Is it still possible to start a VC firm now?

Title: How to Build a VC Firm
Author: @hosseeb
Translation: Peggy, BlockBeats

Author: Rhythm BlockBeats

Source:

Repost: Mars Finance

Editor’s Note: Amid the recurring cycle of “cryptocurrency is dead” declarations, author Haseeb Qureshi (Dragonfly Managing Partner) shares his personal experience, reviewing the process of building a crypto VC from scratch to scale, discussing fundraising, positioning, winning deals, post-investment support, and team building.

This article dissects the operational logic of VC from a practical perspective: in a structure where returns follow a power-law distribution, how to understand “non-consensus judgment,” how to view hit rate and heavy position strategies, why “winning deals” is more critical than “picking the right projects,” and why this is a business that requires long-term patience.

For those wanting to understand how VC operates, this is a straightforward and concrete experience sharing.

Below is the original text:

I have a bad habit: whenever I accomplish something, I can’t help but write down how I did it.

We just completed the fundraising for Dragonfly Fund IV, a $650 million crypto VC fund (and at the same time, nearly half the media once again declared “cryptocurrency is dead”). Currently, we manage about $4 billion in assets, with around 45 people across New York, San Francisco, and Singapore, and have become one of the largest VC platforms in this “industry most people couldn’t survive.”

So when a few people asked me to write about how Dragonfly got to where it is today, I thought: well, why not?

Honestly, if when I started Dragonfly, someone had given me a blueprint on “how to build a VC from zero,” it would have been incredibly valuable. But the reality is—hardly anyone tells you these things.

Honestly, this article probably only helps 0.01% of readers, so spending so much space on it might seem pointless. But whatever. If you’re considering building a VC, or if you’re just like I was 10 years ago—this article is for you.

When I first entered crypto VC, most people thought the industry was “dead.” That was 2018, right after the ICO bubble burst, and the entire industry was free-falling. Most of the people I started with had already left.

But I always believed that crypto is something destined to exist long-term—it’s a concept once you truly understand, you can never “pretend not to understand” again. So when people ask why I remain so optimistic about crypto, my answer is simple: if I didn’t believe in it, I would have left long ago. Now, it’s too late for me; this optimism has spread to the back of my mind.

Therefore, when Bo and I met and decided to build Dragonfly together, we didn’t expect the market to be overly enthusiastic. But every VC has to start from zero.

Lesson #0: Your first fund, you must bet your life on it

The lifeline of VC is only one thing: money.

To have a fund, you must first be able to raise money. If you lack the ability to access capital (or don’t have partners who can help you fundraise), then you’re not ready to start a fund.

For the first fund, you need to raise from friends first. Your boss, your boss’s boss, anyone you know who is wealthy and reputable—even if only a nodding acquaintance.

If your reputation isn’t tied to this fund, it means you’re still taking risks. I’ve seen too many first-time fund managers fantasize about “preserving their reputation if the fund fails.”

That’s a fantasy.

If you’re not all-in, success is nearly impossible. Yes, if you fail, you’ll be embarrassed and lose money from important people. But if you want any chance of success, you must use everything at your disposal to make the first fund work. If you’re not willing to do that, you shouldn’t try to build a VC.

Once you get initial capital from those who have “every reason to back you,” you move on to larger pools: family offices (super-rich families), fund-of-funds (funds that invest in other funds), “institutional capital” (university endowments, foundations, sovereign wealth funds).

Generally, from easiest to hardest, from low to high.

Now, you start pitching your fund to these “money-rich” investors. But here’s the question: as a first-time fund manager, what gives you the right to manage their money?

The only answer: you must have a clear, expressible advantage.

Lesson #1: Find a niche where you are stronger than anyone else, no matter how small

When we founded Dragonfly, crypto VC was still a very small field. But even then, a few dominant players already existed: Polychain, Pantera, a16z. In our eyes, they were unshakable giants.

So, initially, we couldn’t lead any deals. No one wanted our money. We had to find a way to “get into rounds.” Like startups, new funds must focus.

Our initial idea was: Bo in Asia, I in the US—we would do “East-West connections.” Crypto is global, and we could be a bridge between Asia and the US, helping founders from both sides enter each other’s markets.

This positioning wasn’t enough to be lead investors. No founder would want “East-West fund” to be the lead. But it was strategic enough to get us a small seat—enough to start pushing in.

Lesson #2: Do the dirty work

It turned out that almost no one was competing with us on this East-West arbitrage. I was initially puzzled: such an obvious opportunity, why isn’t anyone doing it?

Later, I realized the answer: because it’s damn hard.

This means running a fund across Asia and the US simultaneously, with extremely high daily workload; more coordination, late-night Zoom calls, language barriers, and almost no normal life.

If success could be achieved without this, who would choose this path? But we had no choice. So we endured. We worked harder and were more jet-lagged than anyone else.

Many imagine VC as an elegant profession: summer vacations, quarterly ski trips. We did none of that. No money, no time, no breathing room. The closest we got to “winter sports” was enduring crypto winters again and again.

