In the fourth module of the Everything Creation Camp on July 22nd, Yan Xin, the founder and CEO of EthSign, shared his personal experience as a case study and held a 2-hour dialogue and exchange with the 66 entrepreneurs of Season 1 of the Everything Creation Camp. EthSign, as a Web3 project invested by HashKey Capital, Circle, and Sequoia Capital China, discussed how to develop a small tool into a comprehensive solution and protocol for contract fulfillment and asset management, starting from the vertical scenario of signature, during the communication with 250 investors. The following is a partial transcript of the Q&A session:
Everything Island: What insights and experiences do you have at different stages of entrepreneurship?
Today, I will talk about my experiences and insights during the two and a half years of entrepreneurship, and share the stages of product development with everyone. I will discuss the positioning in each stage, the problems encountered when moving to the next stage, and finally summarize the specific feelings of the past two and a half years.
I am the CEO of EthSign. We have been in business for two and a half years. Prior to that, I was a hardware engineer and entered the blockchain industry through mining. I started EthSign in 2019 and became a full-time entrepreneur in 2021.
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First of all, entrepreneurship is an independent subject. When I transitioned from being an investor to an entrepreneur, I thought I already had a clear understanding of how to create value for something, and now I just need to make it happen. But after starting a business, I found that it is completely different. For example, how to manage a team, how to ensure that everyone’s ideas and concepts are consistent, how to develop meaningful products and markets, how to achieve profitability, etc. It is a complex discipline, not a linear solvable mathematical problem.
In summary, I believe that entrepreneurship can be divided into several stages. First, you need to have a thorough understanding of a certain market and come up with an idea. Then, take this idea and find many experts to help realize it. They may be responsible for various aspects such as product, market, front-end and back-end development, etc. Then, present the prototype to potential supporters such as venture capitalists. The second stage is to actually make the product and bring it to the market to realize its commercial value and find people willing to pay for it. Finally, give back the realized commercial value to those who once believed in and supported you. So this process can be replicated to some extent, and a set of methodology like this can be universally applicable, regardless of the industry.
The second point is that I believe entrepreneurship needs to be driven by passion. Because we are starting something new and even competing with other companies under the condition of a huge resource gap, we are required to grow rapidly, and we bear various pressures from real life and business interests. This situation often leads to changes in our ideas, so we constantly ask ourselves what results we are pursuing in entrepreneurship. For example, if you think that entrepreneurship is the best way to achieve financial freedom, you may quickly find that it is not necessarily the case, because maybe others are spending money on investments during a bull market, but you are spending time on product research and development and team management, which will inevitably delay your money-making. However, on the other hand, entrepreneurship is actually the best way for us to see the problems in this world and propose solutions to change it. I believe that it is the core of entrepreneurship that requires everyone to be driven by genuine passion.
The third point that I find interesting is that when I was making the PPT yesterday, I thought that entrepreneurship is like illegal immigration. You only have a vague concept of the destination, and you only know that the end is beautiful, but you don’t know the specific path. And this place is somewhere that no one around you has been to. Even if there is someone with experience, it is impossible to completely replicate it. You still have to rely on yourself to find a few brothers who are willing to explore with you. Perhaps there will be setbacks along the way, perhaps you will reach the destination you initially envisioned, or perhaps you will reach a completely different place from what you expected. This process is very similar to illegal immigration.
Wanwudao: How did EthSign discover market opportunities? And how did you determine the product positioning?
Returning to our own entrepreneurial process, the first stage is actually pure tools. We did this project during a hackathon in 2019. At that time, everyone was still part-time, I was also working in a VC, and my partner was also studying for a master’s degree. We found about five engineers to participate in the hackathon together. At that time, we wanted to verify whether decentralized storage could be used, so we came up with many ideas based on this, one of which is EthSign. We defined it as a pure tool, and I also like this type of tool. The interesting thing is that it is to some extent a single function. You have a clear function to solve a specific problem, and you should be able to describe it in one sentence, such as being a decentralized electronic signature platform.
At the same time, I think that in the early stages of a project, finding infrastructure and communities that you can rely on is important. For most entrepreneurs, we are using new infrastructure rather than creating new infrastructure, because the difficulty is too great. So we try to stand on the shoulders of others as much as possible. The reason why there are opportunities for you to start a business is because new infrastructure keeps appearing, and they need enough applications and user-friendly interfaces to capture value. These opportunities are actually left to many entrepreneurs. For example, Ethereum is a stable, fair, and censorship-resistant blockchain. It is a very powerful infrastructure. You can innovate based on it, just like OpenAI becoming the infrastructure for AI, and many people develop and start businesses on it.
In addition, you also need to find the target community, that is, the community where your product may have the most audience after it is made. You can even join this community at the beginning and co-create with the members inside to validate your needs. This can help you save a lot of costs and avoid making mistakes.
