Tech innovation and venture investment with a Silicon Valley view of global trends
December 15, 2020: CSIS China Power Debate
|
|
Online conversation with VC Nazar Yasin and Rebecca Fannin, host of Silicon Global Online, December 3, 2020.
Rise Capital – staying disciplined
·
The 5 M’s of Rise Capital’s investment strategy
are Management, Market, Metrics, Moats, and Multiples.
· It is common for funds in emerging markets to do a Series A and then a follow on Series B for portfolio companies. Rise reserves $2 for the Series B of every $1 for the Series A in these cases.
·
Rise takes a 5-25% equity stake in its portfolio
companies and a board or board observer seat. “There is no such thing as a
successful passive investor in emerging markets. It does not exist,” Yasin
notes.
The right CEO
·
Founders must be able to adapt when a successful
startup scales up. The right person needs to be in place at the top to do so.
·
In addition, surrounding the CEO with people of
differing perspectives and expertise is a marker of successful companies.
A new asset class
·
Investing in emerging markets such as Latin America, Africa, the Middle East, India, and Southeast Asia is a new asset
class.
·
To illustrate this, Latin America is roughly 45%
of China in terms of GDP and population but the number of firms who can lead or
co-lead a Series A or B is low enough to “count on two hands” (including Rise
Capital).
New business models
·
Rise Capital portfolio company Gokada, founded
in 2018, is the leading multimodal transportation company in Africa.
·
Gokada is currently growing 10% per week and is
cash flow positive.
·
Gokada provides drivers with a “Business in a
Box” that works well in light of Africa’s poor road conditions. This box includes a brand-new motorbike, a
Department of Transportation Certificate, and a smartphone.
·
The driver pays Gokada a daily subscription fee
to be part of the service, and after two years the driver has a fully paid off
motorbike and their own business. Gokada drivers in Nigeria make 3x the average
salary of other workers.
Evaluating Risk
·
Internally, Rise Capital deals with the issue of
actually not taking enough risk. There’s also the risk of not picking the “right
horses,” coming out of certain emerging markets.
·
Instead of viewing the risk of investing in
choppy waters as a negative, Rise Capital is investing in the fastest-growing
economies in the world, in the fastest- growing sector (the internet), and the
fastest-growing companies in that sector.
·
Trillions of dollars in market cap being created
in the internet sector coming from emerging markets in the next ten years.
Imitating China
·
Africa, Latin America, and Southeast Asia markets
see China’s quick and massive GDP creation from the internet sector and look to
emulate China more than the US.
·
Actions like India’s ban on Tik Tok and other
foreign companies help bolster this strategy in efforts to spur growth in local
startups.
Chinese Tech Titans in emerging markets, friend or foe?
·
Large Chinese tech companies are not crowding
out the market for startups in Southeast Asia and
other emerging markets. They actually make great exit partners.
Peak Globalization
·
The world hit peak globalization five or even
ten years ago. Since then, it has continued to grow more nationalistic.
·
Nationalism trends have helped Rise Capital in
some ways. Sovereign wealth funds from the countries that Rise invests in tend
to become LPs.
Mini Jack Ma’s
·
There probably won’t be another Jack Ma. Due to
the raw GDP Ma was able to acquire in China, all under one umbrella, Alibaba’s
feat may never be duplicated. But there will be mini Jack Ma’s coming out of
emerging markets.
·
One of them is Careem Founder and CEO Mudassir
Sheikha who has transformed the lives of hundreds of thousands of families in
the Middle East by helping them create their own businesses. Careem (which
Rise Capital funded) was acquired by Uber in 2019 for $3.1 billion, one of the
largest exits ever in the Middle East.
Advice to Wannabe VCs
·
“There is no way you can be a successful VC
without having run or been an executive at a successful company yourself.”
·
He also recommends obtaining financial knowledge
of how businesses work, even if it’s not from an MBA or CFA.
·
Lastly, it’s incredibly important that if you
can join a successful startup, do it, don’t worry about your position.
Bio:
Nazar Yasin is a Founder and Managing Partner at Rise Capital in Silicon Valley. Nazar is a seasoned entrepreneur and venture capitalist in emerging markets. He is a firm believer that technology entrepreneurs in emerging markets will become some of the most impactful individuals in the world over the coming years.
