Author: Liu Bo, PEdaily
This is a significant event in the history of global venture capital.
Not long ago, Huang Renxun mentioned his first round of financing in his speech at his alma mater, Stanford University. In 1993, two angel investors jointly invested $2 million, with a valuation of $6 million. It was this investment that helped Nvidia, which was facing the risk of bankruptcy just after its establishment, to turn the tide.
Since then, the Nvidia empire that has dominated the world in the future has been established.
To sum up, the angel round of that year has created a myth of a market value of $2.8 trillion, which is 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, which is more worthy of our deep consideration at the moment.
No business planAngel round raised $2 million
This investment started in 1993.
At that time, Huang Renxun was working as an engineer in a chip company. Two good friends, Chris and Curtis, found him and said they wanted to quit their jobs to start a business, hoping that Huang Renxun could join them. It was just before the PC revolution broke out, Windows 95 had not yet been launched, and the Pentium processor had not yet been released. It was obvious that microprocessors would be very important, and Nvidia came into being.
There is also an interesting episode in this - when Huang Renxun told his mother that he would start a business and plan to become a 3D image chip company that consumers could use to play games, his mother directly asked back: "Why don't you find an electronics factory to work?"
In short, Huang Renxun's entrepreneurial start was extremely tortuous. He didn't even know how to write a business plan at the time. For this reason, he went to the bookstore and found a book called "How to Write a Business Plan", which had a total of 450 pages, and he gave up after only flipping through a few pages. "By the time I finished reading it, the company was probably closed down and the money was gone."
How difficult was it for Nvidia to raise funds at that time?
Sid Siddeek, who is in charge of Nvidia's venture capital department, still remembers it vividly: he rushed to multiple investor meetings with presentation materials to help Nvidia's CEO and management team promote their stories. His office was just a small mobile room.
Huang Renxun recalled in his speech that he only had about six months of living expenses in the bank at the time, and his family could only live on this little savings. So he simply did not write a business plan, but went directly to the CEO of his former employer, Wilfred Corrigan.
After listening to Huang Renxun's introduction, Wilfred Corrigan said frankly that he didn't understand what he was talking about at all. "This is one of the worst startup pitches I've ever heard." Even so, Wilfred Corrigan picked up the phone and called Don Valentine, the founder of Sequoia Capital, "I'm going to send you a young man, I hope you can invest in him, he was one of our best employees."
However, when Huang Renxun finished his presentation, Don Valentine said, "Startups shouldn't invest in startups or work with startups." His point of view is that in order for Nvidia to succeed, another startup needs to succeed, that is, Electronic Arts, a video game development company. The CTO of that company was only 14 years old at the time, and his mother had to drive him to work.
In this way, Don Valentine and Sutter Hill Capital each invested $1 million, allowing Nvidia to get $2 million in angel round financing, with a post-investment valuation of $6 million. You should know that before that, Don Valentine only invested a few hundred thousand dollars in Apple in the early years.
This investment is still indelible. Huang Renxun still remembers what Don Valentine said at the meeting: "If you lose my money, I will kill you." Fortunately, Huang Renxun and Nvidia did not disappoint his expectations.
A mirrorThose capitals that dare to take risks
To this day, this angel investment has been recorded in history.
In 1999, Nvidia was listed on the Nasdaq with a market value of 230 million US dollars. According to this calculation, it is 38 times higher than the valuation of Nvidia's angel round. Even if it is partially withdrawn after the listing, it is also a good choice. But I believe that with Don Valentine's investment philosophy, he will definitely persist and get higher returns.
The rest of the story does not need to be repeated. Nvidia has risen to become a chip giant, and with the emergence of OpenAI, it has become the well-deserved ruler of AI chips. Along with it, Nvidia's stock price has soared like a rocket - in the past five years, Nvidia's stock price has increased 28 times, and its latest market value has reached a staggering $2.8 trillion.
Perhaps only those who have experienced it can feel it. Huang Renxun has emphasized the importance of financing more than once before. In his view, a startup is a company that is about to go bankrupt. "When I founded Nvidia, I immediately started to raise the next round of financing after each round of financing, and then the third round of financing. Survival is very important, and cash is king. As a CEO, you either make money, save money, or raise money."
At the same time, Nvidia has quietly built a huge investment map. According to S&P Global data, Nvidia has become the fourth largest venture capital company after Microsoft, SoftBank and Google in 2023. Its investment areas cover healthcare and biotechnology, AI infrastructure, generative AI and RPA technology, autonomous driving, robots, 3D printing and other fields.