From the name EthSign, you can know what we are doing. In the early stage, our goal was to pursue the completeness of the product. We hoped that our product would be simple, with clear boundaries, and have enough openness and integrability, so that everyone can use and integrate with us, allowing us to fit into this Lego of the ecosystem. So at that time, we built completely decentralized applications based on many underlying and middleware layers. We didn’t have any servers, and even our code was running on decentralized storage. Our product was also relatively simple. In 2020, we raised crazy financing with a valuation of 3 million, but it failed all the time. Maybe Web3 was not very popular at that time, so people were not willing to pay for it. But even now, our positioning for it has not changed. We still hope that it is a very clear tool for managing your protocols and assets.
At that time, investors would think that our product had a wide scope. Although it seemed to be just a signature protocol, it could be used in various scenarios such as financial lending, house leasing, and personnel hiring. The angle to enter the market and whether to provide services for all scenarios on one platform or only select a few vertical scenarios also needed to be considered. How to establish a moat and capture greater value through the powerful infrastructure we rely on was also a question to be answered.
Even many investors in the early stage said that they could develop a similar thing in one or two months. I think they were not wrong because we were an immature startup company and definitely couldn’t compare to those companies with mature experience and engineering R&D capabilities. So I was thinking about how to capture more value in the world of Web3, or in other words, how to obtain financing under such competitive conditions. Therefore, the idea changed. I thought that the most powerful aspect of blockchain was its public-private key accounts and smart contract system. We used the account part very well and used it for signature. Could we also use smart contracts to execute the terms in the contracts? We thought this idea was very ideal. Although contracts seemed to be customized for different individuals, they could actually be standardized. We started from this point after finding the scenario, creating a clearer, more transparent, and efficient market.
So since last year, we have turned the whole process of signing and managing contracts into a product called EthSign. This year, we are thinking about the next step, how to move towards actual business and a larger market. For example, one issue that I have been struggling with personally is when some investors ask me about our business model, how we make profits. This is a headache and difficult question for early-stage startups. You might even think that we don’t need revenue at all because we are doing a protocol. After all, TCP/IP doesn’t have a business model, right? But is that really the case? The second question is whether to serve people outside the circle or just focus on serving the insiders. If people outside the circle have no connection with us, it’s a matter for Vitalik to consider. Another thought is that people outside the circle haven’t come in because the infrastructure is not mature enough and not ready for mass adoption, so we just need to wait for two or three years until the technology growth curve arrives, and they will start using it themselves. But is that really the case?
For most of us, we are a startup company with our own products and our own channels to capture value. If we don’t have revenue, reaching a billion will become a major bottleneck. Because we have seen that companies with valuations exceeding a billion in the previous round all have very clear revenue streams. If a very complex and sophisticated design doesn’t have a business model, then it can only be called an artwork rather than a product.
The second question is whether to serve people outside the circle. I went to Zuzalu in Montenegro some time ago and had many exchanges with people there. I suddenly realized that after working full-time in Web3 for so many years, my way of speaking was completely different from theirs, and it was difficult to communicate. I think meaningful things, whether it’s account abstraction or ZKEVM, are difficult to explain to others. I don’t know if you have this feeling that it’s difficult to explain the value of your technology to people outside the circle. This is also our problem. For example, in biotechnology, anti-aging or in AI with large models, their value is very clear and simple. You can explain it to anyone very clearly. But many people may think that mass adoption is not their job and they just need to do the current things well, and people will naturally come in. I want to say that this idea is quite naive because there will also be competition between industries in terms of talent and capital. For example, when AI became popular, many people started doing AI and investing in AI, which naturally created more value. And Web3 will definitely enter a bear market. This bear market is not only caused by the outflow of capital but also by the outflow of talents. If people in an industry continue to only focus on doing well in the present, the industry may die. We should still pursue a more simple and intuitive value of technology and strive to bring people and money from outside the circle.
So we will also do some practical things this year that we didn’t want to do before, such as partnering with top global law firm Cooley to launch a contract library. This library covers most of the agreement templates that an early-stage startup team needs. We also have a very clear product development path. The agreements currently in use are highly customized. We first provide paper templates that everyone can accept, allowing everyone to gradually become accustomed to these fixed rules. Then we only change the parameters inside. In the future, when a protocol is used enough and the level of standardization is high enough, we can convert it into a smart contract for execution. Therefore, in the long run, I believe that all paper agreements will disappear. We want to make this product more useful and practically solve everyone’s problems, rather than just thinking it is cool.
How can we go beyond the circle and serve more people? We started with Ethereum, but that doesn’t mean we only serve Ethereum. We strive to serve more ecosystems, such as different chains and private key formats. We have also submitted EIPs to support the use of DIDs as identity signatures, not just private keys. We have also developed functions related to password storage to help users better safeguard their accounts and contract data. So we will do many things to help users, rather than making users themselves overcome the learning curve.