Nazar began his career at Goldman Sachs, where he led the firm’s internet investment banking activities across the EMEA region. He then served as the CEO of Forticom, a $1 Billion+ market value social networking business in Russia, CIS, and Eastern Europe that was acquired by a consortium of Mail.ru (LSE: MAIL), Naspers (JSE: NPN), and Tencent (HK: 0700).
After his successful exit as an entrepreneur, he became a VC, first at Tiger Global in 2010 for three years. In 2013, he formed Rise Capital in San Francisco, where he has backed several high-growth technology startups across Latin America, the Middle East, Africa, and Asia.
Nazar holds an MBA and JD from Northwestern University, and
a BS in Industrial Engineering from Georgia Institute of Technology.
Submitted by Mike Weiss, editorial contributor
to Silicon Dragon Ventures
Online conversation with VC David Lam and Rebecca Fannin, host of
Silicon Global Online, November 18, 2020.
Cash runway exam
Growing portfolio despite the virus
Bill and Melinda Gates’ $5 Million
Europe gains appeal for expansion
Europe-China Bridges
US-China positive synergy despite tensions
IP advice for China
Semiconductor hardware opportunity
Focus on data and speed
CFIUS in a new US Administration
Bio:
David Lam is General Partner of Atlantic Bridge Capital, a 15-year-old technology investment firm focusing on adding value cross-border with offices in Palo Alto, Dublin, Munich, London, and Paris. Lam led the firm’s investments in Caption Health, Syntiant, and AtScale. He previously served on the board of Movidius (acquired by Intel). David co-founded Summit Bridge Capital, which operates the China-Ireland Growth Technology Fund.
Prior to Atlantic Bridge, David was Managing Director of WestSummit Capital where he served as its representative on the boards of Twitch (acquired by Amazon), Mirantis and Maginatics (acquired by EMC), among others. David was previously Managing Director for WI Harper, a ground-breaking US-China cross-border venture capital firm where he led the firm’s US office. His projects included the formation of Kai-Fu Lee’s Sinovation Ventures). Prior to that, David was Vice President at The Carlyle Group, a global private equity firm, after serving as head of business development for a Carlyle portfolio company. He also held various operating roles at CIENA Corporation, ONI Systems, Cisco Systems, and Proxim. David began his career as an investment banker at Robertson Stephens and Company. David is a board member, past president, and past chairman of the Asia America Multi Technology Association (AAMA). He also serves on the board of the Association of Asian American Investment Managers (AAAIM).
David holds a
BS and an MA from Stanford University, and an MBA from the MIT Sloan School of
Management where was a recipient of the Merit Scholarship and Patrick McGovern
Award.
In a Biden administration, expect a softer tone in the anti-China rhetoric and possibly less targeting of specific companies like TikTok and WeChat that are primarily used for entertainment and communications but have been drawn into a tech cold war. That's according to Gary Rieschel, a founding managing partner at Qiming Venture Partners.
In his keynote address at the recent Cyberport venture forum in Hong Kong, Reischel emphasized that Chinese
technology is increasingly considered a threat to Silicon Valley’s dominance. But he said it is primarily viewed as a long-term concern instead of the
existential threat that the current Trump administration has made it out to be.
See video of his remarks and Silicon Dragon's Rebecca Fannin introducing Rieschel.
Rieschel also
pointed out how the rest of the world is getting a firsthand demonstration of Chinese entrepreneurship. While the rest of the world has been busy grappling with a year of
uncertainty, Chinese entrepreneurs stepped up to the challenge, he said. In a
way, they were always ready given how they wake up every day and face
regulatory, legal and competition-linked uncertainty with gusto.
Additionally, Rieschel believes that all the talk of supply chain relocation is overly ambitious. It’s not about
resource availability or finding countries with lower labor costs. The network
of relationships built during the early years of globalization can’t be dismantled
so easily. Anyone running a supply chain knows this in their bones, he said.
China's drive towards self-sufficiency and technological independence should only boost technology development. Chinese entrepreneurs are racing ahead in a number of fields. As the robust health of the Hong Kong and Shanghai stock exchanges show, they also don’t always need to look West to get capital now that the two exchanges have relaxed listing requirements.
