Author Liu Bo, from the investment sector PEdaily, has painted a vivid picture in the history of global venture capital.
Not long ago, Huang Renxun mentioned his first financing in his alma mater Stanford University’s speech – in 1993, two angel investors jointly invested $2 million, valuing the company at $6 million. It was this investment that saved NVIDIA, which was on the verge of bankruptcy shortly after its founding.
From then on, the NVIDIA Empire, which would dominate the tech world in the future, was born.
Calculating, this early angel round investment has created a myth of a $2.8 trillion market value to date, undoubtedly the best interpretation of venture capital fueling the rise of tech giants. Historical experience shows that the level of venture capital activity directly impacts the prosperity of technology innovation companies, and this is something we should contemplate more deeply at present.
No Business Plan
$2 Million Raised in Angel Round
This investment story goes back to 1993.
At that time, Huang Renxun was working as an engineer at a chip company when his two friends, Chris and Curtis, approached him expressing their desire to leave their jobs and start a business. It was just before the PC revolution took off, with Windows 95 yet to be released, and the Pentium processor still pending, highlighting the importance of microprocessors. NVIDIA was thus born out of this necessity.
There is an interesting anecdote from this time – when Huang Renxun told his mother about his plans to start a 3D graphics chip company for gaming, she asked him directly, “Why don’t you find a job at an electronics factory?”
Overall, Huang Renxun’s entrepreneurial journey was full of twists and turns. He didn’t even know how to write a business plan at the time. To address this, he went to a bookstore and found a book titled “How to Write a Business Plan,” which had a whopping 450 pages. However, he gave up after flipping through a few pages, saying, “By the time I finish reading it, the company will probably have gone bankrupt and run out of money.”
How Difficult Was it for NVIDIA to Raise Funds at the Time?
Sid Siddeek, who was in charge of NVIDIA’s venture capital division, still vividly remembers: armed with presentation materials, he rushed to multiple investor meetings to help promote NVIDIA’s story to investors alongside the CEO and management team. His office was merely a tiny mobile room.
In his speech, Huang Renxun recalled that at that time, he only had about six months’ worth of living expenses in the bank, and his whole family was living off that meager savings. So, he simply didn’t write a business plan and instead went directly to the former CEO of his previous company, Wilfred Corrigan.
After listening to Huang Renxun’s pitch, Wilfred Corrigan bluntly stated that he had no idea what he was talking about, calling it one of the worst startup pitches he had ever heard. Nevertheless, Wilfred Corrigan picked up the phone and called Sequoia Capital founder Don Valentine, saying, “I want to send a young man to you, hoping you can invest in him. He was one of our best employees.”
However, after Huang Renxun finished his presentation, Don Valentine said, “Startups should not invest in other startups or collaborate with them.” His point was that for NVIDIA to succeed, another startup also needed to succeed, which was Electronic Arts, a game development company. The CTO of that company was only 14 years old at the time and had to be driven to work by his mom.
In the end, Don Valentine and Satish Dhingra Capital each invested $1 million, allowing NVIDIA to secure $2 million in angel funding, with a post-investment valuation of $6 million. It’s worth noting that prior to this, Don Valentine had only invested a few hundred thousand dollars in Apple.
This investment is still unforgettable to this day. Huang Renxun still remembers what Don Valentine said at the meeting: “If you lose my money, I’ll kill you.” Fortunately, Huang Renxun and NVIDIA did not disappoint his expectations.
A Mirror
The Adventurous Capitalists
Today, this angel investment has been recorded in history.
In 1999, NVIDIA went public on Nasdaq with a market capitalization of $230 million. By this calculation, the valuation of NVIDIA’s angel round had increased by 38 times, making it a good choice even after partially exiting post-IPO. However, it is believed that with Don Valentine’s investment philosophy, he will undoubtedly continue to hold on for higher returns.
The subsequent story does not need to be reiterated. NVIDIA has risen to become a chip giant and, with the emergence of OpenAI, has become a worthy ruler of AI chips. Accompanying this, NVIDIA’s stock price has skyrocketed – in the past five years, NVIDIA’s stock price has grown by 28 times, with its latest market value reaching a staggering $2.8 trillion.
Perhaps only those who have experienced it can truly understand. Huang Renxun has emphasized the importance of financing on multiple occasions, believing that startups are essentially companies on the brink of collapse. “When I founded NVIDIA, after each round of financing, I immediately started preparing for the next round, then the third round. Survival is crucial, cash is king. As a CEO, you either make money, save money, or raise money.”
At the same time, NVIDIA has quietly built a vast investment landscape. S&P Global data shows that by 2023, NVIDIA has become the fourth-largest venture capital company, following only Microsoft, SoftBank, and Google. Its investment areas cover healthcare and biotechnology, AI infrastructure, generative AI and RPA technology, autonomous driving, robotics, 3D printing, and more.
