Ask A VC: David Lam, Atlantic Bridge > Why The China-Europe Bridge Is Widening

For our 19^th Silicon Global Online episode, Ask a VC Anything, our featured guest was David Lam, a general partner at Atlantic Bridge Capital.  See these 10 takeaways from our wide-ranging conversation about international business and investment trends, with an eye toward China.

Online conversation with VC David Lam and Rebecca Fannin, host of Silicon Global Online, November 18, 2020.

 

Cash runway exam

 When the pandemic hit the US in March, Lam and Atlantic Bridge Capital used it as an opportunity to look closely at their portfolio companies’ balance sheets and calculate the impact Covid-19 would have on their businesses. The findings were mixed: some segments were affected, some were not impacted, while others actually saw positive momentum.

 

Growing portfolio despite the virus

 Despite Covid-19, the firm remains right on its pace of three to four later-stage investments a year: Caption Health, Syntiant, and a European company in the semiconductor industry that is currently in stealth mode. Caption Health is an artificial intelligence company using AI for guided ultrasound for echocardiograms (an ultrasound of the heart). It is the first FDA approved AI guidance system. Syntiant makes an AI chip that is optimized for voice in devices ranging from phones to smart speakers. The stealth company is a semiconductor equipment company building technology around web processing.

 

Bill and Melinda Gates’ $5 Million

 The Gates foundation recently gave a $5 million grant for Caption Health to extend its breakthrough AI technology for heart ultrasounds, using vast data to capture an echocardiogram at a high-quality level. Caption Health is used at more than 20 hospitals in the US currently. Caption has huge relevance, since regular echocardiograms are recommended for all Covid-19 patients.

 

Europe gains appeal for expansion

 Many fast-growing US companies have highlighted China as an overseas business opportunity because of the size of the market, but current tensions has made expansion more challenging than ever. The interest from entrepreneurs to go to China right away has dampened, although the market is still a priority for many foreign businesses. In this environment, Europe is an appealing location: world’s top research institutions, wide pool of hirable software developers at a more reasonable salary than Silicon Valley counterparts, and strong companies in both hardware and software.  Some of Atlantic Bridge Capital’s portfolio companies have chosen to reincorporate in Europe. This allows them to run their businesses how they see fit and investors to own the same amount under the same terms as they would somewhere outside Europe. Most importantly, companies are able to sell their products to other markets, including China, which want to see goods coming from a neutral region.

 

Europe-China Bridges

 In Europe, Lam has leveraged Ireland’s particularly strong relationship with China. One of his firm’s funds has a strategy of making equity investments in technology companies with a presence in Ireland and a substantial or strategic interest in China’s fast-growing tech companies.  

 

US-China positive synergy despite tensions

 As an example, a new Atlantic Bridge portfolio company, Syntiant (mentioned earlier), chose a general manager from China that was recommended by Atlantic Bridge Capital. The hire took place after a rigorous independent decision-making process by Syntiant.

 

IP advice for China

 Lam is quick to note the importance of IP protection as a foreign company. If the goal is to actually sell products to China and Chinese customers, it would be best to identify ways to augment existing IP in China for that specific market. You protect your IP by keeping your core IP where you are based.

 

Semiconductor hardware opportunity

 One of the implications of a flattening of Moore’s Law is that the processing power starts to become more linearly correlated with power. This creates a huge challenge in terms of power management and environmental issues related shipping a lot of power. A number of exciting new technologies are developing in the power management space.  

 

Focus on data and speed

 With so much data being generated, so fast, the current infrastructure in most places is not equipped to handle these new data speeds. An investment opportunity exists in companies that can move data very quickly into a database. Atlantic Bridge portfolio company AtScale allows valuable content to be produced and then securely and privately stored worldwide.

 

CFIUS in a new US Administration

 Lam expects to see some change in how CFIUS (Committee on Foreign Investment in the United States) laws are enforced in a new administration but it will likely be seen in a more case-by-case basis than in sweeping changes. He noted that the US Congress will continue to act on the belief that stronger CFIUS oversight is in the best interest of US national security.

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.

 Summary by Mike Weiss, contributor to Silicon Dragon

Expect Softer Tone Toward China Tech In A Biden Administration: Gary Rieschel, Qiming Venture

What's the new normal for tech investing today, and how is it evolving?

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. 

Hong Kong's Progressing Role in the Greater China Edtech Market

Hong Kong is well placed as an education technology nexus in the region’s Greater Bay Area, as edtech accelerates digital learning worldwide, according to several experts who spoke at the recent Edventures GBA Summit, November 4, spearheaded by Esperanza founder John Tsang (photo), a former financial secretary of the HKSAR.   

 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 innovation economy is all about algorithmic content, emphasizing that traditional knowledge bases have lost value and that the role of teachers should change from teaching to being a mentor and a coach. 

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, 21^st 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.

Top VC of the Year Named at Silicon Dragon HK 2020: Recap

 

Silicon Dragon HK 2020: Key Takeways

 Quick speaker highlights: 

November 4, 2020 

Silicon Dragon's Top VC 2020

James Mi, Founding Partner at Lightspeed China Partners, was named Silicon Dragon’s 2020 Venture Capitalist of the Year.  James lead this China-focused early-stage venture capital firm with approximately $1.9 billion under management and 8 funds. Among James’ many successful early stage investments are Dianping (Meituan), Pinduoduo, Rong360, and Baidu. 

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

James Mi – Founding Partner, Lightspeed China
Jeffrey Chi – Vice Chairman and Managing Director, Vickers Venture Partners
Edith Yeung – General Partner, Race Capital
Duncan Chiu – Managing Partner, Radiant Venture
Olivia Wang – Former Head of US, ZhenFund 

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.

 

 Summary submitted by Silicon Dragon contributor Mike Weiss