Can You Still Launch a VC Firm Today?

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

Editor's Note: Amidst the recurring noise of "Crypto is Dead," author Haseeb Qureshi (Dragonfly General Partner) looked back on his own experience to review the process of how a crypto VC firm started from scratch and scaled up. He discussed specific topics such as fundraising, positioning, winning deals, post-investment support, and team building.

This article deconstructs the operational logic of VCs from a practical perspective: under a power-law distribution of returns, how to understand "non-consensus judgment," how to view hit rate and concentration 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 who want to understand how VCs operate, this is a direct and specific experiential sharing.

Below is the original article:

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

We just closed the fundraising for Dragonfly Fund IV, a $650 million crypto VC fund (and at this time, almost half the media once again thinks "Crypto is Dead"). We currently manage about $4 billion in assets, have around 45 people in New York, San Francisco, and Singapore, and have become one of the largest VC platforms in an industry where "most people didn't make it."

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

Truthfully, if someone could have given me a blueprint on "how to build a VC firm from scratch" back when we started Dragonfly, that would have been incredibly valuable to me. But the reality is—almost no one will tell you these things.

Frankly, this article will probably only be useful to 0.01% of readers, so it may not make much sense to write so much about it. But oh well. If you are considering building a VC, or if you happen to be me from 10 years ago—this article is for you.

The first time I entered crypto VC, in most people's eyes, the industry was already "dead." It was 2018, right after the ICO bubble burst, and the whole industry was in free fall. Most of the people I entered the industry with had already left by then.

But I have always believed that crypto is something that is destined to be around for the long term—it's the kind of concept that once you truly understand, you can't pretend you never understood. So, when someone asks me why I have been so optimistic about crypto, my answer is actually very simple: If I didn't believe in it, I would have left a long time ago. It's too late for me now; this optimism has seeped into the back of my head.

Therefore, when Bo and I met and decided to build Dragonfly together, we did not expect the market to be very welcoming. But every VC has to start from scratch.

Lesson #0: With the first fund, you have to put your life on the line

A VC's lifeline is only one thing: money.

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

With the first fund, you must first raise money from friends. Your boss, your boss's boss, anyone you know who is wealthy and influential—even if they are just acquaintances.

If your reputation is not tied to this first fund, then you are not taking enough risk. I have seen too many first-time fund managers fantasize about "being able to save face even if the fund fails."

That's a fantasy.

If you are not all-in, you have no chance of success. If you fail, yes, you will be embarrassed, and you will lose some important people's money. But if you want any chance of success, you must use all the resources available to you to make the first fund work. If you are not willing to do that, then you should not try to build a VC.

Once you have received seed money from those "who have every reason to bet on you," you need to move towards a larger pool of funds: family offices (ultra-rich families), fund of funds (funds that specifically invest in other funds), and "institutional capital" (university endowments, foundations, sovereign wealth funds).

Generally, from easy to hard, from low to high.

Now, you start pitching your fund to these "cash-rich" investors. But here's the question: As a first-time fund manager, why should they trust you with their money?

There is only one answer: You must have a clear, communicable advantage.

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

When we founded Dragonfly, the crypto VC space was still nascent. However, even then, there were already several dominant institutions: Polychain, Pantera, a16z. In our eyes, they were untouchable behemoths.

So, initially, we couldn't lead invest in any project at all. Nobody wanted our money. We had to find an angle to "squeeze into rounds." Like a startup, a new fund must be focused.

The initial idea was: Bo in Asia, me in the U.S., and we would do an "East-West bridge." Crypto is global, and we could be a bridge between Asia and the U.S., helping founders from both sides enter each other's markets.

This positioning was not enough for us to lead investments. No founder would want an "East-West fund" as their lead investor. But it was strategic enough to allow us to secure a small allocation — and that was enough for us to start squeezing in.

Lesson #2: Do the Dirty Work

As it turned out, this East-West arbitrage was almost uncontested. At first, I was puzzled: why wasn't anyone taking advantage of such an obvious opportunity?

Then I understood the answer: because this shit was really fucking hard.

It meant we had to run a fund spanning both Asia and the U.S., working at an extremely high intensity every day; more coordination, more late-night Zoom calls, more language barriers, and almost no normal life.

If there was another way to succeed without doing this, who would choose this path? But we had no choice. So we gritted our teeth and persevered. We worked harder than others, and we were more jet-lagged than others.

Many people imagine VC as an elegant profession: summer vacations, quarterly team-building ski trips. We did none of that. No money, no time, no breathing space. The closest we came to a "winter sport" moment was the recurring crypto winter.

Lesson #3: Optimize Like a Startup

Once you have found your angle and started getting into rounds, the next step is to establish a feedback loop. 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 it themselves.

You should document everything: your discussions, the projects you missed, record and analyze your fundraising and investment committee meetings with AI; review the biggest deals in the industry, understand why they succeeded, and summarize into theory; study the commonalities of those great investors before you. With AI available now, all of this is much easier than in the past.

But most investors don't care about these. They basically rely on "gut feeling investing." Success is more dependent on whether they are lucky and have a strong network.