Lesson #3: Optimize like a startup

Once you have a clear angle and can start participating in rounds, you must establish feedback loops. Investing is fundamentally a feedback loop; the tighter, the better.

Investors demand startups to be highly data-driven and quantitative, but they often don’t do the same themselves.

You should record everything: your discussions, missed deals, use AI to record and analyze your fundraising and investment committee meetings; review the biggest deals in the industry, understand why they succeeded, and summarize theories; study the great investors before you, find what they have in common. Now with AI, all this is much easier.

But most investors don’t care about these. They rely mostly on “gut feeling.” Success depends more on luck and network strength.

Luck may help temporarily, but it’s not a strategy, nor does it compound like cold optimization.

Lesson #4: Talent is everything

VC management is generally poor—I’m talking about organizational management. One-on-one communication, training systems, KPIs, responsibilities, transparency, all-hands meetings… many VC firms do these terribly.

I later realized why: VC doesn’t “screen for management ability” like a company does.

Poor management in a company will eventually lead to failure; but VC is a power-law industry—if a few people can generate power-law returns, the fund survives even with overall poor management.

But in the long run, good management itself is an advantage. It retains top talent and helps them grow into the next generation of core partners. VC is notoriously bad at “intergenerational transfer” and internal promotion; many partners are even afraid of hiring smarter young people.

At Dragonfly, we attract and retain a group of people who could have gone to bigger, better platforms. We give them stability, voice, and independence, demonstrating that we value them—and this is a key reason we outperform peers.

Lesson #5: Be stupidly ambitious

I find it incredible that most new VCs, when asked “what kind of firm do you want to be,” can’t clearly answer. “We want to invest in good companies, be the best partners for founders.”

Ugh. That’s like entrepreneurs saying: “My goal is to maximize shareholder value.”

You need a real ambition, and you need to say it out loud.

When we first started, our ambition was simple: beat Polychain.

Just that. At the time, Polychain was the benchmark for crypto VC. Later, when we actually started surpassing it, I realized I had to upgrade our goal: become a Top 3 crypto fund. That goal drove us for a long time. Now, I think we’re already Top 3, so the goal shifted to Top 2, then Top 1. Where we are now, I’ll leave to readers to judge.

Lesson #6: Pretend you’ve achieved it, then really do it

When you have no brand with your first fund, you must use your limited social proof to fake a brand feeling immediately.

Get into hot deals, even small amounts. Collect logos, use logos to get more logos. In Fund I, we wrote tiny checks into many hot companies: dYdX, Anchorage, Starkware. These amounts didn’t matter much, but these names gave us leverage to move forward.

We called ourselves a “research-driven fund.” Research meant writing blog posts like “Wouldn’t it be crazy if…”. We called it Dragonfly Research; back then, that was considered research.

We claimed to have the strongest connections in Asia. That was true in theory, but initially, we didn’t know what others wanted from Asia. We told stories while exploring on the ground, gradually systematizing. At first, we just pushed stories out— and it worked.

Lesson #7: Trends are not your friends

Resist the temptation to chase trends. Crypto is full of foolish fads: NFTs, TCRs, P2E, chatbots tokens, meme coins backed by VC…

Our most successful investments often came from avoiding madness—and heavily backing when others gave up. Terra, Axie, Yuga—none of these we touched; after Terra collapsed, we invested in Ethena’s seed round; before the 2024 election, we invested in Polymarket.

Every cycle has an irresistible narrative. You feel pressure from teams, LPs, Twitter. But most hot trends end up wasting money.

The real challenge is psychological. When you reject all the projects everyone else is rushing into, and they double in a week, you feel like a fool. But chasing trends often results in a “portfolio of projects that were popular 18 months ago”—the worst way to allocate.

Your job is to invest in things that matter 3–5 years later, and hot markets rarely have that foresight.

Lesson #8: Control your distribution

Someone once said a16z is a “media company with a VC business.” That was a joke, now it’s just fact.

VC is fundamentally storytelling. You must build an audience, make the whole team a signal source. Encourage members to build personal brands, reward them for speaking out. VC’s reputation, unless you’re Sequoia, is almost entirely tied to specific people. It’s a “people” business.

Some funds even ban employees from tweeting—I can’t understand that. If you want founders to master social media, why can’t you?

Lesson #9: Cultivate influence

This is the key step from a rookie to a heavyweight.

As Dragonfly’s influence grows, many doors start opening automatically. Exchanges, banks, market makers, even projects we haven’t invested in—want to build relationships. At first, I thought it was interference: why talk to old institutions instead of focusing on new projects?

Later, I realized: VC’s essence is branding money. You win deals because founders believe your money is better than others’. In fact, all money is green.

Marc Andreessen once said: “VC’s job is to lend your brand and influence to those who don’t have it yet.” So, you need both a brand and influence. Founders want to know if you can get them into rooms, if your words carry weight.

As the fund grows, you must evolve from a simple investment firm into a platform. Top founders want more than capital—they want you to truly help move things forward. At Dragonfly, we built a platform team supporting everything from token design, exchange launches, to executive recruitment. It’s not sexy, nor does it directly generate returns, but it compounds. Once the flywheel spins, competitors find it hard to copy.

