The Inquisitive VC: Patrick Chang — Samsung NEXT
Patrick Chang is an early-stage investor at Samsung NEXT Ventures. He primarily focuses on seed to series B enterprise / B2B investing and specializes in blockchain, edge computing, developer tools, and more. Prior to Samsung NEXT, Patrick was at Foundation Capital, Bain Capital Ventures, and others with a focus on SaaS and enterprise software.
We talk about his background, the Samsung NEXT platform, corporate VCs vs traditional VCs, Dapper Labs and more!
NA: Hi Patrick, Thanks so much for taking the time out for this chat. I want to start with talking about your background and how you ended up leading blockchain investments for Samsung?
PC: Yeah, for sure. The story of how I learned about blockchain is actually quite interesting. It goes way back, before joining Samsung. I used to live in New York where I started my career in investment banking and then did VC after my analyst program.
I had a friend who was a management consultant who quit his job to start a Mediterranean style Chipotle. He was the first restaurant in New York to accept Bitcoin as payment. He got a huge amount of press from it. You know, it was like a fun experiment. He wanted to see how many people would actually buy his food in cryptocurrency. Restaurants are extremely difficult and competitive businesses in NYC, and unfortunately, it shut down.
Around 2011 is when I first started talking to more entrepreneurs in the community about digital currency. I also had a friend from Houston, my hometown, that was an engineer at another tech company that was thinking about leaving to start a crypto exchange. He was so excited and bullish about bitcoin. I started buying some Bitcoin simply to learn more about it. Back then it was so difficult without the exchanges. It wasn’t something that was very simple to buy or sell. I really understood why an exchange was necessary but wasn’t sure if this digital currency would be a real thing. In the nascent years it was kind of quiet, right?
Over the years, bitcoin continued to pop up. There wasn’t much talk about bitcoin and then the market kind of went crazy a few years later in 2016. Remember the friend I mentioned earlier? He messaged me when bitcoin was close to $15k that he had made up all the money he lost from his Mediterranean Chipotle from a few purchases made using bitcoin.
I joined Samsung NEXT in 2014. This was my first foray into corporate venture and I learned about how traditional VCs and corporate ventures operate very differently.
When I joined Samsung NEXT our mandate really was all about innovation and investing in deep tech and frontier tech. We try to invest in software and services that are focused purely on technical innovation. Focus areas were AI, healthcare, cloud computing, and anything that would improve the mobile experience, TV, and other consumer electronics.
Back in 2014, I started thinking about blockchain and how it could be used to democratize data, but also to connect devices, break data silos, and connect devices from different ecosystems without going to the cloud.
At the time, I was trying to educate Samsung and Samsung NEXT on blockchain, and that’s when we made our first investment in a company called Filament. They pivoted several times over since, but the original idea was to connect multiple, various different IoT devices and verifying each device peer to peer and accessing the data that comes out of those devices.
NA: Very interesting. It seems you had quite a long journey and you’ve mentioned quite a few things that I wanted to talk to you a bit more in detail about. I want to understand the Samsung NEXT platform in a bit more detail. What the function of this arm of Samsung is, and the general mandate of Samsung NEXT ventures?
PC: At Samsung NEXT Ventures, we are an early-stage investor, focused purely on seed to series B investments. We write checks anywhere from $250K to around $3M.
Samsung NEXT is an innovation group. Our mandate is primarily around innovation; so it’s not just an investment team. We have other teams also working with startups such as a partnership team, a strategy and innovation team, product team [where we build products in house], and an M&A team.
We look at all kinds of new technologies that we believe could be additive to Samsung’s consumer experience from a software and services perspective.
Samsung NEXT Ventures has narrowed its focus overtime on a few core thesis areas. The main focus area has been around Frontier Tech which includes AI, Quantum, AR/VR, and others. We also invest in edge computing, media tech that does synthetic tech, healthcare, etc. Blockchain is seen more like a horizontal technology that kind of fits in multiple different thesis areas.
For blockchain, it was one of those areas where we created a very deep thesis on where we wanted to invest, and where we thought there was a high potential for financial returns.
