Amid market turbulence and an economic slowdown, the Shanghai-based venture capitalist sees silver linings.
Oak Seed Ventures recently completed the maiden financing round for its new Core Tech Fund. Seeding early-stage core technology startups, the venture capital fund invests in companies that are developing AI, 5G, SaaS, Web3, cloud, as well as data and enterprise infrastructure.
The Shanghai-based venture capital firm was founded by Ng Chee-We, who has been leading investments in early-stage deep tech startups for over a decade. With a focus on providing seed funding to frontier tech entrepreneurs, Oak Seed Ventures has invested in companies such as data intelligence company Kyligence, which has raised over nine figures since its formation.
“Our company aims to seed the tech world with oak trees,” said Ng, who holds an MBA from Harvard and a master’s and bachelor’s from MIT. “Oak trees support a huge ecosystem, and we are looking for the future oak trees of the tech world.”
KrASIA spoke with Ng to find out about his investment philosophy and why he believes this is the best time to invest in early-stage tech startups.
This interview has been edited for brevity and clarity.
KrASIA (Kr): Tell us about your career as a coder before you became a venture capitalist.
Ng Chee-We (NC): I’ve always been interested in computers. When I was 13, I learned how to write programs.
I first went to MIT for my undergraduate studies in electrical engineering and computer science. In 2000, I joined ST Engineering, where I led the team to build Asia’s first encrypted hard drive. Then I went to Harvard Business School. After that, I came to China with McKinsey, where I worked as a consultant for two years. I did that because I heard China was where the next big thing was. Eventually, I decided venture capital was what I really wanted to do because it lets me go back to my roots of loving technology.
Kr: How did you get your start in the VC world?
NC: I started my venture capital career at Cisco Systems, where I was actively looking at investments in enterprise tech startups to understand future trends of innovation, and for the company to diversify into other areas besides computer networking. This was around 2012, when cloud and big data were becoming a thing. This was when the technologies of big internet companies were seeping into the enterprise world.
For me, that was a very exciting time. I also love being in venture capital for various reasons: it keeps me “young” and forces me to continue to learn.
Kr: What are some areas Oak Seed Ventures is focusing on?
NC: One of the biggest areas we’re looking at is enterprise technology. At the top of this IT stack are the applications, such as software-as-a-service (SaaS). As you move down, there are more general technologies—fundamental building blocks that are data-related—including big data and data analytics, and infrastructure, such as storage, computing, networking, and DevOps.
Kr: Why does Oak Seed focus on enterprise technology?
NC: We are bullish on the enterprise technology market in China and regionally. We’re seeing a wave of enterprises in China and Asia that are transforming themselves. These enterprises want to be like internet companies and their transformation is enabling them to serve their customers digitally—in real time and intelligently—so they require lots of data and AI processes. We need startups to provide these kinds of technologies and services.
Kr: What does your startup portfolio look like?
CN: Ninety percent of our portfolio is in enterprise startups, and in areas such as SaaS, AI, data technologies, and infrastructure. Maybe 10%—one or two investments—is in semiconductors.
Kr: Deep tech startups often require massive funding. How capital-intensive are your investments?
CN: One great thing about enterprise tech startups is that they don’t burn lots of money. It’s not like in consumer tech, where you have to spend a lot on customer acquisition and provide subsidies, such as giving out free coupons. For enterprise tech, you don’t have these issues.
Having said that, there are sectors in enterprise that are capital-intensive, such as chips.
The other one that requires a lot of capital expenditure is AI. Some AI enterprises are quite capital-intensive. For example, when they have to acquire GPU farms or pay for that in the cloud, and require many engineers to train large neural networks with large datasets.
Kr: These are challenging times for VCs. We’re seeing the trend of rising KPIs and lower investment rounds. How do you decide which startups to invest in?
CN: We look for truly world-class entrepreneurs who are building something unique and investing in them at an early stage. That’s our secret sauce. The key is going to them early. That takes sharp judgment.
The business of venture capital is very much about making the right judgment about risk when others are not able to. Otherwise, you are just making the market rate for returns. If you want to achieve more, you have to exploit information asymmetry. You have to have a better ability to pick out the right companies that will succeed. This means one has to have a better perspective of the risks than the rest of the market. And my job is to be on the right side of information asymmetry.
Kr: You recently said the public equity market is turbulent because of spiking inflation and supply chain disruptions resulting from the Russian invasion of Ukraine and COVID-19, and this is the best time to invest in early-stage venture sectors with robust long-term growth. Why do you feel this is the best time to be coming in?
CN: Many people are worried about venture capital financing in tough times because consumers and enterprises spend less. But life goes on. Enterprise customers are still experiencing pain points that need to be solved, and startups are still being set up. Sometimes, in difficult market conditions, companies feel a need to upgrade their capabilities further and the ROI for acquiring good enterprise technologies could be even more compelling.
Innovation doesn’t stop because of turbulence in markets. The real entrepreneurs we’re looking for have a higher chance of success because there’s less competition for them during this time.
Also, there is less “noise” in the sense that during uncertain times, there are fewer entrepreneurs and startups competing with each other. This makes it a lot easier for us to cut through all that and identify the real innovators.
At the same time, there is less “noise” in financing in terms of the artificial valuations when markets are booming. Now, we can go in early and invest in these startups when they have lower valuations. Hopefully, in five to seven years’ time, we’ll exit, with good returns, assuming of course that there is no major depression that lasts for ten years.
Kr: How have US-China geopolitical tensions affected China’s startup ecosystem?
CN: China wants to become more self-reliant. The Chinese government is encouraging Chinese firms to buy local technologies. Some startups are responding and rising to the occasion. There are also returnees who come back to China from the US and start businesses: they believe that for every product in the US, they can develop a Chinese version.
These Chinese entrepreneurs can take these products to Southeast Asia, a market that the US generally tends to ignore. In all, these factors have created a lot of opportunities for Chinese startups.
Kr: What advice do you have for startups looking for funding amid the “US-China decoupling”?
CN: It is a good time to be creating companies that would be favored by the environment; for example, making a Chinese equivalent of technology that exists in the US.
With that said, I would encourage entrepreneurs to be mindful that the products they create must be world-class and differentiated. There’s no point in being the tenth maker of anything. Whatever you create, you need to have an edge over others.
This article was originally published in KrASIA