The sector is ripe
for disruption after a slow start in this digital century. Edtech spending of
$200 billion has lagged in the $6 trillion education market.
“We are
in a very interesting inflection point in the evolution of our species that will
have a profound impact on education and the future of the world,” said Kamran Elahian, Chairman and Founder of
Global Innovation Catalyst, a successful serial entrepreneur, a cross-border
venture capitalist who is known as i-Ghandi for his work in bridging the
digital divide for children around the world. He pointed out that
Teachers are learning how to use technology effectively to personalize lessons and empower students to design their learning, pointed out Richard Culatta, CEO of the International Society for Technology in Education (ISTE) and a former Obama education official. Elliott Masie, chairman of the Learning Consortium, who is widely credited with the term 'e-learning,' highlighted the importance of designing experiential learning for the workforce so that learning becomes more creative and collaborative.
Edtech is fast progressing now as a game changer with AI, robotics, data analytics and mobile technologies applied to learning. “There is a common perception that edtech is used primarily to nurture digital literacy. “Literacy, 21st century skills and numeracy are the top three skills that edtech innovations can address,” said Esperanza founder Tsang, citing a Brookings Institution study.
In China, the education market has
grown to as much as 6-7% of the country’s GDP and it’s poised to become the world’s biggest and the
fastest growing edtech market as venture capital and talent flows in. A threefold increase in China’s digitization
index has occurred in the past five years, according to the Tencent Research
Institute.
Out of 14 edtech unicorns globally (privately
held venture-backed companies worth at least $1 billion), eight are from China, according to market intelligence firm HolonIQ. Yuanfudao recently nabbed an after-deal valuation of $13 billion to become the
most valuable edtech unicorn worldwide.
As part of the Edventures summit and a related fellowship, 10 growth stage edtech finalists pitched to a panel of judges, with four awardees: CoderZ Technology is Israel, Cybint in Israel/US, MEL Science in the UK, and Mandarin Matrix in Hong Kong. A virtual expo is showcasing their work until November 22, at bit.ly/Edgba_Summit2020. The fellows will get support in connecting with local localization partners, investors, markeet entry advisors and adopters of their solutions.
Silicon Dragon
founder/editor Rebeca Fannin moderated a panel on China market opportunities
with Dr. Simon Leung (Vice Chairman,
NetDragon), Dr. Steven Li (Vice Dean,
Tencent Research Institute) and Julian
Fisher (Vice Chairman, British Chamber of Commerce, Beijing). Dr. Li commented that many education
innovations take place outside the school systems with fewer government
regulations. The key market opportunities include pre-school, teacher training, homework and mental health. “A
broader trend is research-backed edtech because parents and governments want
results. They want to know that (the offering) is actually based on research
and not just sales driven or marketing driven,” he said.
Dr. Leung added that one of the few areas that
is encouraged for foreign players is vocational education. He also pointed out
that parents are increasingly interested in their children developing soft
skills.
Pointing to an advantage held by Hong
Kong in the edtech market, Tencent’s Dr. Li noted that while good quality
content is in short supply in China, Hong Kong has a lot of good content to
offer because of its concentration of good schools and universities. With their
internationally acclaimed research capability, Hong Kong universities could
also play the very important role of supporting, evaluating and validating
edtech solutions, he said.
A separate panel facilitated by
Jumpstart Media CEO Relena Sei brought in Elahian plus two investors Bill Ning,
founding partner of Blue Elephant Capital and Matt Greenfield, managing partner
of Rethink Education. Ning said that good education companies are labor
intensive businesses, where growth would be slower than a typical tech
investment. Greenfield added that while the return could take long to realize,
the loss ratio is lower. The successful
startups are often those with a social mission working on a peripheral
innovation to solve a problem that no one is working on, he remarked.
For
startups interested in entering the China market, these tips were offered by
the expert speakers:
· Be realistic about the market, the price points, the competition, what
value can be added, the government regulations and the resources required
·
Segment the market and look for the right partners to work with and
localize the offering
· Place senior members of the team locally
In summary, Esperanza founder and former HKSAR financial secretary John Tsang said that successful edtech applications demand a fundamental change in the mindset of educators, parents and the community at large. It requires effective collaborations among a complex and interconnected web of players outside the classroom, from policy-makers, education technology providers, NGOs to funders and the business community. “Let’s join forces to reimagine the future for our children,” he concluded.