Lesson #10: Almost all money comes from a tiny fraction of deals

There’s a simple matrix that describes the essence of VC investing.

Many hot projects are “correct consensus” deals—most believe they will succeed, and they do. These aren’t bad deals, but it’s hard to make much money because they’re often bid up early, with prices inflated.

Almost all real profits come from “non-consensus but correct” deals. These often involve structural undervaluation, and the chance to earn over 100x returns almost always comes from here.

Returns in venture capital follow a power-law distribution, and the math is ruthless. In a typical fund, the top three deals generate more than all others combined. This means most deals are not individually important; what matters is whether you hit one or two that define the entire fund cycle.

This leads to an counterintuitive conclusion: your hit rate is almost irrelevant. What really matters is how many “big swings” you take. So, when evaluating each project, ask yourself: could this become a “fund-returner”?

If not, why invest?

And the equally harsh corollary: consensus deals rarely produce this result. If everyone thinks a project is great, the price already reflects that, and your upside is capped. Truly long-term investments are often those that “other smart people think you’re crazy to invest in.”

Lesson #11: If you can’t win this deal, everything before is meaningless

The value chain of VC can be broken into four stages: Sourcing => Selection => Winning => Supporting

Sourcing is the first step for new VCs. You must build a real engine that can continuously find deals.

Selection is what most people think is the most important skill (“picking projects”), but in reality, it’s only a small part of the game.

Winning deals is the most critical. Even if you have the best sourcing and judgment, if founders choose others, everything is pointless. The highest-level resource in venture capital is “access.” Top founders are oversubscribed and can pick investors at will. So, you must give them a reason to choose you. This comes down to brand, platform, your long-term relationships, and reputation—all the lessons above converge here.

Supporting after the deal is the last step, but it also reinforces “sourcing” and “winning.” Support determines your NPS (Net Promoter Score) and whether this cycle can continue. If you truly stand with founders, they become your best salespeople: introducing you to the next great founder, vouching for you in small circles. This industry is small and closed; reputation spreads fast. An angry founder can ruin ten deals; a truly satisfied one can open doors for you for years.

Lesson #12: Venture capital is a “slow wealth accumulation” business

You’ll see many in this industry rise rapidly, becoming shooting stars.

You must outlast them. Some make too much, too fast; some get lazy, believing they “deserve” success. The crypto industry’s selection is especially brutal. Every cycle produces overnight millionaires; most of them disappear afterward. Traders who made 50x move to Lisbon; founders with absurd valuations quietly shut down. Eventually, the tourists leave.

You are not a tourist. In VC, progress takes years. There’s no real “overnight success.” Most of your fund’s value remains unrealized for years. This makes you the embodiment of that famous New York Times article—

It’s okay.

Your job is to steer the ship steadily. Flotsam, wreckage, high tide, low tide—these will happen. You must always be there, with your team, your founders, and the entire ecosystem. The reward you get is for being long-term capital.

So, be truly long-term.

Lesson #13: When fundraising is easy, go fundraise

Founders hate fundraising, and so do VCs—neither is easy.

Fundraising as a VC is a completely different culture from founder fundraising. I come from a middle-class background. As a professional poker player, I thought I had seen “wealthy people.” Later, I realized—completely not in the same league.

Raising capital is an art, highly dependent on who you’re talking to.

Family offices rely on relationships. These are multigenerational wealth families with unique logic; building trust takes time. They heavily depend on social proof.

Institutional funds and fund-of-funds are a different breed: process-driven, heavy due diligence, more about spreadsheets than dinners. They want to see performance, process, and sustainable advantages.

To become a truly excellent fundraiser, you must learn to speak both languages fluently.

But overall, successful fundraising has only one prerequisite: you must be in good shape—either already have returns, or tell a very compelling story about where returns will come from.

And finally, the most crucial point: timing is everything.

LPs almost always buy high and sell low. So, you should do the opposite. It sounds simple, but in practice, it’s extremely painful.

Your best fundraising window often appears when the market is hottest and LPs are most excited—and that’s exactly when you should be cautious about deploying capital. When the market crashes and everyone is pessimistic, that’s when LPs least want you to invest—but that’s precisely wrong.

Top VCs learn to fundraise at the best conditions and deploy capital at the best prices. But these two rarely happen simultaneously.

That’s what I’ve learned from building Dragonfly. I’m sure I’ve missed some lessons, and undoubtedly, there are many lessons I haven’t learned yet.

Building a VC is a constantly changing game. Every cycle, new players appear, and some mistakes you could easily avoid are still waiting for you at the corner.

But the core principles never change: bet your reputation; find your advantage; do the dirty work others avoid; hire better people and treat them well; and—be patient.

Venture capital rewards those who stick around long enough to see the other side of the cycle.

This is certainly not “the ultimate guide to building a VC.” But it’s the kind of article I wish someone had written for me back then. I hope it helps you. If you’re doing something cool in crypto, feel free to reach out.

Disclaimer: This article does not constitute investment advice. Building a VC fund is hard, and you will probably fail. But who knows—maybe you should try anyway. Good luck.