"My best friend passed away after battling cancer, so I invested in two AI companies in cancer diagnosis and drug discovery," Harry Wang, Founder and CEO of Linear Capital, explains how his company decides to venture and manages its portfolio.
EqualOcean conducted a two-and-half-hour exclusive interview with Harry Wang in Beijing on May 21 and got a glimpse into his vision and stimulating VC decision-making matrix.
Founded by former JD, Tmall and Facebook veterans in 2014, Linear Capital strives to be the best Applied Data Intelligence capital fund in China. It focuses on early-stage ventures that are driven by data and AI.
Linear Capital has invested in over 50 companies in China, Silicon Valley and Southeast Asia. As of May 2019, Linear Venture has injected around USD 110 million into its portfolio, and the cumulative valuation of its portfolio companies is over USD 10 billion.
Harry Wang has an impressive track record as a Product Manager, CEO advisor and Investment Professional over the past 15 years with Facebook, Yahoo, Dianping and Linear Capital, as well as a solid academic background from Stanford, Ohio and Zhejiang universities.
Key Takeaways from the Interview
Linear Capital only invests in the Data Intelligence field.
We expect our CEOs to be Professional, Persistent and Passionate. Otherwise, we are not interested.
We first evaluate the technology, then the team; and finally the business prospects.
Two of our major Limited Partners are Hillhouse Capital and Sequoia.
EqualOcean: Tell us more about the current composition of your portfolio.
Harry Wang: Since the Fund II phase, we have been focusing on only one field: Data Intelligence. This concept comprises Data + Artifical Intelligence. Data Intelligence helps us to manage multiple decisions with better quality or in a faster way that revolutionises the entire production chain.
The key word we use is 'Productivity', the way we interpret productivity is either faster decisions with the same quality or better decisions with the same speed.
Thus, when we look at a deal, we ask "Where is the data?" or "How can we use this data to help improve what kinds of decisions?" and eventually, "How can we use this data to create and execute automated-decisions for somebody else?" Ultimately, we know that AI will help to make better decisions in several industries.
Starting from Fund III, we began to apply the Data Intelligence for decision-makers to execute more efficient judgments in retail, manufacturing and several other industries. In manufacturing, AI helps automated robotics to get smarter and most importantly, help them to perform in a safer manner. In retail, our Data Intelligence enables offline shelves to communicate with and ultimately, understand the customer. Offline retail facilities will no longer be passive, lifeless elements of the trade, but they will actively engage in the selling process and enhance the bidding efficiency dramatically.
As digital transformation accelerates, the companies in our portfolio will reach more decision-makers, creating a massive automated, smart and digital decision-making applications.
One example we have is TeZign ( 特赞 ): They help businesses to empower their automated and fully-integrated decision-making process while designing their own AI-driven automated designs for TeZign.
EqualOcean: Why invest in Applied-Data-Intelligence?
Harry: We believe the companies that have AI as the core of their management systems will be the ones that are going to change the world.
The digital transformation process in China is currently a couple of times faster than in the United States. Only three to four years ago, our LPs were reluctant to invest in these businesses; however, since last year, they are confident in Data+AI business models.
We have already yielded satisfactory returns.
In China, 90% of the big players in manufacturing have an outmoded midsetand are slow in embracing the change. The rest is revolutionising the way we're producing things and Linear Capital is working with some of them.
EqualOcean: How about the performance and financial situation of Linear Capital?
Harry: Out of every 10 investments, we generally see one to two will come bear fruit. If we can get two, our fund presumably is safe. By two successful return, I mean at least 3x realization of the fund.
In Fund I, for instance, we have 28 companies and 20 of them would probably be wiped off, any return would be a pleasant surprise for us. However, if eight of them could give us a good result; that would be good enough.
Compared with other VCs, we're doing "fine" - not much better or worse.
Banyan Capital, for instance, is really doing well thanks to Pinduoduo (NASDAQ: PDD). They will yield a massive return for their LPs. We also expect IRR to go down as funds increases. For such VCs, if they can end up around 30%, it would be good enough for them.
Two of our major Limited Partners are Hillhouse Capital and Sequoia.
EqualOcean: How do you headhunt deal-makers and business operators for your team?
Harry: It is tough. First, they need to be capable of seeing the dirty technological and technical details behind the offer, which requires a deep understanding of technology. If they meet this prerequisite, then we need them to have a macro perspective of the market. Generally, business-people and social scientists are quick to spot the market opportunity; however, they generally lack the technical skills I mentioned. Finally, they need to be capable of seeing three to six years beyond today; they need to be futuristic.
We need somebody who is technically equipped, intellectually deep and futuristic. Simply put, someone extraordinary.
The future we see is drvien by the intellecty-inclined and visionary engineers.
Currently, we have 10 team members. Most of us are deal-makers, and we have four post-deal operators. Right now we're in the process of expansion and doubling our team.
EqualOcean: How is your decision-making matrix of investing in Seed/Angel stages?
Harry: Most of our ventures are at the Angel or Pre-A stage, and it is tricky. This is because we do not have any data on the businesses' financials or products' performance.
What we do first is to evaluate the problem that nascent stage startup aims to solve via a high-tech product, that has high-barriers for entry. We assess the technology and market need and then, decide. This sort of decision-making requires high technical proficiency with a broad business and social perspective.
Secondly, we check the management team. It is crucial to be able to understand whether they are fit for that particular business. We evaluate their track records, characters and educational background. We need them to be Professional, Persistent and Passionate. As expected, more than 80% of our CEOs are graduates of Ivy League or other top schools.
Finally, we expect to invest in the future with high returns. We expect startups to start generating revenue optimally in three to four years. If it is longer than six years, then we need to share the same vision with the company to close the deal.
It is generally a negative signal for us that a company achieves profits in the early stages.
We invest in the solution, not in the business. If there is already a price tag on them, which shows that it is today's business, not tomorrow's.
We pass!
Global New Economy Conference 2019 Germany-US-CHINA Intelligence Vision Forum
Harry Wang will be speaking at Global New Economy Conference 2019 Germany-U.S.-CHINA Intelligence Vision Forum. Join us to learn more about his intriguing investment vision!
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