What we believe… the power of crossing boundaries
In my last blog post, I discussed where did we come from. Now, we want to talk about what we believe.
This is an important topic: the world doesn’t need another early stage fund — there are plenty of established funds and individuals running around looking to deploy capital. Why does our fund exist, and what makes it different.
All great funds have a fairly clearly defined guiding principle (usually with industry-specific sub-theses that guide decisions on a more granular basis).
At Drawbridge, I was fortunate enough to have both Sequoia and KPCB as investors, and so got to examine how world-class investors live their theses. Both are “founder-centric”… in this case, both were supporting the vision of Kamakshi Sivaramakrishnan (who is a superstar, and therefore a good bet to support). What does founder-centric mean?
In my view, it meant organizing the firms’ resources and people around the particular need of founders: providing forums for the mentorship and networks that they require, providing resource support for executive hiring, etc. More importantly, these firms fully bought in to this approach, and it informed their investment and operating models vis-a-vis their portfolio.
In addition to established firms like Sequoia and KPCB, there are a number of “start-up VC firms” that we admire who have adopted fairly clear investment theses that make sense to us:
- NFX: Investing in and accelerating companies to take advantage of network effects in growth
- SignalFire: data-first approach (rely heavily on data-driven assessments of team talent, market traction, etc. to help guide decision-making)
- Homebrew: Investing in the bottom up economy in the US and Canada. Founder and partner Hunter Walk is fairly prolific in blogging about their evolving beliefs and thesis, so it is easy to understand their current convictions.
There are many more early stage funds that have clearly put thought into their positioning. The purpose of this post is not to analyze all of these statements of purpose, but rather to talk about ours.
At Tsingyuan, we are taking advantage of two areas where we think we have advantages, and where tremendous value is being created:
- Cross border investing (US + China)
- Cross disciplinary investing (multiple scientific disciplines combining as a core part of the start-up)
Both of these are big topics, so I am only going to address the first (US + China) in this post:
We are investing in the future relationship between China and the US. This is such an important area that I’m almost certainly going to write a much more detailed post dedicated to this subject. However, the brief thesis is as follows:
- China and the US account for a disproportionate amount of the value, innovation, and talent in the internet economy:
My former company, The Boston Consulting Group, created an excellent presentation that shows the extent to which China has joined the US as the center of value and innovation in the internet economy. I have clipped a couple of their slides in the following passage:
Value: China + US account for all 10 of the world’s top 10 public internet companies (by market value) and 88% of the value of all global “unicorns”
Value: market value of published companies and % of unicorn by region
Innovation: China + US account for a disproportionate amount of cutting edge research (example: China + US account for ~90% of published papers on deep learning)
Innovation: # of published and cited papers on deep learning
Talent: the border between top technical talent is highly porous and fluid
This point is more subtle, but in many ways, more important and tangible than the points about market sizes and innovation.
The depth and quality of “cross border talent” is staggering. US Universities are granting approximately 9,000 science and engineering PhDs to US nationals each year, and ~5,000 science and engineering PhDs to Chinese nationals.
I don’t have a good metric for this, but it makes intuitive sense to me that the competition among qualified Chinese applicants for the 5k PhD slots is extraordinarily intense (ie., more intense than the competition among US national PhDs), given the barriers around visas, financing, etc.
Talent: US granted science and engineering PhDs, by national origin
We believe that there are a series of related opportunities for start-up investors that arise from the China-US bridge:
- There is an extraordinary (and sizeable) talent pool of PhDs coming out of US universities who are comfortable operating across borders
- This comfort allows access to the latest scientific knowledge and innovation being produced in both markets. It also potentially opens market and partnership opportunities that may be more difficult for other founders
We are not only investing behind “Chinese PhDs in the US”, but we believe that there is something special about companies that will have the ability to take advantage of innovation, markets, and talent in both countries.
Some examples from our portfolio (all based in Bay Area; all with significant operations in both US and China from day 1):
- JingChi: Former leads from Baidu, Didi Chuxing and Ucar autonomous driving team. Incredibly fast time-to-market (45 days to closed road test; 81 days to open road test). Targeting both autonomous taxis (expected to be in market by 2018 in at least 1 test market) and trucking
- Turing Video: Computer vision based activity recognition applied to physical security (eg., patrolling parking lots). Team is led by Song Cao, Tsinghua/ USC PhD expert in activity recognition and Yi Li, U of Maryland Prof expert in robotics. Already with significant revenue generating contracts signed in both US and China
- Aella Data: Distributed intrusion detection architecture for enterprises. Tsinghua grad serial entrepreneur (previous company, AeroHive, listed on NYSE)
- IntEngine: ASIC chip for deep learning acceleration (used for video activity recognition, speech processing and robotics applications); Former Marvell China lead (Tsinghua grad founder)
We are excited to see how these companies develop, as they take advantage of cross-border opportunities from the very earliest stages. We are sure that there will be some mis-steps along the way, along with some friction from working across timezones (not to mention lack of focus by pursuing opportunities in multiple markets). However, we’re equally convinced that there will be tremendous value created from this cross-border combination, and are looking forward to see this play out.
In a future post, I will address the second part of our thesis: we like cross-disciplinary companies.