Blockchain is like the nascent internet: there exists an advanced range of application scenarios, and we have only scratched the surface. We saw blockchain technology increasingly applied to develop unbanked countries and communities. With underpinnings in peer-to-peer transactions, blockchain has the power to democratize transactions by removing the middleman and reducing the needless fees that so frequently hamstring those deprived of banking services.
Over the years, we’ve seen the blockchain technology stack continue to mature and banking applications like international remittance and cashless payment increase in adoption. Since the bubble burst, the focus has returned to technology innovation in blockchain and real pain points, rather than cash grabs. There has been a renewed interest in fixing the scalability problems, the privacy issues, and how it can be an invisible infrastructure similar to the cloud. How will consumers adopt it and how will enterprise use it?
Our blockchain thesis focuses around decentralization. Decentralization is disruptive to current computing architectures and business models, creating opportunities for new players and threatening incumbents. It pushes control and ownership of compute, applications and storage to the edge, closer to data and users. Incumbents rely on centralized control and ownership of compute, applications, storage and data. Samsung is well-positioned in a decentralized world with its massive device footprint from mobile, IoT, televisions, appliances, cloud, network equipment, chips, and etc.
Blockchain is an enabling technology for this and our thesis is investing in the infrastructure layer and platform layer. So when I talk about the infrastructure layer, it could be anything from like the actual protocols, we look at things where we think our devices can be helpful, from the trusted execution environments. Samsung’s large distribution of consumer devices provides an unparalleled footprint of compute and storage — with blockchain such as edge and distributed computing.
We also look at platforms where other applications can build on top of and maybe blockchain agnostic.
We kicked off our blockchain thesis in 2014 and we’ve since been refining our thesis significantly. We were early in the space with our first investment in a decentralized blockchain-based IoT company called Filament. A few of our other blockchain investments include Forte, Dapper Labs, Alchemy, Kzen, Theta, and several others.
NA: Understood, and a bit more general, can you talk about the investment process at Samsung NEXT? How it flows from you sourcing a deal to actually investing in it, and then following that, how Samsung NEXT supports portfolio companies post-investment?
PC: Yeah, definitely. We operate just like any traditional VC in terms of sourcing deals. Investors are constantly looking for exciting, disruptive, and innovative founders. We’re more thesis-driven investors because we are technology investors first. Being thesis-driven allows us to think about how the technology may fit within Samsung’s massive platform and how our platform can be the fuel to the potential portfolio companies fire. At the end of the day, we are still corporate investors and strategic investors because we want to make sure that we can be helpful to both Samsung and the portfolios.
Our criteria for investments is to ensure a company is the “best company” out there and that it will be financially successful without Samsung’s help. However, with Samsung’s help and platform, we can really drive enterprise value. Samsung can also improve and enhance the experience to its millions of customers.
Venture is opportunistic but we try to stay within the key focus areas in frontier tech, edge computing, health, and media tech. So when we go and source deals, they are primarily in these areas. We identify companies through conferences, or by creating a very detailed market landscape of a particular thesis and reaching out to companies that fit this thesis. We all also have a deep investor and entrepreneur network where we are referred to entrepreneurs who we’d love to work with.
The final way that we sometimes source our deals is via referrals from Samsung business units. Samsung gets a lot of inbound interest in BD efforts from other potential companies and these typically become partnerships rather than investments. We have another investment team that typically does these kinds of investments, Samsung Ventures.
Our investment process is pretty straightforward, we’ll talk to the entrepreneur and dive in. We’ll focus a lot on the technical innovation piece of it. Sometimes we will go and talk to business units if the entrepreneur gives us that kind of permission, given it’s mutually beneficial and we’ll get a temperature check. A lot of our investments are not short term investments. We are in it for the long haul and we’re trying to be forward-thinking and it’s something that might be helpful for Samsung years down the line.
One of the easiest ways we can add value is that we can help our portfolio companies by trying to be their BD team to Samsung. There are so many different groups in Samsung and a startup only has finite resources, especially time to dedicate to a company like Samsung. So it is our duty to do the best job in positioning the company to have the best chance of success with Samsung and limit our portfolio companies from spinning their wheels with Samsung. We will bring them in when it’s time to close the deal.
