How Larry Li starts a new model in Venture Investing

For this interview, Larry Li, Founding Partner at Amino Capital, talked with Patrick Daniel. Amino Capital started with their partners’ own money and founded by tech executives in Facebook, Google, Amazon, Yahoo and more than 60 LPs who all have relevant industrial and entrepreneurial experiences. Amino Capital was focused on early stage breakthrough technologies and helps startups create data driven products from 0 to 1.

Host：Larry, it’s a pleasure to be here with you today and talk about your investment philosophy and your work here at the Amino Capital. We’re actually here at the office. So, I’d love to learn more about Amino Capital, and how you started it, and what was the purpose behind it?

Larry：Thank you for coming, Patrick. Good to be with you. Amino has been a great venture for all of us. We started this five years ago. We are all basically engineers and scientists and then turned into an executive or entrepreneur, so we wanted to help young entrepreneurs. At that point, we decided to start a fund investing in entrepreneurs in Silicon Valley.

Host：What were the early days like?

Larry：Before we had the fund, we were all investing our own money. But as individual investors, there are very high risks because we don’t have assistance to follow the entrepreneurs. You gave some money to some people, if they do well, they move on to bigger investors. If they don’t do well, they are shamed to see you. So, either way, successful or failure, they will disappear. Therefore, we decided to put money together and work on the entrepreneurial full ecosystem. That way, we can help entrepreneurs a lot more and be more insightful for our investments. Secondly, we can evaluate the ideas and the founders better. In our case, early stage investment becomes very comfortable, as we treat ourselves as technical and operational advisors to the founders in their early days. We often enjoy high level of integrity by taking advantages of our rich advisory network of venture partners who are executives and successful entrepreneurs. Our founders were encouraged to move fast with lots of help, so we are vey glad that we put money together almost 9 years ago.

Host：And you also invest into first time entrepreneurs. So, how do you evaluate entrepreneurs?

Larry: We like to invest in first time entrepreneurs because we feel they are good fits for our expertise. Some of these entrepreneurs don’t have sufficient engineering management background. Since all of our partners have technical executive experience, we can provide support for entrepreneurs in terms of engineering management, hiring and next round fundraising. In that case, with us, technical, non-technical people and first-time entrepreneurs obtain advantages.

Host：And what kind of trends are you most excited about when it comes to the investment landscape?

Larry: Most of us are coming from data background, so in that case we invest mostly in people who are working on big data. They are either people who accumulate lots of data in a unique way or people who utilize data to develop a better algorithm. We like those kinds of companies. Additionally, it turns out the data right now is a new gold mine, so the data our portfolio companies have are highly valuable. Over 29 of our portfolio companies were acquired by Amazon, Facebook, and other tech giants due to their years of development of data products.

Host：The Economist highlights that the new world is about data.

Larry: Data is the real barrier. If you accumulate certain amount of data, it’s very difficult for other people to catch up. Therefore, we’ve seen companies start to put data accumulation as top priority when it comes to UIUX design. These data helps them to optimize product iteration and maintain their core competitiveness.

Host: So, you’re talking about what Warren Buffett says, you want to invest in those companies which have a certain model right? Can you talk more about how you know companies you invest when it comes to data?

Larry: First of all, they’re able to accumulate data in a very special way, not just crawling the web. Because if you can crawl the data on the web, basically that means Google can do it too.

Host: It needs to be original data, right?

Larry: That’s right. That’s why we sometimes invest in companies that have certain hardware component because those sensors are collecting data which has never been collected before.

Host: They are collecting new data right.

Larry: Yes, new data.

Host: Finding new oil rigs.

Larry: So that’s the thing we like. Secondly the products have a unique way to get feedback from the users. They know how to tag the data for machine learning intelligence, getting better user retention to snowball the data, and ultimately making their products better than others.

Host: What are you really excited about that artificial intelligence can do for a society and make life easier for a lot of people?

Larry: The most obvious thing we are looking at is Genomics. The cost for DNA sequencing is reduced every year, so it will be affordable to everybody very soon. Very soon there will be a lot of hospitals or institutions even can do it for free as long as you allow them to use your data. Also, we predict that the genomic data size would become larger than video on the internet, so that represents a lot of challenges and opportunities. Cancer early detection through whole genome sequencing is a great example, which can save a lot of lives. That’s one area we’re excited about.

Host: Before you make an investment, what are the things you’re looking at?

Larry: There could be a long list. But unlike families, failed startups are all alike, while every successful startup is successful in its own way. Therefore, for early stage investment, the most important things we look at are people and vision. We believe in a team with people who have certain synergy, such as working with each other for a long time, not just a group of people with good resumes.

Host: Track record.

Larry: Right. Also, we want to know how long they have been doing this. We often invest in products based on years of research, or executives who have managed hundreds of people before. However, we also invest in students who dropped out of school to start their companies, which often are in consumer space and we have some preliminary success with their products taking off shortly after, such as Candyhouse (Seasame Smart Lock), a spin off from Stanford University.

Host: Yeah, two sides of the same coin. One is the operation, and the other is passion.