Keynote: Kamran Elahian, Founder and Chairman, Global
Innovation Catalyst, Silicon Valley
Elahian founded 10 companies
including three unicorns (Cirrus Logic, NeoMagic and Centillium). He previously
ran venture firm Global Catalyst Partners for 15 years. He now works in global
philanthropy and is an Advisory Member to the UNICEF Innovation Fund.
· Society is moving from a knowledge economy to an
innovation economy. lies in algorithmic content. This is the case for finance,
education, media, and many other markets.
Over time, more tasks will happen with
algorithmic content or machine learning and automation. Less and less will be
manual.
Due to broadband and the diffusion of knowledge,
Silicon Valley is no longer the only place for unicorns to be created.
Tech innovation will be propelled by a
convergence of engineering, business and design schools in addition to hubs that
consist of accelerators, incubators, co-working spaces, maker spaces, and micro-funds. Tech hubs are emerging on the frontier, and spurring
the creation of new tech jobs. There are now over 1000 tech hubs in Africa
alone.
Venture Panel: Outlook 2021
Key points by panelists:
Duncan Chiu – Managing Partner, Radiant
Ventures
·
Radiant Ventures took a conservative approach
and slowed down its investment activity early in the year when Covid-19 hit. In
order to offset the slowdown in investments in Q1, Radiant Ventures did follow-up
rounds on previous portfolio companies, a common thread among other firms. Now, investors are beginning to plan post
Covid-19.
·
The Hong Kong market is split: later stage
companies are having no trouble raising money, unicorns can get funded even now
if they are not too aggressive with their valuation.
·
Earlier stage companies are having a more
difficult time because they are backed by personal investors and angels, who
tend to be more conservative. This makes it harder for these early stage
company to close a round. Many are
calling this a gap year for these early-stage companies.
·
Startups in the US and China are able to focus
on their own markets because they’re so big, but for companies coming out of
Hong Kong, they need to choose their market. The top choices in this case are
Mainland China, Southeast Asia, and the U.S.
James Mi – Founding Partner, Lightspeed
China
·
The investment pace slowed for Q1 but now it is
picking up for both early and late stage companies in search of funding.
·
Barriers are being put up for cross border
collaboration and innovation, but this also creates opportunities for startups
in each region because more local solutions are required.
· Lightspeed has been advising its portfolio companies during Covid-19 to keep a six-month cash reserve and raise funding even if they think they can get by without it.
Olivia Wang – Former Head of US,
ZhenFund
·
A priority has been to prepare portfolio companies
for the worst case scenario and manage their cash burn.
· As opposed to Q1, the summer has been robust for even seed and series A companies.
Jeffrey Chi- Vice Chairman and
Managing Director, Vickers Venture Partners
· “It’s not about when Covid-19 will pass, but how we are going to learn to live with it.”
·
Tensions will continue whether Biden or Trump is
president. (time lag here)
· Innovation will take a step back as
tensions between US and China grow. Frictions in deals are happening when US and China are part of the transaction.
Edith Yeung – General Partner, Race
Capital
·
Distributed deals geographically are the norm. Location
does not matter.
·
Covid-19 is an accelerator for previously avoided
sectors like online education and healthcare.
IPOs:
Where Hong Kong Fits
Michael Chan - Head of International
Issuer Services, HKEX
Irene Chu – Partner, KPMG
China / Head of New Economy and Life Sciences markets, Hong Kong
·
Hong Kong IPOs totaled $129.8 billion from
2016 through first half of 2020, compared with $96.6 billion for NYSE, $91.7
billion for Shanghai, $72.3 billion for Nasdaq, $53.2 billion for LSE, and
$41.7 billion for Shenzhen.
·
New economy companies account for about 25% of
all Hong Kong market cap.
·
Market appetite for companies in health,
fintech, and biotech is strong.
·
Even with social unrest, Hong Kong IPOs are not
having issues with raising money.
·
Look for more Southeast Asian tech companies
to go public.