These are some of the changes and progress we have made up to today, but my dream for the future is to become a true protocol. We need to use protocols to realize its network value and cover more scenarios and users. Fundamentally, many businesses are about traffic. For example, our current matching business is about the flow of investors and project parties. The problem with any traffic business is that it cannot serve everyone. The Internet is not flat. It is divided into different countries, languages, and cultures, each with its own circles and traffic platforms. We hope to become the public infrastructure of these traffic platforms. The benefit of being a protocol is strong interoperability, which is the highest ideal in the encryption field or, more specifically, in Ethereum-based smart contract platforms. You only need to write a few verified smart contracts that can be used in any related scenario. Therefore, this smart safe can also be applied to scenarios such as family trusts. This is why it must be protocolized. We want to open up our capabilities enough so that people in other scenarios who have demand can integrate our services at a low cost. We will accelerate exploration in this area in the future.
Lastly, from my perspective as a senior in the industry, I have some advice for founders during the process of exploring the track and validating the business. First, don’t get too caught up in the idea stage. To be honest, there aren’t many choices at the beginning of entrepreneurship. First, look at what cards we have, what we are familiar with, and what we are suitable for. Then, find a specific problem in the corresponding market. Don’t start off wanting to solve a big problem, as if solving this problem can capture billions of dollars in value. This problem does exist, but it may not be suitable for you. So just solve a small problem at the beginning. Second, ideas are not valuable. Investors receive many ideas every day. What they want is execution, to really implement and push this idea to the market. So investors invest in our execution, not just the idea itself.
So many people get caught up in the details at the beginning, just like designing a logo, hoping it can carry all our dreams. But that’s impossible. Just choose one randomly. People’s favor for the logo actually comes from your continuous investment in the project, not whether the logo itself looks good enough or has enough meaning.
At the beginning, to be frank, we also wanted to create a Web3 version of DocuSign. But actually, it’s not that difficult to add a private key signature to DocuSign. However, it couldn’t do that because this thing is too new, and it may have a significant impact on its core business model and regulation. As a listed company, the decision-making and deployment of its management team are often aimed at innovation while maintaining its current revenue. That’s also the reason why BMW, as a mass brand, can’t produce something like Tesla. I don’t encourage us to define ourselves as something in Web3 that belongs to Web2, although it’s convenient for others to understand. But you will ignore many valuable things and limit your scope of vision because of this definition. What’s truly valuable is something original, not just duplicating what others have already done in a field.
The key is to start low and move fast, or as mentioned earlier, start from some small things at the bottom, but make sure to do it fast enough. Don’t start by thinking about grand things, trying to raise a large amount of money and hiring many engineers to realize ideas that can only be achieved that way. Everyone should quickly implement a very small idea and create its MVP to validate the market. Then, based on feedback, iterate and update quickly. So don’t make the things you want to do too complicated at the beginning, only to find out after a lot of effort that the market doesn’t need such complexity, resulting in a tremendous waste of resources. We can now achieve the completion of an idea to MVP within a month. In addition to the engineering team, we also have a prototype team specifically for MVP concept validation.
Finally, I suggest that everyone spend time in places outside of China and the United States because we already have too many and too mature infrastructures in China and the United States, making it difficult to understand the market demands of those truly developing countries.
Island of Everything: Everyone thinks your financing is very successful. What experiences can you share with everyone?
Investors don’t invest during the rising period of a bull market. They only start to invest in the declining period of a bull market because there is a lag effect in the primary and secondary markets. It takes about half a year to a year to lag behind. For example, when the bull market comes, LPs start giving money to GPs, and GPs will then invest in projects when they have money. Our own financing process was very difficult. It took three months to get the first financing, and then we gradually received a total of $600,000 in financing. Together with our own money, we sustained ourselves for eight months until the bull market arrived. But even at the peak of the bull market, we didn’t have time to speculate on cryptocurrencies, so we had to rely on our own money for another five months before finally receiving investment from Sequoia Capital. This process was very difficult. I can say that I should be the person who has met the most investors in a single institution. I met over 250 investors in total, at least 2 or 3 every day, for a whole six months.
This process is agonizing, but also rewarding. On the one hand, you can treat it as a free opportunity to learn English. After meeting 100 investors, your English will become very fluent. Secondly, investors will also give you a lot of feedback. You need to prove that your thing is valuable. Investors may deny you and battle with you. So, in the process of defending yourself, you also need to think deeply about how to solve the problems raised by investors. It is important to keep in touch with investors. They may not invest in you, but you need to ask why they don’t invest. Don’t stop asking until you get feedback. Don’t be afraid of losing face. Also, if there are any new developments in your product and business, you should always keep the previous investors informed.
Lastly, don’t give too much respect to the opinions of investors. Many investors in traditional industries have themselves been successful listed companies. Many of their suggestions are valuable experiences. However, many web3 investors have not done truly successful projects. Their opinions are more from an investment perspective. So, don’t pay too much attention to their suggestions. The most powerful thing is to keep doing what you really want until you have results.