entrepreneurs. Donn joined Tioga in July 2022.

Before that, Donn was an Associate at Boston Consulting Group (BCG), focusing on commercial due diligence in consumer, healthcare, B2B services, and industrial goods. 

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What a G

Tze Donn Ng, Investments at Tioga Capital

Tze Donn Ng is an investment associate at Tioga Capital, a European venture capital firm dedicated to backing exceptional Web3 entrepreneurs. Donn joined Tioga Capital in July 2022.

Tioga currently consists of 8 individuals based in London, Lisbon, and Brussels investing out of a +€80M fund. The fund was launched in December 2020 with a Luxembourg fund structure and writes €500k-€5M tickets in startups at the pre-seed up to Series A stages, with a focus on:

• DeFi.

• Blockchain infrastructure and security.

• Compliance.

• Creator economy and NFTs.

From early 2021 to mid-2022, he was an Associate at Boston Consulting Group (BCG), focusing on commercial due diligence in consumer, healthcare, B2B services, and industrial goods. 

Donn graduated from the University of Cambridge in 2020 with a Bachelor of Arts and Master of Engineering in Information and Computer Engineering. During his university team, he was the President of Cambridge University Malaysian Society and the captain of Queens’ College Badminton First Team.

Here’s my conversation with Tze Donn Ng.

Quick takeaways:

• Crypto is an internet of value.

• Donn acknowledges the limits of decentralized stablecoins and leans towards centralized fiat-backed stablecoins design.

• A strong focus on go-to-market strategy is paramount for new stablecoin projects.

• London's successful fintech regulatory sandbox as a model for its approach to crypto regulation

• Selling to DAOs is akin to selling to government entities but with even more complexities and slower processes. 

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

Donn's initial exposure to crypto dates back to his high school days, around 2013 or 2014, when he learned about the Jamaican bobsled team's fundraising through Dogecoin. This event marked his first encounter with crypto, even before he knew about Bitcoin. His interest deepened through the crypto community on Reddit, where he engaged in memes and discussions about various digital currencies.

• During his time at Cambridge University, where he studied Information Engineering, he encountered crypto once again. In 2017, Donn actively participated in the ICO craze, experimenting with altcoins and investing in Bitcoin Cash and Ethereum.

Following graduation, Donn aspired to enter the investment field but recognized the need for foundational experience in consulting or banking in the UK. He chose consulting and joined BCG, where he focused on private equity due diligence.

• While at BCG, he actively engaged in blockchain-related topics within the firm and remained deeply engaged with the crypto world, often spending late nights learning about new developments and exploring new chains, such as Solana, Avalanche, Near, Luna, Cosmos, and Fantom.

Eventually, Donn's passion for crypto led him to explore opportunities in venture capital within the space. Conversations with various VCs and a particularly inspiring discussion with one of his future bosses at Tioga convinced him of the vibrant, thesis-driven investment culture in crypto VC. Embracing the risk, Donn transitioned from his established role in management consulting to a pioneering position in a crypto-focused VC fund, a move that has been fulfilling for him.

The defining moment: The pivotal moment that propelled him towards a full-time career in crypto was in 2021, after playing around with DeFi and NFTs.

For Donn, crypto was the Internet of Value. The allure of DeFi lies in its universal accessibility -the simplicity and efficiency of transferring stablecoins particularly captivated him, demonstrating the power of crypto in practical terms.

What is Tioga Capital and what sectors are you most excited about?

Tioga Capital was established in late 2020 by Nicolas Priem and Michiel Lescrauwaet. It is a VC firm specializing in early-stage investments. Tioga's investment sweet spot typically ranges between $1M to $3M, though they are capable of investing up to $5M. The firm is versatile in its approach, investing in both equity and tokens.

The core of Tioga Capital's investment thesis is straightforward yet impactful: to support the most exceptional founders in the crypto space.

Regarding the sectors that excite them most, Donn highlights several key areas outlined in a detailed article available on their Substack. These areas include:

• DeFi (RWA, stablecoins) → Tioga Capital has already expressed significant insights in this domain. Here, they have invested in companies such as Maple Finance and PV01.

• Blockchain Infrastructure and Security → Acknowledging the critical need for robust infrastructure and security in the blockchain ecosystem, they have invested in companies like Chaos Labs, which focuses on economic security.

• Creator Economy and NFTs → The third area of focus is the burgeoning creator economy and the NFT sector. A notable investment in this category is gem.xyz (now known as OpenSea Pro) and Lens Protocol, reflecting their commitment to this innovative space.

• Compliance and Regulatory Solutions → Recognizing the inevitability of DeFi's integration into the broader financial world, Tioga Capital also invests in compliance solutions and chain analysis companies. This investment aligns with their belief in the importance of regulatory compliance as DeFi continues to intersect with traditional finance.

What are your thoughts about the new design in stablecoins?

Donn is excited about innovation in the stablecoin space, such as Mountain Protocol and Ethena. Mountain Protocol targets an interesting niche yet significant market, i.e. emerging market USD savers, while also being able to be used in DeFi. With emerging market crypto users increasingly transacting with USDT, the yielding stablecoin USDM becomes a product that could easily entice users, especially in a high-interest rate environment.

Donn also finds Ethena intriguing, particularly from an ideological standpoint. The concept of a truly decentralized stablecoin, as embodied by platforms like Liquity and Ethena, aligns with their ethos.

However, when considering the factors of impact and scalability, Donn acknowledges the limits of decentralized stablecoins and leans towards centralized fiat-backed stablecoins due to the critical role they play in facilitating payments and enabling savings in USD.