·
Neither wanted to comment on the delay of the
Ant IPO in China, but it’s created some uncertainty in the market over powerful
influences.
For our 19th Silicon Global Online episode, Ask a VC Anything, our featured guest was Jeff Paine, a founding partner at Golden Gate Ventures, which focuses on internet and mobile startups across a variety of sectors in Southeast Asia. In our conversation with Paine, we discussed hot spots for startups in the Southeast Asia region, his firm's wide investment span, and the changing dynamic for startup ideas in the US and China.
Key Takeaways:
Online conversation with VC Jeff Paine and Rebecca Fannin, host of Silicon Global Online, October 22, 2020.
Investment Trends: Less Copying from US
Paine noted that he is seeing less copying of American ideas and more copying of Chinese ideas. This is a reversal of a trend that was in place a decade ago, when Silicon Valley-style startups were copied in China and elsewhere in Asia.
China’s Dragons Enter SE Asia
Chinese tech titans began entering Southeast Asia a few years ago, partly to expand in new markets but also as a reaction to growing tensions in the U.S. again China investment in tech startups and emerging companies with leading edge technologies.
Covid-19 Impact on
Tech Sectors
Hot sectors right now include education and healthcare due in part to the acceleration of growth trends stemming from Covid-19.
Missed Opportunity on
WhatsApp?
Paine noted that he’s seen companies in places such as Brazil create businesses around groups on WhatsApp, the ubiquitous messaging app owned by Facebook that claims to support a whopping 2 billion users worldwide. He expressed surprise that we haven’t seen companies in specific countries formed around WhatsApp groups. He implored entrepreneurs to seize the opportunity to leverage WhatsApp groups.
Startup Hierarchy of
Southeast Asia: Indonesia
As the country with the largest population, Paine sees Indonesia as the top regional market for startups. Vietnam is not far behind, as Paine was quick to note the country’s impressive Covid-19 response and large population of Korean expats who help to keep the economy buzzing. Paine called Vietnam the most dynamic country in Southeast Asia.
Southeast Asia,
Making the Stops
Golden Gate
Ventures’ focus on Southeast Asia extends to Singapore, Indonesia, Malaysia,
Thailand, the Philippines, and Vietnam. But the firm also invests in companies
from Hong Kong, Taiwan, Japan, Korea, and the U.S. if their businesses can tap Southeast
Asia. Startups across a wide variety of
mobile and internet sectors that have expansion potential in the region are
favored.
Average Check Size
Golden Gate Ventures invests at the Seed, Series A, and
Bridge rounds, with typical investments ranging from US $1 million to $5
million. Co-investors are welcomed who can add value and are open to leading or
following other investors in the round.
A Wide Scope of Market Sectors
Paine makes it a point to emphasize the wide area of sectors
that Golden Gate Ventures targets as investment sectors. The fund’s portfolio
contains companies from education, logistics, e-commerce, marketplaces, mobile,
fintech, SaaS, entertainment, and media.
Bio:
Jeff Paine is a Co-founder and Managing Partner at Golden
Gate Ventures, an early stage technology venture capital fund based in
Singapore investing in internet and mobile startups in Southeast Asia. Golden
Gate Ventures has over $175 million under management and has invested in 35
companies since 2012. Jeff is particularly
interested in startups in fintech, consumer internet, marketplaces, mobility,
education, healthcare, greentech, B2B SaaS and content
distribution platforms.
Paine has been the Director at The Founder Institute of
Singapore since 2010 and is currently overseeing its expansion in Southeast
Asia and Japan. The Founder Institute
is a global network of startups and mentors that has helps entrepreneurs launch
great technology companies internationally. Since 2010, The Founder Institute
in Singapore Paine has led has graduated more than 100 companies.
Paine is a Singapore native and holds a Bachelors of
Business Administration (Information Systems) from the University of Southern
California in Los Angeles.
-- Submitted by Mike Weiss, a contributor to Silicon Dragon
Eight Key Takeaways:
Online conversation with VC Han Shen and Rebecca Fannin,
host of Silicon Global Online, October 15, 2020.
