Author Liu Bo, from the investment community PEdaily, made a bold stroke in the history of global venture capital.
Not long ago, Huang Renxun mentioned in a speech at his alma mater, Stanford University, about his first financing in life – in 1993, two angel investors jointly invested $2 million, valuing the company at $6 million. It was this investment that saved NVIDIA from the brink of collapse shortly after its establishment.
Thus began the rise of the NVIDIA empire, which has since created a myth worth $2.8 trillion in market value, making it the best example of venture capital helping tech giants rise. Historical experience has shown that the level of venture capital activity directly affects the prosperity of technology innovation companies, making this point more worthy of our deep thought.
No Business Plan
$2 Million in Angel Investment
This investment goes back to 1993.
At that time, Huang Renxun was working as an engineer at a chip company when two friends, Chris and Curtis, approached him, expressing their desire to leave and start a business. It was evident that microprocessors would be crucial given the upcoming PC revolution, and thus, NVIDIA was born.
There was an interesting incident when Huang Renxun told his mother about his startup idea of a 3D graphics chip company for gaming. She immediately asked, “Why don’t you just find a job at an electronics factory?”
In short, 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. So, he went to a bookstore and found a book called “How to Write a Business Plan,” which had a whopping 450 pages. He only flipped through a few pages before giving up, saying, “By the time I finish it, the company will probably have collapsed, and the money will be gone.”
How difficult was it for NVIDIA to raise funds then?
Sid Siddeek, who was in charge of NVIDIA’s venture capital department, still vividly remembers: he rushed to various investor conferences with presentation materials to help promote their story to investors. His office was just a tiny mobile room.
Huang Renxun recalled that at the time, he only had about six months’ worth of living expenses in the bank, and the whole family could only rely on this small amount of savings to get by. So, instead of writing a business plan, he went straight to the former CEO of his company, Wilfred Corrigan.
After listening to Huang Renxun’s pitch, Wilfred Corrigan bluntly said he didn’t understand a word, 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, when Huang Renxun completed his presentation, Don Valentine said, “Startup companies shouldn’t invest in other startups or cooperate with them.” His belief was that for NVIDIA to succeed, another startup also needed to succeed, which was Electronic Arts, a video game development company. The CTO of that company was just 14 years old at the time and had to be driven to work by his mother.
In this way, Don Valentine and Satish Dharmaraj 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 earlier, Don Valentine had only invested a few hundred thousand dollars in Apple.
This investment is still unforgettable to this day. Huang Renxun still remembers Don Valentine’s words 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 Capital of Risk Takers
Today, this angel investment has been enshrined in history.
In 1999, NVIDIA went public on the NASDAQ with a market capitalization of $230 million. Based on this, the valuation of NVIDIA’s angel round has increased by 38 times, even after partially exiting after the IPO, which was a good choice. But with Don Valentine’s investment philosophy, he is bound to continue for higher returns.
The subsequent story needs no further elaboration. NVIDIA has risen to become a chip giant and, with the emergence of OpenAI, has become a worthy ruler of AI chips. Accompanying this is NVIDIA’s rocketing stock price – in the past five years, NVIDIA’s stock price has grown 28 times, with its latest market value reaching an astounding $2.8 trillion.
Perhaps only those who have experienced it can truly understand. Huang Renxun has emphasized the importance of financing more than once, believing that a startup is a company on the brink of collapse. “When I founded NVIDIA, after each round of financing, I immediately started 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 portfolio. S&P Global data shows that by 2023, NVIDIA has become the fourth-largest venture capital firm after Microsoft, SoftBank, and Google, with investments covering healthcare and biotechnology, AI infrastructure, generative AI and RPA technology, autonomous driving, robotics, 3D printing, and other fields.
As Huang Renxun has emphasized on many occasions, rapid development in the tech industry necessitates early investments in the distant future, which is the path NVIDIA must take.