As Huang Renxun has emphasized on many occasions, the rapid development of the tech industry requires early investments in the distant future, which is NVIDIA’s inevitable path.
In the eyes of Mi Lei, founding partner of China Creation Star, NVIDIA’s success once again highlights the long-term nature of “hard technology” and the importance of “knowledge value”. To maintain a leading position, continuous focus on technological innovation and consistent R&D investment is necessary.
As an investor, Mi Lei has deep feelings about this. He believes that for venture capital firms, if they are too focused on short-term financial returns, they will not be able to invest in great companies. “The essence of venture capital is to drive technological progress and industry transformation by supporting disruptive innovative technologies, creating greater value, and ultimately reaping ‘knowledge value,’ ‘social value,’ and ‘economic value.'”
To a certain extent, this is the best mirror for domestic venture capital.
In the 1990s, venture capital began to sprout in China and has been around for thirty years. However, at present, venture capital, once a foreign import, is becoming more localized than ever before. Some VCs no longer hunt for risks but have become rigid profit guarantees, requiring short cycles, no risks, and guarantees.
At one point, buybacks, side bets, and dividends were heard everywhere in the domestic primary market. For example, buyback agreements between founders and investment firms have become commonplace, but since last year, the situation has changed – buybacks have become a hard condition for investment decisions at shareholder meetings. If the controlling shareholder is unwilling to sign a buyback, the investment will not proceed.
“The charm of venture capital lies in finding innovative ideas that are uncertain but potentially disruptive.” A venture capital partner who wishes to remain anonymous lamented that such practices may prevent us from discovering other great innovations.
Patient Capital
The Rise of Chinese Technology
What role should venture capital play in the rise of technology? This is undoubtedly worth pondering for every venture capitalist.
It is well known that technological innovation is not achieved overnight. To achieve original and disruptive outcomes, one must go through the difficult process of laying the technical foundation, breakthroughs, commercializing achievements, and face a long and uncertain return cycle. In the midst of the market surge, many tech startups face obstacles due to significant initial capital investment, hindrances in converting results, and may not show good financial performance for a long time, possibly even “falling before dawn.” The more so, the more need for patient capital.
What is patient capital? As the name suggests, it guides capital to be a “friend of time,” not affected by short-term market fluctuations, accompanying hard technology, scientists, and entrepreneurs on a long journey. However, faced with the current reality, some investment institutions no longer seem to emphasize imagination and long-termism.
A prominent local venture capital figure in Shenzhen bluntly stated that the general fund life of domestic venture capital funds is 3+2 years, with a maximum of 7 years. However, it usually takes 6 to 10 years for a company to meet the requirements for listing. This means that some RMB funds cannot hold excellent companies for the long term.
“Some investors are used to making quick money, adapting to the fast-paced investment rhythm, convincing them to make investments lasting more than ten years is indeed challenging; moreover, Chinese investors do not like to entrust their funds to professional organizations, often opting to invest themselves.” Yang Bin, president of Shanghai Sci-Tech Fund, lamented.
Chang Junsheng, Executive Director, Investment Committee Chairman, and General Manager of Jinshi Investment, pointed out the underlying differences – overseas major contributors seek long-term asset allocation, even hoping to extend the investment period. “But in China, whether it’s individuals or institutions, the assessment cycle is relatively short. If I can’t exit within my term, then I definitely won’t do that project. So fundamentally solving this problem can only be hoped for more long-term funds entering the equity investment market.”
At the same time, he also emphasized the need to give LPs reasonable guidance on expectations. “Considering the overall progress of China’s economic development, our fund returns, including our LPs’ expected returns, need to be appropriately adjusted downwards, or the period extended accordingly. Everyone should uphold the concept of long-term investment and grow together over time.”
In response, Mi Lei provided several suggestions. He believes that strengthening patient capital first requires a mindset shift, updating concepts to recognize that only long cycles can yield higher returns. From the government to enterprises to all LPs, everyone should realize the long-term value of patient capital and the enormous future returns it can generate to support VC/PE in making longer-term investments, allowing for fund cycles of over 10 years. Policies should also provide some incentives for patient capital. For example, genuine patient capital supporting technological innovation should receive tax benefits.
Entrepreneurship is challenging, and the innovation from “0 to 1” is the most thrilling. But before this moment arrives, one must travel a difficult and lonely road, where venture capital is needed every step of the way. As Don Valentine said in “The History of Venture Capital”:
“Venture capital is not a divine perspective on the world; it is entrepreneurship, it is doing entrepreneurship with the entrepreneurs.”
The Rise of NVIDIA The Most Legendary Angel Investment in History