Apply strategies from Chinese consumer tech players to U.S. business models
The venture firm’s U.S. portfolio company,
Asian e-grocer Weee!, is applying business models from large Chinese e-commerce
company Pinduoduo. One key lesson was how Pinduoduo, during its early growth,
mobilized users on social networks like WeChat to sell deals and form group
buys. Weee! applied this formula to scale its user base in the U.S. Net-net,
Weee!’s user acquisition costs are 80% less than its peers in the online
grocery space. Additionally, the CEO of Weee! went to China to study the
practices of five top online grocery players, and took a lesson on how to avoid
a fast cash burn.
You can
always revisit a turned down deal, for better
Shen’s diligent studies of the grocery
business globally since 2014 led to his eventual investment in fast-growth Weee!
Shen had initially turned down investing in startup in 2016 due to concerns
over how it could scale with a model of mobilizing individuals in different
neighborhoods to collect orders and distribute.
But within two years, Weee! had pivoted to an end-to-end vertically integrated
model. Moreover, the founders had putting
all their financial resources into keeping the company alive. In December 2018,
iFly.vc signed on as a sole investor. Fast forward to now, and Weee! is cash
flow positive with a positive quarter in Q2 2020. Weee! recently closed a $35
million Series C round led by DST Global.
Research,
research before pulling the investment lever
As a team member at Formation 8, Shen met
with Oculus and was initially not all that won over by its technology. But
earlier in his career at Vantage Point, he had done a study on 3D TV’s, and
learned about the tech stack and road map of the 3D space. He was able to see
the value in Oculus and pushed for an investment in Series A and B. The
investment ended up returning around $200 million back to the LP’s.
·
Impact of
current US/China tensions
The firm focuses on consumer plays in the U.S., so its business and
decision-making does not go into highly sensitive areas that are exacerbated by
the geopolitical dispute of the two global superpowers.
·
Covid-19
era offers opportunity to outperform
“In a financial crisis, it’s about how much
how much disposable income disappears for the time being. But the flip side is
that it gives the chance for companies that can outperform the competition to
address the needs of the consumer demand. It’s an incredible window to stand
out and outperform.”
·
Walk the
Deal Before Signing
Fundraising and deal making for the firm’s second fund during Covid-19 has been
difficult and slower. Shen’s preferred method for meetings currently is taking
long walks with social distancing and masks on so he can really get to know who
he’s working with. Many LP’s re-upped from Fund 1, and some commitments came in
without an in-person meeting (a first for the VC firm).
·
Persistence
Pays Off in Raising Capital
Shen reached out to more than 300 investors
in raising his first micro fund for iFly.vc.
He shares this experience with his portfolio companies when pitching
isn’t going well for them. This fund-raising experience was a factor in
iFly.vc’s thesis to build a concentrated portfolio, where the team can truly
afford to give time and bandwidth to the founders they invest in.
· The right
LPs can contribute $ plus time and expertise
The LP’s behind iFly.vc’s Fund 1 and Fund 2 have provided immense value to the venture firm and its portfolio companies. The micro-VC raised funds from a combination of family offices and high net worth individuals. Most of these investors are successful entrepreneurs including founders from Palantir and Tencent. If you put all the LP’s together who invested in iFly.vc, their collective market cap would be $900 Billion. Shen is able to ask his prestigious LP’s for their valuable time and organizes intimate office hours between the LP’s and iFly.vc’s portfolio company founders.
Bio:
Han Shen’s career in venture capital started in 2009 and has
spanned at VantagePoint and Formation 8, where he was the
first hire on the investment team and was a driver of the firm’s investment in
Facebook-acquired Oculus. Earlier, he
held venture investment consultant jobs at Mohr Davidow and ARCH. Previously in
his career, Shen was a technical leader at Rohm and Haas Co. where he developed
four patents. In 2016, Han became a founding partner at iFly.vc, which he
describes as a micro VC that goes after underserved communities.
A fun fact about Han, he has his pilot’s license!
Shen holds a BS in Chemistry from Nanjing University. In the
U.S., he has an MS and PhD in Chemistry from the University of Chicago, and an
MBA from Wharton.
-- submitted by Mike Weiss for Silicon Dragon
10 Key takeaways:
Online conversation with VC Roy Bahat and Rebecca Fannin,
host of Silicon Global Online.