While Donn appreciates the importance and necessity of projects like Liquity for their contributions to self-sovereignty and uncensorable money, he views these as catering to a smaller market.

What strategies will enable emerging stablecoin protocols to achieve significant growth and capture a substantial market share?

Donn emphasizes that when Tioga Capital evaluates T-bill or yielding stablecoin ventures, their primary focus is on the go-to-market strategy.

He notes that while regulatory differentiation is often touted by teams, regulatory setups tend to be fairly similar and regulations in the space are -ever-evolving. Therefore, a solid go-to-market approach is deemed paramount.

Donn is intrigued by protocols like USDV, which has launched with strong partnerships, including Bybit and Layer Zero. USDV stands out due to its robust go-to-market strategy.

Originating from former Bitfinex executives, USDV secured immediate integration on over 20 platforms upon launch, exemplifying the kind of market penetration necessary for mass adoption. Donn regards this level of immediate platform integration as essential for any new stablecoin to gain significant traction.

Another noteworthy investment by Tioga is PV01, an emerging company set to operate under Bermuda regulations. PV01 aims to digitize bonds on-chain, creating freely tradeable bearer bonds. This initiative excites Tioga as it represents a meaningful bridge between DeFi and TradFi. The founders of PVO1, Max Boonen and Flavio Molendini, both former co-founders of B2C2 and with experience at Goldman Sachs, bring a rare depth of expertise in both the crypto CeFi and traditional finance sectors.

Tioga backed Chaos Labs. Do you think the space for DAO servicing companies is saturated?

Donn acknowledges a proliferation of players in the DAO service provider space, which could suggest saturation. However, he underscores a significant gap in the quality of services provided.

While there may be numerous companies in the space, Donn believes there is still ample opportunity for high-quality firms to emerge and make a notable impact.

Delving into the dynamics of DAO governance forums, Donn observes that apart from a few entities like Gauntlet and Chaos Labs, which contribute meaningful discussions, most DAOs struggle with efficiency and decision-making.

• He cites his active participation in forums for platforms like Maple or Aave and recognizes the valuable inputs from figures like Mark Zeller. Yet, he finds that most DAOs are mired in political discussions and move slower than traditional startups, likening their pace to that of a sluggish bureaucratic country.

Given these challenges, Donn advises the portfolio companies of Tioga Capital to approach their market strategies with caution. He likens selling to DAOs to dealing with government entities but with even more complexities and slower processes. 

How do you see the crypto market in the EU, particularly in light of recent developments like the upcoming MiCA regulations?

Donn observes a notable trend in the crypto industry, with startups increasingly relocating from the US to London, France, Singapore, or Dubai. This shift is largely attributed to the desire for clearer regulatory environments, such as those promised under the EU's MiCA (Markets in Crypto-Assets) regulations.

In terms of investment dynamics, Donn notes that more funds are establishing European branches, indicative of a growing interest in the region. He highlights that while US crypto deals are often oversubscribed and expensive, Europe presents opportunities to discover under-the-radar projects. However, he acknowledges that Europe's venture capital landscape, though evolving, still lacks the vibrancy of Silicon Valley.

London, in Donn's view, is exceptionally well-positioned to become a significant crypto hub. He references London's successful fintech regulatory sandbox as a model for its approach to crypto regulation. Although it's still early days, there are signs of growth, including increased crypto-related events and movements of major players like a16z into the city.

Regarding the impact of the MiCA regulations, set to be implemented by 30th June of the following year, Donn is optimistic. He believes these regulations will positively influence sectors like remittances and real-world asset transactions on the blockchain, offering a more stable and reliable framework compared to the current state. While the immediate impact on crypto traders might be minimal, as they continue using assets like USDT, the introduction of Euro stablecoins under MiCA could provide a safer alternative for TradFi professionals due to stricter requirements for stablecoin issuers under MiCA.

Overall, Donn sees the upcoming MiCA regulations and the evolving investment landscape as positive developments for the crypto market in Europe, suggesting a period of growth and maturity in the coming years.

He anticipates that the full benefits of these changes will become more apparent in the years following MiCA's implementation.

Do you think a DeFi credit is feasible?

Donn believes that achieving feasible DeFi credit, especially in the context of undercollateralized lending, presents a significant challenge.

He points out that this is not exclusively a crypto problem but a broader issue in fintech and finance. The core difficulty lies in underwriting, which requires ample data points and a substantial sample size of borrowers to assess risk accurately.

However, Donn sees potential in leveraging crypto to simplify the process. If financial transactions and revenue streams of borrowing companies could be conducted and recorded on the blockchain, it would provide a transparent and comprehensive view of their financial health. This level of transparency is still a distant goal, but it's a necessary step for undercollateralized lending to flourish in the DeFi space.

In the meantime, Donn identifies a possible intermediate step towards this future. He cites Arf.one as an example of a company that operates in this middle ground. Arf.one provides liquidity solutions to remittance companies, earning revenue on-chain. According to Donn, companies like Arf.one could serve as a crucial bridge from the current state of undercollateralized lending, where only the capital pooling is on-chain, to a more robust DeFi undercollateralized lending model.

Rapid Fire Questions

1. What's one piece of content every aspiring investment professional should read/watch?

   • The Best Venture Firm You’ve Never Heard Of by The Generalist

2. What’s your biggest investment mistake?

   • Not working on personal portfolio construction and risk management

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

   • Remittances.

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

   • Speculation is fine and much of crypto is a game of attention.

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

   • Reputation.

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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.