Luck may be useful in the short term, but it is not a strategy, nor will it compound growth like cold-blooded optimization.

Lesson #4: Talent is Everything

The management level of VCs is generally poor, I mean organizational management. One-on-one communication, mentorship system, KPIs, division of responsibilities, transparency, all-hands meetings... many VCs are terrible at these most basic things.

Later, I understood the reason: VCs do not "screen for management ability" like companies do.

A poorly managed company will eventually go bankrupt; but VC is a power-law industry, as long as a few people can still generate power-law returns, the fund can survive, even if overall management is a mess.

However, in the long run, good management itself is an advantage. It can retain the strongest talents and help them grow into the next core generation. VCs are notoriously bad at "intergenerational inheritance" and internal promotions, with many partners even afraid of hiring young people smarter than themselves.

At Dragonfly, we have attracted and retained a group of people who should have gone to larger and better platforms. We gave them stability, a voice, and independence, proving through action that we value them — and this is precisely why we can outperform our peers.

Lesson #5: Be Foolishly Ambitious

What I have always found incredible is that most new VCs, when asked "what kind of organization do you want to be," can't explain it clearly. "We want to invest in good companies and be the best partner to founders."

Yuck. This is like an entrepreneur saying, "My goal is to maximize shareholder value."

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

When we just started, the ambition was simple: beat Polychain.

Just that. At that time, Polychain was the benchmark for crypto VCs. Later, when we actually began to surpass it, I realized I had to elevate the goal: become a Top 3 crypto fund. This goal drove us for a long time. Now, in my opinion, we are already Top 3, so the goal has become Top 2, and then Top 1. As for which step we are at now, I leave it to the reader to judge.

Lesson #6: Fake It Till You Make It, Then Actually Make It

With the first fund, you have no brand. So, you must immediately fake a sense of branding with what little social proof you have.

Get into hot deals, even with small check sizes. Collect logos, trade logos for more logos. In Fund I, we wrote tiny checks into many hot companies: dYdX, Anchorage, Starkware. The money was inconsequential, but the names gave us momentum.

We called ourselves a "research-driven fund." By research, I mean I wrote some "what if this is crazy" blog posts. We called it Dragonfly Research, which somehow passed as research at the time.

We claimed to have the strongest Asia connections. This was theoretically true, but initially, we didn't even know what others wanted from Asia. We were storytelling and figuring it out on the fly, eventually systematizing it. Initially, we were just pushing stories hard—and it worked.

Lesson #7: Trends Are Not Your Friends

Resist the urge to chase trends. Crypto is full of dumb trends: NFTs, TCR, Play-to-Earn, chatbot tokens, VC-backed meme coins...

Our most successful investments often came from avoiding madness—and doubling down when others vacated the race. We didn't touch Terra, Axie, or Yuga; we invested in Ethena seed round after Terra's collapse; we bet on Polymarket before the 2024 election frenzy.

Every cycle has an irresistible narrative. You feel pressure from the team, LPs, Twitter. But most hot trends will end up being a waste of money.

The real challenge is psychological. When you pass on the project everyone is scrambling for, only for it to 5x the next week, you'll feel like a fool. But chasing trends often leads to a "portfolio of things that were hot 18 months ago"—the worst way to allocate.

Your job is to invest in what will matter in 3–5 years, something a hot market rarely appreciates.

Lesson #8: Master Your Distribution Power

It was once said that a16z was a "media company with a VC business," a joke back then, now just a fact.

VC is essentially a storytelling business. You must build an audience, turn the entire team into signaling beacons. Encourage members to build a personal brand, reward them for speaking up. The VC brand, unless you're Sequoia, is almost entirely attached to specific individuals. This is a "people" business.

Some funds actually prohibit employees from tweeting, and I completely fail to understand why. If you expect founders to be fluent in social media, why can't you?

Lesson #9: Cultivating Power

This is a key step for a fund to transition from a newcomer to a heavyweight player.

As Dragonfly gradually gained influence, many doors started opening automatically. Exchanges, banks, market makers, and even projects we hadn't invested in would actively seek to engage with us. At first, I thought this was a distraction: why not look at new projects instead of chatting with old institutions?

Later, I realized: The essence of VC is branded money. You win a deal because founders believe your money is better than others'. In fact, money is all green.

Marc Andreessen once said: The job of a VC is to lend their brand and power to those who don't have it yet. So, you need not only a brand but also influence. Founders want to know if you can get them in the room, if your words carry weight.

As the fund grows, you must evolve from a simple investment firm into a platform. The best founders want more than just capital; they want to know if you can truly help them drive things forward. At Dragonfly, we built a platform team that supports everything from token design, exchange listings to executive hiring. It's not sexy, it doesn't directly create returns, but it compounds. Once the flywheel starts spinning, it's hard for competitors to replicate.

Lesson #10: Almost All Money Comes from a Few Outliers

There is a simple matrix that can describe the essence of VC investing.

Many popular projects are actually "consensus-correct" trades. In other words, most people believe this company will win, and it does end up winning. These trades are usually not bad, but you'll find it hard to make much money from them because they are often aggressively bid up by the market early on.

