Author Liu Bo, Investment Sector PEdaily
This is a vivid stroke in the history of global venture capital.
Recently, Huang Renxun mentioned in a speech at his alma mater Stanford University the first financing in his life – in 1993, two angel investors jointly invested $2 million, valuing the company at $6 million. It was this investment that helped NVIDIA, just established and facing the risk of closure, turn things around.
Since then, the NVIDIA Empire, which has dominated the scene, was born.
Calculating it, the angel round from that year has created a myth with a market value of $2.8 trillion to this day, undoubtedly the best interpretation of venture capital helping the rise of technology giants. Historical experience shows that the activity of venture capital directly affects the prosperity of technology innovation companies, and this is more worth pondering now.
No business plan
Angel round raised $2 million
This investment dates 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 resign and start a business, hoping Huang Renxun would join them. At that time, just before the PC revolution erupted, with Windows 95 not yet launched and Pentium processors not released, it was evident that microprocessors would be crucial, and NVIDIA emerged from this need.
There is an interesting anecdote here – when Huang Renxun told his mother that he was starting a 3D graphics chip company that consumers could use for gaming, she immediately asked, “Why don’t you get a job at an electronics factory?”
In short, Huang Renxun’s entrepreneurial journey was extremely tortuous. 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. After flipping through a few pages, he gave up, “By the time I finish reading it, the company would probably have gone bankrupt and run out of money.”
How difficult was it for NVIDIA to raise funds at the time?
Sid Siddeek, head of NVIDIA’s venture capital department, still vividly remembers: armed with presentation materials, he rushed to multiple investor meetings to help NVIDIA’s CEO and management team promote their story. His office was just a tiny mobile room.
Recalling in his speech, Huang Renxun had only about six months’ worth of living expenses in the bank at the time, and the whole family had to live on this small amount of savings. So, he simply didn’t write a business plan and went directly to the former CEO of his company, Wilfred Corrigan.
After Wilfred Corrigan heard Huang Renxun’s introduction, he bluntly said he didn’t understand 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, “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 completed the 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 video 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 mother.
In this way, Don Valentine and Satish Dhaliwal each invested $1 million, enabling NVIDIA to raise $2 million in angel funding, valuing the company at $6 million after the investment. It is worth noting that before this, Don Valentine had only invested a few hundred thousand dollars in Apple.
This investment is still difficult to erase to this day, and 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
Capital that dares to take risks
Today, this angel investment has been written into history.
In 1999, NVIDIA went public on NASDAQ with a market capitalization of $230 million. Based on this calculation, compared to the valuation of the NVIDIA angel round, it has increased by 38 times. Even if they partially exited after going public, it was still a good choice. But with Don Valentine’s investment philosophy, he is bound to persist and achieve even higher returns.
The rest of the story does not need to be elaborated. NVIDIA has risen all the way to become a chip giant and, with the emergence of OpenAI, has become a deserved ruler of AI chips. Accompanying this is NVIDIA’s rocketing stock price – in the past five years, NVIDIA’s stock price has increased by 28 times, and its latest market value has reached an astonishing $2.8 trillion.
Perhaps only those who have experienced it can truly empathize. Huang Renxun has emphasized the importance of financing on more than one occasion. In his view, a startup is a company on the brink of bankruptcy. “When I founded NVIDIA, I started fundraising for the next round immediately after each round of financing, 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. According to S&P Global data, NVIDIA has become the fourth-largest venture capital company after Microsoft, SoftBank, and Google in 2023, 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, the rapid development of the technology industry requires early investment in the distant future, which is NVIDIA’s inevitable path.
In the view of Mi Lei, founding partner of Zhongke Chuangxing, NVIDIA’s success once again highlights the long-term nature of “hard technology” and the importance of “knowledge value”. To maintain a leading position requires long-term focus on technological innovation and continuous research and development investment.
As an investor, Mi Lei has deep feelings. He believes that for venture capital firms, overly pursuing short-term financial returns will not be able to invest in great companies. “The essence of venture capital is to support disruptive innovative technologies to create greater value, promote technological progress and industry transformation, and ultimately harvest ‘knowledge value’, ‘social value’, and ‘economic value’.”
To some extent, this is the best mirror of the domestic venture capital industry.
In the 1990s, venture capital began to sprout in China and has been around for thirty years now. However, at present, venture capital, this foreign import, is becoming more localized than ever before. Some VCs are no longer about capturing risks but have become rigidly structured for guaranteed returns, seeking short cycles, no risks, and security.
At one point, buybacks, put options, and dividends are all the rage in the domestic primary market. For example, the repurchase agreements between founders and investment institutions are no longer surprising; however, since last year, the situation has changed – buybacks have even been listed as a hard condition for investment decisions. If the controlling shareholder is unwilling to sign a repurchase agreement, then no investment will be made.
“The charm of venture capital lies in finding those uncertain but potentially disruptive innovations.” A venture capital partner who declined to be named lamented that some practices being adopted may prevent us from discovering other great innovations.
Patient capital
The road to China’s technological rise
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 an overnight process. To achieve original and disruptive results, it often requires a tumultuous process of laying the technological foundation and breakthroughs, the application of marketable outcomes, and a long and uncertain return period. In the market tide, many technology startups face obstacles due to large initial capital investments and difficulties in commercializing their results, and for a long time, they may not have good financial performance, or even “fall before dawn”. The more so, the more we need to strengthen patient capital.
What is patient capital? As the name suggests, it is guiding capital to be “friends with time”, not affected by short-term market fluctuations, accompanying hard technology, scientists, and entrepreneurs for the long haul. However, faced with the current reality, some investment institutions seem to no longer value imagination and long-termism.
A prominent local venture capital figure in Shenzhen bluntly stated that most RMB venture capital funds have a lifespan of 3+2 years, with a maximum of 7 years. However, it typically takes 6-10 years for a company to meet the requirements for listing, making it difficult for some RMB funds to hold excellent companies for the long term.
“Some investors are used to making quick money and have adapted to a fast-paced investment rhythm, convincing them to make investments for more than ten years is indeed difficult. Moreover, Chinese investors also do not like to entrust their funds to professional institutions to manage, often choosing to invest themselves,” said Yang Bin, President of Shanghai Science and Technology Fund.
Chang Junsheng, Executive Director, Investment Committee Chairman, 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 now in China, whether it is individuals or institutions, the assessment cycle is relatively short. If I cannot exit during my term, then that project will definitely not be done. Therefore, fundamentally solving this problem can only hope that more long-term capital will enter the equity investment market.”
At the same time, he also emphasized the need to provide LPs with reasonable expectation guidance. “Looking at the overall progress of China’s economic development, our fund returns, including the expected returns of our LPs, need to be appropriately adjusted downward, or the term needs to be extended appropriately, holding the concept of long-term investment, growing together with time.”
In this regard, Mi Lei has offered several suggestions. He believes that strengthening patient capital first requires freeing the mind, updating concepts, realizing that only a long cycle can achieve higher returns. From the government to enterprises to all LPs, they should recognize the long-term value of patient capital and the huge future returns it can generate, to support VC/PE to make longer-term investments and then be able to have funds with a cycle of more than 10 years. Policies should also provide some preferential treatment to patient capital. For genuine patient capital that supports technological innovation, tax incentives should be granted.
Entrepreneurship is difficult, and the innovation of “from 0 to 1” is the most exciting, but before this moment arrives, one often has to go through a long and arduous journey, more so needing the company of venture capital. Just as Don Valentine said in “The History of Venture Capital”:
“Venture capital is not about looking at the world from a God’s-eye view, it is entrepreneurship, it is about starting a business together with entrepreneurs.”
