Tuesday, October 20, 2020

Ask A VC: 8 Takeaways from Han Shen of iFly.vc

 


For our 18th Silicon Global Online episode, Ask a VC Anything, our featured guest was Han Shen, a founding partner of micro VC iFly.vc, focused on investing in underserved demographics. In our conversation with Han, we discussed how his portfolio companies are doing in light of Covid-19 and US-China tensions, lessons learned from applying Chinese business models to the US startups in his firm’s portfolio. We also delved into Shen’s journey to becoming a VC, and highlights from his career in VC, investing recently raising a second fund of $50 million.

 

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

Tuesday, October 13, 2020

Ask A VC Anything! Roy Bahat, Bloomberg Beta: 10 Key Highlights

 


For our 17th Silicon Global Online episode, Ask A VC Anything, our featured guest was Roy Bahat. Bahat is the head of early stage fund Bloomberg Beta. You can see the firm’s full investing operating manual on Github! In our fascinating conversation with Roy, we discussed Bloomberg Beta and their system of operating, what defines the future of work, and tech hubs outside of Silicon Valley and the Northeast.

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