I met Ed about a month ago through a friend who has a start-up, and thought he was a pretty cool guy. Ed is a Senior Associate at DCM and is currently spending time in their Beijing office. DCM has a US$2bn fund and works across US, China and Japan. As part of our coverage on the investment eco-system, we seek to better understand VC’s and share their experience and perceptions with you.
Ed grew up in the Bay Area, San Franciso and graduated from UCLA. He interned at a few big tech companies during college such as Cisco, HP and a few start-ups such as Neoteris and Array Networks. After he graduated, he joined Bain and Company, a strategy consulting firm. He then worked for half a year at a startup in Beijing before getting into VC.
Getting into VC
Ed took advantage of his unique background in technology and strategy consulting by applying it to venture capital. With his sights still set on China and knowing DCM had a strong presence there, Ed eventually applied to and was accepted into the DCM US office.
So what does a Senior Associate at a VC do?
At the Associate level there are two main types of things you do:
1. Externally – for the entrepreneurs
- Before Investing
– Sourcing deals and trying to find leads
– Due diligence – researching and talking to companies and their partners, understanding the market
- At Investment
– Term sheets, modelling
- After Investing
– Adding value by helping the company with business development like introducing them to business partners or other sources of funding like other VCs and new team members
2. Internally – for the VC firm
- Internal Analysis and research for limited partners, which are the people that invest in the VC
- Helping the fund raising process
The Funding Process of Institutional Money
The first round of funding is called Series A and each subsequent round is called Series B and Series C. If Angels or Super-Angels can pull enough money together, it can also be classed as Series A but usually it is called seed funding. The timing between each round is usually 1-2 years but is really dependent on the need of the company.
There are two types of shares.
- Common Shares – shares to the founders and employees and potentially Angel Investors
- Preferred Shares – shares with certain rights that go to the board and deal with if a company gets sold
Ed likes the flexibility and creativity of being a VC
“I like the flexibility and creativity you can put into your work, such as in the way you find companies and the way you negotiate deals or add value. Some VC’s might bring in new management or have strong relationships with large companies in the eco-system so there are many different ways to add value.
No one may explicitly tell you that they need a key member but you feel they need one, so you can find that person and suggest them to the company making them a relatively quick hire that adds a lot of value in a very short time and I find that very fun.”
What makes a good VC
“Priority setting is important. The nuance of being a VC is that whilst they are hands on, they are not wearing an operations hat. A good VC should not be someone who is acting as a VP of a company. A good VC should be able to coach and offer relevant advice at the right time.
Although VC’s may not have as much deep experience as the CEO, they have broad experience after seeing many types of companies through different stages, from start to exit. For example, one of our General Partners, Ruby, used to work at Goldman Sachs so she was involved in a lot of IPO’s and so has been involved with 3 IPO’s whilst at DCM, including DangDang and BitAuto in late 2010. The same experiences applies to lining up the next round of investors, what’s the right financing strategy, how do you get a good valuation, scaling a company, who do you need to bring in like executives – with all those kinds of things, that awareness is important.
A good VC can add a lot of advice around the business model and bring in perspectives from different countries. For example, we had a company in the online health care space, DXY.cn, and partners in Japan, who knew of a large public company in Japan with a similar model, were able to advise the China entrepreneur. Advice around financing, especially for first time entrepreneurs is important and also includes the network of people they should meet.
Also the ability to put together an investment thesis around something that others aren’t aware of or are very sceptical about and being right on; that is not easy.”
What I look for in a company
“I firstly look for a team who is competent, trustworthy and has integrity – people who are honest about the market and its challenges. Secondly I look for innovation on business model and market, a market where the micro and macro aspects are good. Finally, I look at lot at their product – if they are an internet company, details in their web site UI including anything from the quality of photos, user registration process, and other nuances of customer experience, etc is really important and indicative of their execution ability. .”
Companies I helped discover
“Mbaobao was one. I was really interested in getting more involved with China and so and asked God to help me find good deals there. I started doing thorough web research and Mbaobao was one of the sites I found. I checked out the quality of the site, the pictures, and quantitative things like how well Mbaobao’s products sold on Taobao and liked them a lot. Hurst Lin, General Partner at DCM, gave the green light to go visit them in China a week before our annual Lunar Year party. The first meeting with Mr. Ye Haifeng, the CEO of Mbaobao went very well. Our China team did further research and we felt like the company’s team’s experience in handbags was strong because the CEO was in the traditional bag industry and seeing it was number one in the space so we made the investment and so far it’s done well. Hurst Lin is the General Partner on Mbaobao and he is someone who is willing to make early-mover contrarian investments. DCM jumped in early on this most recently next-gen e-commerce wave and now have a number of companies across e-commerce in fashion – bags, lingerie, children’s clothing, flash sales, and other areas.”
“In China DCM has been heavily involved in Internet, like 51job.com, Social Networking like RenRen.com, e-commerce across fashion and travel, and online health-care. We think those areas are hot so we continue to invest in those. We think there is an opening in China for emerging consumer brands and online models.”
What advice do you have for people looking to get into VC?
“I think VC suits people with a combination of creative and analytical skills and are willing to get their hands dirty to understand a company, like travelling to small cities or trying a lot of creative things to find a deal. It suits people who can work well with people in your firm and entrepreneurs from different backgrounds. In terms of background needed to get into VC, there is no one way. Some people go straight out of college; some positions are looking for people with 2-3 years of strategy consulting or investment banking experience coming from places like McKinsey, Bain, Goldman Sachs. Former entrepreneurs normally enter in at the Partner level such as Hurst Lin who was co-founder of Sina.com and is a General Partner in our China office. In the US, we have Carl Amdahl, who took 3 companies public, and Jason Krikorian, who was co-founder of Sling Media.”
The differences between US and China VC
“VC has been in the US for a long time so entrepreneurs are more familiar with the venture model compared to China but over the next few years, that gap will likely shrink. Additionally, the surrounding tech and venture ecosystem in the US is quite mature. It’s really exciting seeing China’s venture and start-up community. There’s a lot of energetic and scrappy entrepreneurs here who have boot-strapped themselves – it’s great to see their energy and partner with them. In China many times it is more about good and fast execution of a new business model rather than developing a new technology. It’s really exciting seeing the green field opportunities here, particularly in new consumer-facing brands.”
If you would like to get in touch with Ed, you can contact him at etsai[at]dcm[dot]com.