One example, there’s one portfolio company that I invested in, but it took almost three years for us to make a partnership deal happen. We spent those 3 years, getting stakeholders lined up internally, going through all the checks and balances, testing, and more. The bigger the deal the longer it may take. This company is now preloaded on every single device that has come out after the s10 and powers all of the in-app search functionality for Samsung s-finder product now.
NA: I’m sure getting some sort of deal with Samsung would be a major step for a startup. You mentioned this earlier, how different is it working for a corporate VC, compared to a specialist VC?
PC: It’s kind of funny. When I first joined, we were much smaller, and we were much more nimble. Now, this team has grown to a much larger size and we are now global where we have offices in the Bay Area and New York, Europe, Israel and Korea.
It’s a much larger team and a lot more corporate now. The difference really is, in traditional VC, I would say it’s more competitive in terms of the deal because you have to make sure the numbers work and the ownership percentages on the investment can make up the fund. There’s a lot of sensitivity around the returns and ownership percentages.
Whereas at Samsung NEXT Ventures it’s less of a priority. We do focus on investment returns, but not as much as financial investors. When we do diligence and we create our investment memo a large component is telling the story of how we think this company may be strategically beneficial, or, what the strategic angle is for Samsung. But the best part about being at Samsung NEXT is that I can actually offer value to my portfolio companies. I have one of the world’s biggest companies behind me to help me deliver on this value that I could not have done at any of my other funds. When we explain this to our entrepreneurs, they understand it and their eyes light up.
Nonetheless, there are many similarities with traditional VCs, we still evaluate investment opportunities based on team, market, technology, pain points, and unfair competitive advantage
NA: Sure. That makes sense. With this entire COVID situation, I’ve always heard that in situations like this where there’s potentially an economic downturn, usually corporate VCs stop investing or take a pause. Is that true with Samsung NEXT? Or are you still actively investing?
PC: We’re very actively investing amidst COVID. I think the whole VC industry has slowed down a bit. Mostly because I think venture is still a relationship business. When you make investments it’s like a marriage, right? You’re working together with an entrepreneur for say five to 10 years or, or maybe even longer.
You work very, very closely with these people, especially if you’re a lead investor and as a board director. So I believe the industry has slowed down as a whole a little because people want to have a personal connection.
For Samsung NEXT, Samsung is our sole LP, but we have our funds locally here in the US. So we can deploy capital at our discretion. With the slowdown, we’ve just slowed our activity. We are still actively making investments, just not as quickly and more cautiously.
A lot of great companies come out of economic downturn because they have to be a lot more resilient to survive. Companies don’t have the luxury of being overly funded and have to focus on successful business models and providing real services. Downturns usually create problems for entrepreneurs to solve or at least it shines a spotlight on some problems. We want to support these efforts and as investors, we don’t want to miss out on these opportunities.
NA: That’s great to hear that you are still active. I saw that Samsung NEXT has invested in Dapper Labs. Could you talk about what is the strategic value to Samsung that you saw there in terms of your investment in them?
PC: Dapper Labs is a fascinating company in my opinion. When they first came out with Crypto Kitties, back in the day, I thought it was something that as a thesis made a lot of sense, and then as an experiment, it worked pretty well. The thesis around ownership in things is well known in the physical world. But how does it shift in the future?
As younger generations, millennials, Gen Z, etc become digital natives and this whole new generation of people live on the web, in games, etc., we have a new generation that already understands principles of digital ownership and digital assets. However, there hasn’t been a creation of unique assets yet that was verifiable and immutable too. This is where Dapper came in.
As Crypto Kitties came about and the ERC-721 standard came about, it was something that was very unique and very interesting. Dapper was creating this whole new wave of consumer consumption and Samsung Electronics is a consumer company. This was potentially the new way consumers were going to consume things.
In our blockchain thesis, dApps is not a focus area, but what we saw was that Dapper was more of a platform play and eventually an infrastructure play because they were solving all the shortcomings they experienced with Ethereum with Cryptokitties.
The key question we asked ourselves was, is this a new way of how consumers consume things? Are digital goods going to be as real as physical goods. So it was something that we thought was super fascinating that we wanted to support and evaluate how Samsung’s platform could be helpful.
Overtime when Samsung created the blockchain wallet, Crypto Kitties was one of the very first to be preloaded on the store. Now with Dapper Labs creating a few new games, we look forward to being supportive on some of these new experiences too.