· As a new entrant into the early stage venture capital world in 2013, Bloomberg Beta has done things differently. For instance, Bloomberg Beta has made its investing process transparent, using an open source software called Github. Bloomberg Beta put its operating manual on Github, and made it public.
· Bloomberg Beta focuses on the future of work. This can mean anything that makes work more productive or humane including productivity tools (Bloomberg Beta was an investor in Slack before the IPO) and an entire stack of work-related technology solutions like what is used in data centers, data processing technology, business applications like CRM and HR administration tech, and professional media.
· For Bloomberg Beta, the future of work can also mean investing in companies with such a profound idea embedded in how they operate that they could set a template for other businesses and industries. An example of this is in Bloomberg Beta’s portfolio company Flexport, a shipping broker that uses AI to broker deals at a fraction of the cost to before.
· Bahat believes that the best investments produce disagreement. So, while other firms have a decision-making process of group agreement, Bloomberg Beta wanted to see what it looked like if only one person at the firm had to say yes for an investment to be made. This way, founders can speak to anyone on the Bloomberg Beta team and know that they were speaking to someone empowered to make the important decisions.
· Bahat remarks, “This philosophy was uniquely suited to early stage investing. The sin at this stage is not investing in something that fails, but in failing to invest in something that becomes the next big thing.” A typical venture fund will take 7-9 years before they’ll know if an individual investment will be successful. Bloomberg Beta is a seed-stage fund, so the firm’s time horizon is 9-11 years.
·
Bloomberg Beta focuses on the Bay Area and the
NY, Boston, DC areas because that’s where their main network is. Currently
around 5-10% of their investments come outside of the US.
In 2017, in conjunction with NGO New America,
Bloomberg Beta released findings on the future of work throughout the country. This
coalition between New America and Bloomberg Beta led Congressman Tim Ryan of
Ohio to invite Bloomberg Beta to see the venture capital ecosystem of his
constituents. This led to comeback city tours where Bloomberg Beta was able to
build a network in underserved places like Ryan’s
Youngstown, Ohio. In 2018, Tim Ryan announced a $2.25M Comeback Capital Fund
created to bridge the divide between Silicon Valley Investors and Midwestern
startups.
Bahat, who does due-diligence on 300-400
companies a year, believes “wasting a founder’s time is a sin.” He visits
geographies in the US outside of Silicon Valley and the Northeast that are on
the rise, and calls Atlanta, “the most underappreciated tech ecosystem.
Bahat weighed in on growing tensions between the
US and China and believes the forces of decoupling are winning. He illustrates
this viewpoint with Bloomberg Beta portfolio company InCountry, which provides
a cloud service to other software companies that want to customize their
national presence by country. This move towards different national internets
and away from a singular global “Internet”, is seen by Bahat as a troubling
trend. But Bloomberg Beta saw InCountry as a way to capitalize on a movement
that has already begun.
Bahat noted a trend in 2020 that is more in
focus than ever. That is the need for diversity on the cap table. Not just in
terms of race and gender, but for differing investment perspectives and knowledge.
A successful venture-backed company now might explicitly want an investor with experience
in a certain geographical area, or expertise in certain technologies. Bahat
notes that this is in stark difference to earlier years where one investor
might want to take on the whole investment.
Bio:
Roy Bahat has been the Head of Bloomberg Beta since 2013.
Previously, Roy held positions in several industries including starting as an
Associate at McKinsey, a Senior Policy Director with the Office of the Mayor in
NYC in 2002-2003, a Vice President at News Corporation, a President at IGN
Entertainment, and a Co-Founder and Chairmen at gaming console startup OUYA
Inc.
In addition to his role at Bloomberg Beta, Bahat is also a
lecturer at the Haas School of Business, where he teaches an annual seven-week
course on media to MBA students. He is also an organizer at #walkthevote – a
non-partisan movement to support community leaders and voters organizing local
“voting parades” to drop off absentee ballots.
Roy can be found on twitter at @roybahat, where he shares
his thoughts, what he’s working on at Bloomberg Beta, and a video series called
#thisisnotadvice
Roy Bahat holds an A.B. in Social Studies from Harvard, and
an M.Phil in Economics (urban economics) from the University of Oxford.
submitted by Michael Weiss at Silicon Dragon