The most amazing angel investment in history

This is a highlight in the history of global venture capital.

Not long ago, Huang Renxun mentioned in a speech at his alma mater Stanford University about the first financing in his life— In 1993, two angel investors jointly invested $2 million at a valuation of $6 million. It was this investment that turned NVIDIA, which was facing the risk of bankruptcy just after its establishment, from danger to safety.

Since then, the NVIDIA empire, which later dominated the world, was born.

Calculating, the angel round from that year has created a myth of a $2.8 trillion market value to date, undoubtedly the best interpretation of venture capital's assistance in the rise of technology giants. Historical experience shows that the level of venture capital activity directly affects the prosperity of technology innovation companies, and this is even more worthy of our deep consideration at present.

Raised $2 million in angel round without a business plan

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 intention to resign and start a business, hoping Huang Renxun would join them. It was just before the PC revolution broke out, Windows 95 had not yet been released, and the Pentium processor had not been launched. It was obvious that microprocessors would be very important, and thus NVIDIA was born.

There is an interesting anecdote—when Huang Renxun told his mother that he was starting a 3D graphics chip company for consumers to play games, his mother directly asked, "Why don't you find a job at an electronics factory?"

In short, Huang Renxun's entrepreneurial journey was extremely tortuous. At that time, he didn't even know how to write a business plan. For this, he went to a bookstore and found a book called "How to Write a Business Plan," which had a total of 450 pages. After flipping through a few pages, he gave up, saying, "By the time I finish reading it, the company will probably have gone bankrupt and run out of money."

How difficult was it for NVIDIA to raise funds at that time?

Sid Siddeek, who was in charge of NVIDIA's venture capital department, still vividly remembers: Carrying presentation materials, he rushed to multiple investor conferences non-stop, helping NVIDIA's CEO and management team promote their story. His office was just a tiny mobile room.

Huang Renxun recalled in his speech that at that time, he only had about six months' worth of living expenses in the bank, and the whole family could only rely on this small amount of savings to live. So, he simply didn't write a business plan and went directly to see the former CEO of his previous company, Wilfred Corrigan.

After listening to Huang Renxun's introduction, Wilfred Corrigan bluntly said he completely didn't understand what he was talking about, "This is one of the worst startup pitches I've ever heard." Nevertheless, Wilfred Corrigan picked up the phone and called Don Valentine, the founder of Sequoia Capital, "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 his presentation, Don Valentine said, "Start-up companies should not invest in or collaborate with start-up companies." His point was that for NVIDIA to succeed, another start-up company 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.

And so, Tang Valentine and Sart Hill each invested $1 million, allowing NVIDIA to secure $2 million in angel funding, with a post-investment valuation of $6 million. It's worth noting that prior to this, Tang Valentine had only invested a few hundred thousand dollars in Apple.

This investment remains indelible to this day, with Huang Renxun still remembering what Tang 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, those daring capital ventures

To this day, this angel investment is recorded in history.

In 1999, NVIDIA went public on the NASDAQ with a market capitalization of $230 million. By this calculation, compared to the angel round valuation of NVIDIA, it has increased by 38 times, which is a good choice even if some shares were sold after the IPO. But I believe that with Tang Valentine's investment philosophy, he will surely persist to achieve higher returns.

The subsequent story does not need to be elaborated on. NVIDIA has risen to become a chip giant, and with the emergence of OpenAI, it has become a worthy ruler of AI chips. Accompanying this is NVIDIA's rocketing stock price - over the past five years, NVIDIA's stock price has grown 28 times, with a latest market value reaching a staggering $2.8 trillion.

Perhaps only those who have experienced it can truly empathize. Huang Renxun has emphasized the importance of financing more than once before, believing that a startup is a company on the verge of collapse. "When I founded NVIDIA, after each round of financing, I immediately started the next round, then the third round of financing. Survival is very important, 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, by 2023, NVIDIA has become the fourth largest venture capital firm after Microsoft, SoftBank, and Google, with investments covering areas such as healthcare and biotechnology, AI infrastructure, generative AI and RPA technology, autonomous driving, robotics, 3D printing, and more.