One of the things that is part of our blockchain thesis is around infrastructure investments and Dapper Labs is creating the Flow blockchain. We are very excited about this because it answered a lot of the key questions that we had around scalability. How can we increase throughput and also create a quicker verifiable way of speeding up blockchain transactions and making things more seamless? Flow is a developer-friendly blockchain that enables digital assets inside of games and apps. Relative to other blockchain technologies like Ethereum, Flow is focused on providing better speed and throughput to developers so that their applications can run at web scale.
Blockchain’s barrier for consumer adoption has always been a difficult experience. It takes too long to verify, it’s pretty expensive, and people don’t want to have to create a blockchain wallet just to transact or deal with blockchain assets. Dapper Labs and Flows primary focus around trying to make blockchain mainstream and adoptable by the masses. We are very excited about the technical innovations of Flow, from Cadence which is their own proprietary resource oriented programming language to their unique scalability by breaking up network node tasks, or scalability that does not involve sharding. They’re about to release a new collectable game, NBA Top Shot where you can collect your favourite NBA moments.
Lastly, the team is second to none and the team we wanted to back. Dapper was a story that we wanted to be a part of and support.
NA: I think it’s an amazing company, as well. I’m actually looking forward to the NBA top shot. That’d be pretty cool. Does Samsung NEXT lead investments or are you more of a co-investor?
PC: Thanks! I’m super excited for NBA Top Shot too.
We have the ability to lead investments, but traditionally, we’ve mostly been co-investors. My personal belief is that in the earlier stages, it’s better to have a traditional lead that can help guide the company and help with a lot of the support that’s necessary to grow a company.
Samsung kind of comes in a little later, because our value add is much more beneficial once the company’s a little more mature and has the ability to work with a behemoth like Samsung. At the same time, we offer a lot of support in various different ways. That’s why we still want to work with companies a lot earlier.
NA: Thanks for elaborating. When you are doing due diligence into a company, do you expect the company to tell you why they think that you should be an investor in terms of how they think Samsung would add value or is that something you would determine on your own?
PC: It kind of goes both ways. You know, sometimes when we talk to a company, we have a very clear understanding of where we think this company could potentially fit in Samsung or where we think we can be helpful to this company. Sometimes some entrepreneurs have clear visions or aspirations about how Samsung can be helpful, usually it’s around distribution or as a customer. Our greatest value add to entrepreneurs is the deep understanding of Samsung and the pain points that our business units are facing or objectives they may be trying to accomplish. With this knowledge, we help drive value to both our portfolio companies and Samsung.
Sometimes, things are a little more ambiguous where we find companies extremely exciting and we really think the space and the technology are very forward-thinking, but we don’t exactly know how Samsung can be beneficial. This is when we rely on the entrepreneur.
A lot of times, we really rely on the entrepreneur’s expertise in both the space and the technology, where they see Samsung helping. It doesn’t have to happen in the diligence phase. Sometimes we might have a story on where we think this company can be a strategic benefit to Samsung, but at the end of the day companies change over time, markets change, and then we find new ways for them to work with Samsung over the course of our relationship. We are committed to our portfolio companies and work as closely as we need to help make magic happen.
It’s always a fluid experience. We view Samsung as a major partner to our portfolio companies and try to be as helpful as possible.
NA: Okay interesting to hear that it’s quite a flexible experience. What is the latest publicly announced investment you’ve made at Samsung NEXT and why did you make it?
PC: We’ve done a lot of follow ons. I think my last personal investment was actually Forte. It’s been a while, but Forte’s one investment that I’m super excited about. For Samsung, it’s very interesting because Samsung has been doing a lot in the game space and we really believe in creating digital economies within games. Forte has proven to be extremely creative.
They’ve thought about how to create this platform where lots of game developers can develop on top of it. Similar to the Dapper Labs, they’re really focused on trying to make sure the mainstream consumer and mainstream companies are working to create these experiences.
We’re looking forward to seeing the platform go live and seeing the games that come out of it and also discovering how Samsung can be beneficial in helping them through either our wallet, game store or any other means of distribution.
NA: They do sound like an exciting company. Once again, thank you for your time Patrick, I had a great chat.
PC: Likewise Nawaz, thanks for having me!
