Jehan Chu, Co-Founder and Managing Partner of Kenetic, joined us for an interview on Episode 22 of OST LIVE. Jehan discussed investing in blockchain projects, proper due diligence, and considerations for mainstream blockchain adoption.

An Investor in Cryptocurrency Since 2013

Jehan started his career as a front end developer during the dotcom boom. Jehan then worked as an art dealer for Vermillion Art Collections in Hong Kong. In 2013, Jehan was introduced to blockchain via an article about the winklevoss twins involvement in Bitcoin, which was of interest to Jehan because the twins were investors in art auction company Paddle8. Jehan then began to get involved in the blockchain community and founded Ethereum Hong Kong in March 2014. Jehan’s meetup featured Ethereum Founder Vitalik Buterin 7 times, the first one being “Write your own Ethereum Smart Contract with Vitalik Buterin” in June 2014.

Jehan is also a founding member of the Bitcoin Association of Hong Kong, a public association focused on the technical infrastructure and education of Bitcoin. Most recently, Jehan Co-Founded the Social Alpha Foundation, a non-profit grant making foundation focused on blockchain for social impact. The Social Alpha Foundation hopes to move the industry away from a crypto culture of “moon” and “lambo” to philanthropy and giving back. The foundation supports blockchain in the form of financing products that are using blockchain for social impact and provides grants for fundamental blockchain research.

Kenetic is one of the first Blockchain Venture Capital and Cryptocurrency Funds as well as one of the leading Token Sale Advisory firms in Asia. Focused on the financial side of blockchain, Kenetic has a team of senior veterans in institutional finance including CEO Daniel Weinberg and COO David Wills. Kenetic advises startups on how to better operate financially to help project founders and teams conceptualize what a decentralized business model looks like, determine token utility, determine crypto economics, and align incentives between stakeholders. Jehan mentions that “The ETH price downturn hit a lot of projects really hard. Many of the founders are great technologists and have a great deal of enthusiasm, but have very little knowledge or experience in financial management. The 5 year runway that they raised is suddenly cut to 1.5 years.”

3 Attributes of Good Blockchain Projects

First, Jehan says “Having a great team is the most important thing of all” adding that “by far the most important factor is the founder or founders themselves.” Here are 5 questions that Jehan mentions to focus on when evaluating a team:

What experiences do they have? What have they achieved? What have they done after they failed previously? What types of differentiating expertise do they have? How are they able to interact and manage teams?

Jehan gave an example of this while describing his experience with investing in Ethereum, saying “They always say that you’re backing the person, not the company, and that’s really true with my early interest in Ethereum. Listening to Vitalik talk on YouTube, his ability to communicate in his own way, with conviction and authenticity, that’s what brought me into it.”

Second, Jehan suggests to research the actual backgrounds of team members. It is important to validate and reference check former projects or employers for authenticity, ensuring team members are who they say they are. It is also important to evaluate how to best help them with the new project.

Third, Jehan says technology and stage of development are major factors. Jehan says “how far they’ve gotten and how they’ve gotten there is indicative of how far they can go.” It is important to develop a process of thinking beyond the ICO and to a 4th or 5th generation product. Jehan looks for experienced engineering teams in a matured state.

A Proper Due Diligence Process

Jehan says that the Kenetic due diligence process starts by selecting through known individuals, close friends, and close contacts. From there it goes through a filtering process to analysts who perform the initial sweep, initial background checks, read through the whitepaper, read through the documentation, and do online searches. Jehan then has a phone, Skype, face to face interview with these analysts. If it is escalated, then an early memo is written, recommending the firm take a deeper look. Then it gets reviewed by an investment committee that includes Jehan. If approved, an investment is initiated.

The process doesn’t end here, Jehan says “As an investor, you have a responsibility to not only put money on the line but to invest time in growing your investments” adding that “What you do after you make an investment is much more telling of who you are as an investor than how much you did or what deals you got into.” It important to help grow the team and the product beyond an initial investment.

3 Things Blockchain Projects Should Consider

First, Jehan says financial management should not be overlooked and strong financial management starts before raising funds. Whether via an ICO, a security token, or an equity round, Jehan say’s founders should think about:

How much money do I need? How am I going to get it? What are my options if I don’t get all that is needed? How am I going to best manage that cash position?

Jehan adds to say that “As a founder, you’re not an investor, you’re not a speculator, you shouldn’t be trying to play the market at all. You should be trying to build your product and building your product means giving yourself the best financial resources on the longest runway and the best capitalization position to execute your project.”

Second, Jehan mentioned that in the early days, there was a culture of raising in ETH, staying strong with ETH and holding funds in ETH. So he believes that every project needs to take the people who have invested their ETH into the project as their first concern. He says that “These are not only your investors, but your stakeholders and your community and you really owe it to them to do your best with the financial management of the funds that they have trusted you with to build the product. They didn’t give you the money so that you could speculate on different kinds of positions.”

Lastly, Jehan wants to see founders doing better at building core technology and focus on adoption. He says that the market fundamentally doesn’t believe that there is utility in the decentralized ecosystem today because we haven’t seen widespread application adoption.

Jehan says that founders “have to build traction early, and that means utility and adoption” adding that “founders should start to think about how their project is actually going to be used and emphasize how to drive real use cases earlier rather than speculating.”

Coming Up Next on OST LIVE: Trent McConaghy

Be sure to join us for OST LIVE with Trent McConaghy, Founder of Ocean Protocol, a decentralized substrate for AI data & services. Trent will discuss the potential for AI and data on the blockchain. Subscribe to our YouTube channel or listen to the audio format on anywhere you listen to podcasts, including on iTunes, TuneIn, and Spotify. We’re also now available on Alexa! Simply add “OST LIVE” to your flash briefing.

About OST

OST blockchain infrastructure empowers new economies for mainstream businesses and emerging DApps. OST leads development of the OpenST Protocol, a framework for tokenizing businesses. In September 2018 OST introduced the OpenST Mosaic Protocol for running meta-blockchains to scale Ethereum applications to billions of users. OST KIT is a full-stack suite of developer tools, APIs and SDKs for managing blockchain economies. OST Partners reach more than 200 million end-users. OST has offices in Berlin, New York, Hong Kong, and Pune. OST is backed by leading institutional equity investors including Tencent, Greycroft, Vectr Ventures, 500 Startups.