Larry: Right. It’s important for us that the team moves very fast with new ideas, new features, new growth hacking strategies. This is how Silicon Valley as a hot bed works. Once you launch something, there are tons of competitors who claim that they can do the same thing.

Host: How do you define a successful exit? When you invest in something in the startup world, many investments are very liquid. You made the decision, essentially, many years ago to invest in a team. How do you define its success?

Larry: As a startup or as an entrepreneur, the chance of success is very low. Consequently, I define success as any company that has been acquired by a big company. Then, you can at least return the principal. That is a successful exit. However, for a very successful exit, we are looking at a hundred-fold return for investors on their principal investment.

Host: I saw Amino Capital is based in Silicon Valley but also has ties to China. How do you see the innovation landscape as China is developing and catching up to other developed countries? How do you interpret that?

Larry: That’s a very good question. At Amino, most of our partners are of Chinese origin. We originally come from China, although now we have all become US citizens. Thus, we have a strong connection to the Chinese community both in Silicon Valley and in China itself. This connection is a huge opportunity. Compared with Europe, the US is moving faster in terms of innovation. However, people sense that the rhythm is faster in China — even faster than the US.

Host: So maybe we should all move to China?

Larry: But there are many problems as well, which give rise to many challenges. Ultimately, it depends on your goal and your lifestyle. For example, China has innovation and business opportunities, but it also suffers from environmental problems. However, China does house many business opportunities in the sense that the infrastructure is still under construction to meet people demands. Additionally, there’s a huge population — which presents many business opportunities.

However, technology has recently changed a lot. For example, China skipped from building mobile lines to mobile apps due to the innovation of the smartphone.

Host: They skip from no phone to iPhone.

Larry: Yes. Right now, China’s mobile payment and mobile app system is very good. Many companies around the world are learning from them. For example, we just came back from a YC demo day yesterday, and quite a few companies there were doing mobile payment. They were talking about using Alipay as their model example to show the investors. They claimed they could be the next Alipay for countries such as Brazil, the US, or even Africa.

Host: That’s very interesting. Back in the early 20th century, Germany was a huge exporting country. People would always joke about Germany making cheap quality products and exporting them. However, now Germany produces a tremendous amount of quality products and innovation. Likewise, China shares the same story — just in the 21st century. Thus, I think that Amino Capital positions itself in a really interesting way because, although based in Silicon Valley, you also have all these unique Chinese influences in terms of business and innovation.

Larry: Right, you raise a very good point. For every 100 companies Amino invests in, 25 of them go to China and the average performance for those companies is much higher than the companies who stayed in the US.

For companies able to go to China, they have a Plan B. In contrast, companies which can only work in the US do not have a Plan B. If they succeed, they’re a success. If they fail, then they are a failure.

Thus, for people who are able to go to China, they use their Plan B and are given a second chance to succeed in China. So, that’s why the people who went to China have a higher level of success — they have tried twice. Of course, they also recieved a lot more support from local Chinese investors.

Host: Going back to your previous point, you mentioned that technology is critical to a startup’s success. But what about other factors such as marketing, demographic, business, or sales aspects? How do you evaluate those factors and develop traction with the product?

Larry: Yeah, so the big trend is also very important. So, no matter how good you are and how hard you work, if you are not riding the next trend wave, then it’s less likely you can make it big.

So, how to identify the next wave? Basically, there are four principles, the first is Moore’s law. For example, look at phones. 10 years ago, because of competition capability and the low storage ability, there were limited smartphone functions. However, as things progressed and innovated, the speed and the storage of the phone grew exponentially so that a lot of things that couldn’t be done before can now be done. Innovation has given rise to new opportunities and companies. For example, Instagram and YouTube are all based on new internet speed. Without higher speed, their business would not be possible due to the technological capacity restrictions.

In the future, it’s the same story. There’s certain things that we cannot do right now. However, Moore’s Law still holds. The revolution of storage and computation will continue. As a result, more opportunities and businesses will arise. For example, just look at blockchain.

Host: What are your thoughts on blockchain?

Larry: In comparison to Bitcoin, the potential of blockchain is huge. Go beyond Bitcoin is the Easter, right? Easter also approved the blockchain. However, with the new technology, in combination with the new level of computation power and the new desire for people to work in a decentralized environment, there will be even secure protocols. So, with technological advancement, blockchain can resolve its performance issues and become the next big trend.

Host: How do you see investing changing in light of blockchain and Initial Coin Offerings (ICOs)?

Larry: By raising money through ICOs, the investment paradigm has changed. Traditionally, when VCs invest in startups, they take a certain amount of equity of the company in exchange for their investment. However, when companies issue coin in a separate society, the VCs may not, as investors, have any kind of equity or shares in that new crypto community. Thus, ICOs are a very challenging environment for VCs.

However, I have always believed that new things must be done by new people. As VCs, we are recruiting more younger people who have experience in those new fields.

Host: Are there any final remarks?

Larry: As investors, because we take a lot of risks, we also benefit a lot from successful investments. Most importantly, investments give us the opportunity to talk and work with the most interesting people in Silicon Valley — which is very exciting.

Host: Well, thank you so much!

Larry: Thank you so much!