As Huang Renxun has emphasized on many occasions, the rapid development of the technology industry requires early investment in the distant future, which is the path NVIDIA must take.

For Mi Lei, founding partner of Zhixing Capital, NVIDIA's success once again highlights the long-term nature of "hard technology" and the importance of "knowledge value." To maintain a leading position, continuous focus on technological innovation and a steady stream of R&D investment are required.

As an investor, Mi Lei has deep feelings about this. He believes that for venture capital firms, 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 drive technological progress and industry change by supporting disruptive innovative technologies, creating greater value, and ultimately reaping 'knowledge value,' 'social value,' and 'economic value.'" To some extent, this is also the best mirror for domestic venture capital.

In the 1990s, venture capital began to sprout in China and has been around for thirty years. However, nowadays, this imported product of venture capital is becoming more localized than ever before. Some VCs no longer have the meaning of risk capture, but have become rigid cash-out profit guarantees, requiring short cycles, no risk, and guarantees.

For a time, buybacks, earnouts, and dividends are heard frequently in the domestic primary market. For example, buyback agreements between founders and investment institutions have become commonplace, but since last year, the situation has changed—buybacks have even been listed as a hard condition for investment committee decisions, and if the controlling shareholder is unwilling to sign the buyback, then no investment will be made.

"The charm of venture capital lies in finding innovative ideas that are uncertain but potentially disruptive." A venture capital partner who prefers to remain anonymous sighed, cautioning against current practices that may cause us to miss out on 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 deep consideration for every venture capitalist.

It is well known that technological innovation is not achieved overnight. To achieve original and disruptive results, it often requires a bumpy process of technological foundation and breakthroughs, the commercialization of results, and a long and uncertain return period. In the market tide, many technology startups, due to large initial capital investments and obstacles to result commercialization, may have poor financial performance for a long time, and may even "fall before dawn." The more this is the case, the more patient capital is needed.

What is patient capital? As the name suggests, it is guiding capital to be a "friend of 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 the typical fund life of domestic venture capital funds is 3+2 years, with a maximum of 7 years. However, it generally 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 accustomed to making quick money, adapting to a fast-paced investment rhythm, and convincing them to make investments lasting more than ten years is indeed quite challenging; moreover, Chinese investors are not very keen on entrusting funds to professional institutions to manage, often preferring to invest themselves." Yang Bin, President of Shanghai Science and Technology Innovation Fund, once lamented about this.

Chang Junsheng, Executive Director, Investment Committee Chairman, and General Manager of Jinshi Investment, pointed out the underlying differences—overseas major investors pursue long-term asset allocation, and even hope to extend the investment period. "But whether it's individuals or institutions in China, the assessment period is relatively short. If I can't exit within my term, then the project will definitely not be done. So fundamentally solving this problem can only hope for more long-term funds to enter the equity investment market."

At the same time, he also emphasized the need to provide LPs with reasonable expectation guidance. "From the perspective of the overall economic development in China, our fund returns, including the appropriate downward adjustment of expected returns for our LPs, or the appropriate extension of the term, everyone upholds the concept of long-term investment, growing together with time "

In response, Lei Mi gave several suggestions. He believes that in order to strengthen the patience capital, one must first emancipate their thinking, update their concepts, and realize that only a long cycle can achieve higher returns. From the government to enterprises to all LPs, everyone should recognize the long-term value of patience capital and the huge future returns it can generate, in order to support VCs/PEs to make longer-term investments, leading to the emergence of funds with a period of over 10 years. Policies should also provide certain benefits to patience capital. For example, for genuine patience capital that supports technological innovation, tax incentives should be given.

Entrepreneurship is tough, and the innovation from "0 to 1" is the most exciting. However, before this moment arrives, one often has to go through a difficult and lonely journey, which requires the companionship of venture capital along the way. As Tang Valentine said in "The History of Venture Capital":

"Venture capital is not about looking at the world from a God's perspective, it is about entrepreneurship, about starting a business together with entrepreneurs."

Author: Liu Bo, Source: Investment Circle, Original Title: "The Most Amazing Angel Investment in History"