To Mi Lei, founding partner of Zhongke Chuangxing, NVIDIA’s success underscores the long-term nature of “hard technology” and the importance of “knowledge value.” To maintain a leading position, sustained focus on technological innovation and continuous R&D investment is essential.
As an investor, Mi Lei has deep feelings about this. He believes that for venture capital firms, focusing too much on short-term financial returns will prevent them from investing in great companies. “The essence of venture capital is to support disruptive innovative technologies to create greater value, drive technological progress and industry transformation, and ultimately reap ‘knowledge value,’ ‘social value,’ and ‘economic value.'”
In a sense, this is the best mirror of China’s 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 increasingly localized. Some VCs are no longer focused on capturing risks but have become rigid profit guarantees, demanding short cycles, no risks, and guarantees.
Repurchases, guarantees, and dividends are heard frequently in China’s primary market. For example, repurchase agreements between founders and investment institutions have become commonplace. However, since last year, things have changed – repurchases have even become a mandatory condition at investment committee meetings. If the controlling shareholder is unwilling to sign a repurchase agreement, the investment will not proceed.
The allure of venture capital lies in finding innovative ideas that are uncertain but potentially disruptive. One unnamed venture capital partner sighed, warning against certain practices that may prevent the discovery of other great innovations.
Capital of Patience
The Road to China’s Technological Rise
What role should venture capital play in the rise of technology? This is a question that every venture capitalist should deeply ponder.
It is well known that technological innovation is not achieved overnight. To achieve original, disruptive results, one must go through a rocky foundation-laying and breakthrough process, as well as the commercialization of results. The return cycle is long, and there are many uncertainties. In a market frenzy, many tech startups face obstacles due to large initial capital investments and obstacles to commercialization, resulting in poor financial performance for a long time, or even “falling before dawn.” The more so, the greater the need for patient capital.
What is patient capital? As the name suggests, it guides capital to be a “friend of time,” unaffected by short-term market fluctuations, accompanying hard technology, scientists, and entrepreneurs in the long run. However, faced with the current reality, some investment institutions seem to no longer value imagination and long-term thinking.
A prominent local venture capital figure in Shenzhen bluntly stated that the general fund life of a Chinese venture capital fund is 3+2 years, up to a maximum of 7 years. However, it generally takes 6-10 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 a fast-paced investment rhythm. It is quite challenging to convince them to make investments lasting more than ten years. Chinese investors also do not like to entrust their funds to professional institutions but prefer to invest directly.” Yang Bin, president of the Shanghai Science and Technology Innovation Fund, lamented.
Chang Junsheng, Executive Director, Chairman of the Investment Committee, and General Manager of Jinshi Investment, pointed out the underlying differences – overseas major investors seek long-term asset allocation and even hope to extend the investment period. “But in China, whether it is an individual or an institution, the assessment cycle is relatively short. If I cannot exit within my term, then the project will definitely not be done. Therefore, the fundamental solution to this problem can only rely on more long-term funds entering the equity investment market.”
At the same time, he also emphasized the need to provide LPs with reasonable guidance on expectations. “Looking at the overall progress of China’s economic development, our fund returns, including the expected returns of our LPs, should be appropriately lowered, or the term should be appropriately lengthened. Everyone should hold the concept of long-term investment and grow together with time.”
In this regard, Mi Lei offered several suggestions. He believed that expanding patient capital first required liberating thinking and 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 generates to support VC/PE in making longer-term investments. Only then can funds with periods of over ten years appear. There should also be some policy incentives for patient capital. For true patient capital that supports technological innovation, tax incentives should be provided.
Entrepreneurship is tough, and the innovative “0 to 1” moment is the most exciting. But before this moment arrives, one must endure a long and arduous journey, where risk capital is essential. As Don Valentine said in “The History of Venture Capital”: “Venture capital is not about seeing the world from a God’s-eye view; it is about entrepreneurship, about starting up with entrepreneurs.”