As Huang Renxun has emphasized on many occasions, the technology industry is developing rapidly, and investing in the distant future as early as possible is the only way for NVIDIA.
In the view of Mi Lei, the founding partner of Zhongke Chuangxing, NVIDIA's success once again emphasizes the long-term nature of "hard technology" and the importance of "knowledge value". To continue to occupy a leading position, it is necessary to focus on technological innovation for a long time and require continuous R&D investment.
As an investor, Mi Lei is deeply touched. He believes that for venture capital institutions, if they pursue short-term financial returns too much, they will not be able to invest in great companies. "The essence of venture capital is to promote technological progress and industry changes by supporting disruptive innovative technologies and creating greater value, and ultimately harvesting "knowledge value", "social value" and "economic value."
To some extent, this is also the best mirror for domestic venture capital.
Venture capital began to sprout in China in the 1990s, and it has been 30 years to this day. However, at present, venture capital, an imported product, is becoming more localized than ever before. Some VCs no longer have the meaning of risk capture, but have become rigid redemption of income guarantees, which require short cycles, no risks, and guarantees.
For a time, buybacks, bets, and dividends were heard everywhere in the domestic primary market. For example, the buyback agreement between the founder and the investment institution is actually no longer uncommon, but since last year, the situation has changed - the buyback is even listed as a hard condition for the Shanghai Investment Committee. If the actual controller is unwilling to sign the buyback, then there will be no investment.
"The charm of venture capital lies in finding those innovations that are uncertain but potentially disruptive." A venture capital partner who did not want to be named lamented that we need to be wary of some current practices - which may make us lose the opportunity to discover other great innovations.
Patience Capital The Road to China's Technological Rise
What role should venture capital play in the rise of technology? This is undoubtedly worth every venture capitalist's deep thought.
As we all know, technological innovation is not a one-day job. To achieve original and disruptive results, it is often necessary to go through a bumpy process of laying a foundation for technology and breakthroughs, as well as a process of market application of results. The return cycle is long and faces many uncertainties. In the market tide, many technology start-ups have difficulty in having good financial performance for a long time due to large initial capital investment and obstacles in the transformation of results. They may even "fall before dawn". The more this is the case, the more we need to strengthen patient capital.
What is patient capital? As the name suggests, it is to guide capital to be a "friend of time", not to be disturbed by short-term market fluctuations, and to accompany hard technology, scientists and entrepreneurs in a "long run". However, in the face of the current reality, some investment institutions seem to no longer attach so much importance to imagination and long-termism.
A local venture capital tycoon in Shenzhen bluntly stated that the general fund duration of domestic venture capital funds is 3+2 years, and the longest is 7 years. It takes 6-10 years for a general enterprise to meet the listing requirements from its establishment, which makes it impossible for some RMB funds to hold excellent enterprises for a long time.
"Some investors are used to making quick money and adapting to the short-term and fast investment rhythm. It is indeed difficult to convince them to invest for more than ten years. Moreover, Chinese investors do not like to entrust their funds to professional institutions, and often invest on their own." Yang Bin, President of Shanghai Science and Technology Innovation Fund, once lamented.
Chang Junsheng, Executive Director, Director of the Investment Committee and General Manager of Jinshi Investment, pointed out the differences behind the scenes - the main overseas investors are pursuing 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 withdraw during my term, then this project will definitely not be done. Therefore, to fundamentally solve this problem, we can only hope that more long-term funds will enter the equity investment market."
At the same time, he also emphasized the need to give LP reasonable expectations guidance. "From the perspective of China's overall economic development, our capital returns, including our LP's expected returns, have appropriately shifted downward, or the term has appropriately lengthened. We all uphold the concept of long-term investment and grow together with time." In this regard, Mi Lei gave several suggestions. He believes that to strengthen patient capital, we must first liberate our minds, update our concepts, and realize that only long cycles can achieve higher returns. From the government to enterprises to all LPs, we should recognize the long-term value of patient capital and the huge future returns it will generate, and support VC/PE to make longer-term investments, so that funds with a cycle of more than 10 years can appear. Patient capital should also be given certain preferential policies. For example, for real patient capital, patient capital that supports technological innovation, this kind of tax preference should be given.
Starting a business is difficult, and innovation from "0 to 1" is the most exciting, but before this moment comes, it is often necessary to go through a long and difficult, lonely road, and venture capital is needed to accompany you all the way. As Don Valentine said in "History of Venture Capital": "Venture capital is not looking at the world from a God's perspective, it is also entrepreneurship, starting a business with entrepreneurs."
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