Almost all the real money made comes from those "non-consensus but correct" trades. This is because these trades often have a structural undervaluation in pricing, and the probability of getting over 100x returns almost entirely comes from here.

The return on venture capital follows a power law distribution, and math is ruthless. In a typical fund, the returns from the first three investments often exceed the total of all other investments. This means that the vast majority of the deals you make, individually, are not that important. What truly matters is whether you hit one or two projects that define the entire fund's cycle.

This leads to a counterintuitive conclusion: your hit rate is almost irrelevant. What truly matters is how many "home runs" you hit. Therefore, every time you look at a project, you should ask yourself one question: Does it have the potential to be a "fund-returner"?

If the answer is no, then why are you even making that investment?

And that equally ruthless inference: consensus trades almost never lead to this outcome. If everyone thinks a project is great, the price already reflects that, and your upside potential is capped. Truly generational investments often involve those projects that—other smart people would think you're a fool for investing in.

Lesson #11: If You Can't Win This Deal, None of the Rest Matters

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

Sourcing is the first step for a new VC. You must build a system that can consistently source deals.

Selection is perceived by most as the most critical skill ("picking projects"), but in reality, it only accounts for a very small part of the entire game.

Winning the deal is the most crucial part. Even if you have the world's best deal flow and the sharpest judgment, if the founder chooses someone else, everything is meaningless. At the highest level of venture capital, the truly scarce resource is the "entry opportunity." The best founders are often oversubscribed; they can choose their investors freely. So, you must give them a reason to choose you. This comes back to your brand, platform capabilities, the relationships and reputation you have built over the long term—all the previous lessons ultimately converge here.

Supporting is the final step, while also reinforcing "sourcing" and "winning deals." Support determines your NPS (Net Promoter Score) and whether this cycle can continue. If you genuinely stand by the founders, they will become your best salespeople: introducing the next outstanding founder to you, endorsing you in small circles. This industry is small and closed, and reputations spread very quickly. A founder who is upset with you could ruin your next dozen deals, while a truly satisfied founder could open doors for you for the next decade.

Lesson #12: Venture Capital is a "Slowly Getting Rich" Business

You will see many people in this industry skyrocket to become meteoric success stories.

You must outlast them. Some people make money too quickly, too much; some start getting lazy, gradually believing they "should have been successful anyway." The crypto industry is particularly brutal in this regard. Every cycle gives birth to a new wave of overnight millionaires; yet, most of them will disappear in each cycle. Traders who made 50x returns retreat to Lisbon; founders who raised funds at ridiculous valuations quietly shut down their companies. In the end, the tourists will leave.

You are not a tourist. In VC, measuring progress takes many years. There is no real "overnight success" here. Most of the value in your fund is often still unrealized many years later. This means you have become the embodiment of that famous New York Times article—

That's okay.

Your job is to steer the ship steadily forward. Flotsam, wreckage, high tide, low tide—these will all happen. You must always stand there, with your team, with your founders, with the entire ecosystem. The reward you receive is meant to serve as long-term capital.

So, be truly long-term.

Lesson #13: When Fundraising Is Smooth, Go Fundraise

Founders hate fundraising so much, and VCs do too, and it's not easy at all.

VC fundraising is a completely different culture from founder fundraising. I come from the middle class. When I was a professional poker player, I thought I had seen "rich people." Later, I found out—it's not even close.

Fundraising itself is an art and highly dependent on who your target is.

With family offices, the core is relationships. These are wealth families that span generations, each with very unique logics of operation, and building trust takes time. They heavily rely on societal endorsements.

On the other hand, institutional funds and endowments are a different breed: process-oriented, heavy due diligence, more interested in spreadsheets than dinners. They want to see performance, processes, and a sustainable edge.

To truly excel as a fundraiser, you must learn to speak both of these languages well at the same time.

But overall, successful fundraising has only one prerequisite: you either need to be already on a roll, or if you're not, you must tell a damn good story about where the returns will come from.

Lastly, and most importantly: timing is everything.

LPs almost always buy high and sell low. So, you should do the opposite. The reasoning sounds simple, but it's excruciatingly painful in practice.

Your best fundraising window often occurs when the market is hottest, and LPs are most excited—which is exactly when you should be most cautious about deploying capital. And when the market is at its lowest, everyone is gloomy, that's when LPs least want you to be investing—but that's exactly the wrong move.

The top VCs learn to fundraise when conditions are best and sell when asset prices are at their peak. And these two things almost never coincide.

Those are a few of the lessons I've learned in building Dragonfly. I'm sure I've missed some, and undoubtedly, there are many more lessons I have yet to learn.

Building a VC is a constantly evolving endeavor. Every cycle brings a new cast of characters, there will always be mistakes waiting for you around the corner that you could totally have avoided.

But the underlying principles remain unchanged: put your reputation on the line; find your edge; do the dirty work that others are unwilling to do; hire people better than you and truly treat them well; and—be patient.

Venture capital ultimately rewards those who persist long enough to see the other side of the cycle.

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

Disclaimer: This article does not constitute investment advice. Building a VC fund is hard, and you will most likely fail. But who knows—maybe you should still give it a shot.
Good luck to you.

[Original Article Link]