For startups, smooth sailing is rare. Things change rapidly and suddenly for investors and entrepreneurs. Deng Feng, co-founder of the VC Northern Light (NLVC), recently shared his views on the relationship bewteen VCs and entrepreneurs during turbulent times.
Three months ago, the once high flying maternity-children B2C site Redbaby was finally acquired by Suning for $66million. Rumor has it that Mr. Deng and other VCs were heavy handed with the company’s management resulting in its demise.
If words on the street were to be trusted, Mr. Deng’s action didn’t pay off. Before Redbaby was acquired, an unnamed, organization had bought the majority shares of Redbaby for $10million, leaving early investors NLVC and KeyTone Ventures with pittance.
Deng explained that NLVC and other VCs never wanted to take over Redbaby; there had not been any conflicts between VC and entrepreneurs. “The real story is that the founders feuded, and they both turned to us for help. In the end, we chose the majority side. End of the story.”
When asked about the relationship between investors and entrepreneurs, he answered that “entrepreneurs are not working for VC, and vice versa. But the problem is that in China sometimes our entrepreneurs don’t even trust each other, which makes it even harder for VCs to trust in them.”
Mr. Deng further added that he believed “a startup is like a baby, founders, investors and all the staff members are family members that should work together to care of the baby.” He had a hard time dealing with people who do not share this view, especially people with IT background, whom he finds to be especially difficult. “Tech guys are impossible to management.”
Speaking of Kaixin001, another NLVC backed venture, Mr. Deng is demonstrating how a failed venture should proceed. NLVC invited Kaixin001 to join its “family” when the social network only had 50,000 users. Since then, Kaixin001 has exploded, only to have an Icarus like fall once bigger players like Sina and Tencent entered the arena. Mr. Deng is sure the founders want to soldier on, but sometimes you have to cut losses. “Sell if you can’t win.” that’s the philosophy behind Mr. Deng’s decision to ally Kaixin001 with Tencent.
Mr. Deng’s deed backs up his words. In 2004, he sold his startup Netsceen to Juniper for $4billion. But even before that, Mr. Deng has learned to take a back seat to professional managers, as he focused his energy mainly on R&D after attracting early investments. “The company doesn’t belong to me, but to all of the shareholders and the staff. It is true that I am one of the founders, but I only hold a very small portion of the shares. My bigger concern goes to the benefits of the shareholders, staff and the board.”