The wave we’re riding: Chinese PhDs in the US

Clearly a core part of our thesis is that (a) the network of Chinese PhDs in the US is a large, talented group of founders; and (b) this group is undervalued by traditional VCs. We have written about this pillar of our thesis in an earlier blog post, and we work hard to develop deep ties within this community.

As we have started talking to investors about our next fund, many of them are intrigued by this aspect of our strategy, and have asked several relevant questions:

1. How large is the pool (of PhDs from China studying in the US) that we’re drawing from?
2. What kinds of ventures are started by this group? Are they successful?
3. Is this group rising or falling? If it is falling (due to geopolitical considerations), does that hurt Tsingyuan’s approach
4. (how good are PhD founders; are they more successful than non-PhDs? If so, for what verticals?… I’m not going to take on this question in this blog… it’s a great topic for the next blog, though. Spoiler alert: PhDs are superior entrepreneurs in certain fields).

First, a reminder: we are a US venture firm that invests only in US companies. However, we have recognized that there is a tremendous opportunity “going long” on this community of founders in the US (for instance, our predecessor fund, TEEC Angel Fund, made great bets in the seed rounds of Zoom Video, Quanergy and Plus, all of which are from this community).

Next, some conclusions and observations (in case you’re too lazy to read the whole post ;)

1. We are at the beginning of a giant wave — we believe that the number and significance of Chinese founders in the US is poised to skyrocket
2. There has been a major shift in the nature of these ventures. Prior to 1990, they were almost all from Taiwan/ HK (and concentrated in hardware/ semiconductors). Post 1990, the mix started to shift; from 2000 onward, the field is dominated by overseas scholars from the Mainland
3. At the moment, these ventures are highly concentrated in AI applied to autonomous driving. This, however, is the tip of the iceberg: there is a vast array of companies in a variety of verticals that are rapidly ascendent

As a side note, one important point that is often lost in the discussions about imbalance of trade between the US and China is the “balance of intellectual trade”… for decades, the best and brightest of China have come to the US to conduct scientific research; the bulk of them stay after graduation, and many stay to start families. The amount of innovation that they and their offspring add to our economy and society is immeasurable.

There has been a major shift in the composition of US PhDs in science and technology (“S&T”) over the past 30 years

The first thing to note is that the number of PhDs in S&T has risen sharply. In 1986, there were ~12k S&T PhD students in the US; by 2016, that number had increased to over 30k (and still rising rapidly). Furthermore, the proportion of non-US citizens has risen significantly (from ~25% to over 40%).

• As a secondary note, there are significant differences between US and non-US PhD populations… I will draft a companion post on this subject.

There has also been a major shift in the composition of foreign PhD students in the US

Remarkably, in 1987, there were only ~500 PhD students in the US from China. They were outnumbered by students from India, Korea, and Taiwan. 20 years later, Chinese students were the single largest national origin (accounting for 18% of all S&T PhDs in the US). The number of students from Taiwan has shrunk in both absolute and relative terms.

There is also a difference in the types of students China is sending vs. other countries

If we look at foreign students getting PhDs in the US in 1987, Korea, China and Taiwan all look quite different from US-born students: fewer than 50% of their parents had a college degree, and almost none of their parents had a PhD degree (by contrast, almost 30% of US born students had a parent with a PhD degree). India was a partial exception, with a very high percent of parents having a college degree (but still a low percent of PhD parents).

20 years later, the foreign students have started to close the gap with the US… a significant percentage of Korean, Taiwanese, and Indian PhD students in the US have parents with advanced degrees. The US-born statistics have continued to climb, though: more than 50% of US-born S&T PhD students in the US had a parent with a PhD.

The Chinese students, though, remained almost unchanged in 20 years: less than 50% had parents with a college degree, and almost none with PhD degrees. In simple terms, these are the “scrappy kids”, not an entrenched group of academic elites.

The same phenomenon occurs within China, where it is the kids from the provincial cities that outperform kids from elite high schools in Shanghai and Beijing on China’s fearsome national entrance exam.

The effects of this shift in migration/ PhD patterns can be clearly seen in the Chinese immigrant businesses started in the US.

Pre-2000: Looking at tech companies started by Chinese immigrants in the US prior to 2000, it is dominated by Taiwanese, Hong Kong, and even Vietnamese-Chinese. They are heavily concentrated in hardware and semiconductors. Even in the rare cases where an immigrant from the Mainland started a successful US tech company, half of them occurred pre-1949 (eg, An Wang and Charles Wang).

2000–2010: From 2000–2010, it is easy to see a shift taking place. First, there are very few Taiwanese/ Hong Kong immigrant companies (two of the more notable — Yahoo and Youtube — both had founders who arrived in the US as children). The first large wave of founders from Mainland China begins at this time.

As a side note, this particular group of companies has special significance for Tsingyuan Ventures:

• Feng Deng and Ken Xie (the founders of Netscreen and Fortinet respectively) represent the first wave of Tsinghua grads to make it big in the US. They were key members of the Tsinghua Entrepreneur and Executive Club
• WebEx was founded by Min Zhu, who brought Eric Yuan (Zoom Video founder) to the US; TEEC Angel Fund 1 went on to be the first check in Zoom Video.
• Aerohive Networks was founded by another TEEC member, Changming Liu. His current company, Stellar Cyber, is a Tsingyuan portfolio company

2010s: by the 2010s, the transformation is complete. There are almost no Taiwan/ Hong Kong immigrant firms founded that have reached prominence. Conversely, there is an explosion of China Mainland immigrant founded firms, largely focused in AI for autonomous driving. This cohort includes TEEC/ Tsingyuan’s Plus.ai, Quanergy and Weride.

Looking through a slightly different lens, many of these start-ups came out of Google and Baidu’s autonomous driving teams, which is more important as melting pot for the top AI talents in the world to meet and cooperate.

Some thoughts and conclusions

Tsingyuan Ventures and TEEC Angel Funds have both made the community of Chinese PhD founders in the US the core of their portfolios (in our current portfolio, this profile accounts for 63% of our companies). Thus far, it’s been a great source of strong technical founders (and has resulted in multiple unicorns backed from the seed stage).

We believe that this is only the tip of the iceberg. As discussed, the first set of ventures from this group of founders are focused in AI for autonomous vehicles. However, the next wave of superstars includes:

• Subtle Medical: AI/ computer vision enabled MRIs and PET Scans
• Otter.ai: AI/ NLP enabled meeting transcription
• Stellar Cyber: AI enabled network intrusion detection
• Turing Video: AI/ Computer Vision for physical security and operations
• Visionular: AI for video compression
• Memverge: virtualization for memory/ storage convergence
• ZS Fab: custom printed prosthetic hips, knees, etc (using AI-enabled 3D modeling)

Obviously, there is still a theme here: mostly AI techniques applied to various applications.

We believe that this trend will become more and more obvious in coming years. We are currently just beginning to see the swell of a wave that’s been building since the late 1990s, when large numbers of Chinese PhDs began coming to the US, entering top schools and companies. They now have the experience and credibility to start companies (while at the same time, the field of AI/ ML, which had attracted many of their best and brightest, has become hot).

We believe that this trend is highly beneficial to the US economy, as a high portion of cutting-edge companies will be founded here (and will spark the next-generation of entrepreneurs). As investors, we are riding this wave happily and profitably.