The most amazing angel investment in history
This is a significant event in the history of global venture capital.
Not long ago, Huang Renxun mentioned his first round of financing in a speech at his alma mater, Stanford University. In 1993, two angel investors jointly invested $2 million, with a valuation of $6 million. It was this investment that helped Nvidia, which was facing the risk of bankruptcy just after its establishment, to turn the crisis around.
From then on, the NVIDIA empire that would later become so powerful was established.
All in all, the angel round of that year has created a myth of a market value of 2.8 trillion US dollars, which is undoubtedly the best interpretation of how venture capital helps the rise of technology giants. Historical experience shows that the activity of venture capital directly affects the prosperity of technology innovation companies, and this point is even more worthy of our deep consideration at the moment.
No business plan
Angel round raised $2 million
The story of this investment started in 1993.
At that time, Huang Renxun was working as an engineer in a chip company. Two good friends, Chris and Curtis, approached him and said they wanted to quit their jobs to start their own business. They hoped Huang Renxun would join them. It was before the PC revolution, Windows 95 had not yet been launched, and the Pentium processor had not yet been released. It was obvious that microprocessors would be very important, and Nvidia was born.
There is also an interesting episode in this - when Huang Renxun told his mother that he was going to start a 3D graphics chip company that consumers could use to play games, his mother directly asked: "Why don't you find a job in an electronics factory?"
In short, Huang Renxun's entrepreneurial beginning was extremely tortuous. He didn't even know how to write a business plan at the time. For this reason, he went to a bookstore and found a book called "How to Write a Business Plan", which had a total of 450 pages. He gave up after reading only a few pages. "By the time I finished reading it, the company was probably bankrupt and the money was all gone."
How difficult was it for Nvidia to raise funds at that time?
Sid Siddeek, who is in charge of Nvidia’s venture capital department, still remembers it vividly: he rushed to multiple investor meetings with presentation materials to help Nvidia’s CEO and management team promote their stories. His office was just a small mobile room.
Huang Renxun recalled in his speech that he only had about six months of living expenses in the bank at that time, and his family could only live on this little savings. So he simply did not write a business plan, but went directly to the CEO of his former employer, Wilfred Corrigan.
After listening to Huang Renxun's introduction, Wilfred Corrigan said frankly that he had no idea what he was talking about. "This is one of the worst startup pitches I have ever heard." Even so, Wilfred Corrigan picked up the phone and called Don Valentine, the founder of Sequoia Capital, and said, "I want to send you a young man. I hope you can invest in him. He was one of our best employees."
However, when Huang finished his presentation, Don Valentine said something like, “Startups shouldn’t invest in startups or work with startups.” His point was that in order for Nvidia to succeed, another startup needed to succeed: Electronic Arts, a video game developer. The CTO of that company was only 14 years old at the time and had to be driven to work by his mother.
In this way, Don Valentine and Sutter Hill Capital each invested $1 million, allowing Nvidia to obtain $2 million in angel round financing, with a post-investment valuation of $6 million. It should be noted that before this, Don Valentine's investment in Apple in the early years was only a few hundred thousand dollars.
The memory of this investment is still unforgettable. Huang Renxun still remembers what Don Valentine said at the meeting: "If you lose my money, I will kill you." Fortunately, Huang Renxun and Nvidia did not disappoint his expectations.
A mirror
Those who dare to take risks
To this day, this angel investment has gone down in history.
In 1999, Nvidia was listed on NASDAQ with a market value of $230 million. By this calculation, it is 38 times higher than Nvidia's angel round valuation. Even if it is partially withdrawn after the listing, it is still a good choice. But I believe that with Don Valentine's investment philosophy, he will definitely persist and get higher returns.
The rest of the story is self-explanatory. Nvidia has risen to become a chip giant, and with the emergence of OpenAI, it has become the undisputed ruler of AI chips. Along with it, Nvidia's stock price has soared like a rocket - in the past five years, Nvidia's stock price has increased 28 times, and its latest market value has reached a staggering $2.8 trillion.
Perhaps only those who have experienced it can understand it. Huang Renxun has emphasized the importance of financing more than once before. In his view, a startup is a company that is about to go bankrupt. "When I founded NVIDIA, after each round of financing, we immediately started to raise the next round, and then the third round. Survival is very important, and cash is king. As a CEO, you either make money, save money, or raise money."
At the same time, Nvidia has quietly built a huge investment landscape. According to S&P Global data, Nvidia has become the fourth largest venture capital company after Microsoft, SoftBank and Google in 2023. Its investment areas include healthcare and biotechnology, AI infrastructure, generative AI and RPA technology, autonomous driving, robotics, 3D printing and other fields.
As Huang Renxun has emphasized on many occasions, the technology industry is developing rapidly, and investing in the distant future as early as possible is the only way for Nvidia.
In the view of Mi Lei, founding partner of China Science and Technology Innovation, Nvidia's success once again emphasizes the long-cycle nature of "hard technology" and the importance of "knowledge value". To maintain a leading position, it is necessary to focus on technological innovation in the long term and require continuous R&D investment.
As an investor, Mi Lei has deep feelings about this. He believes that for venture capital institutions, 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 promote technological progress and industry change by supporting disruptive innovative technologies and creating greater value, ultimately gaining 'knowledge value', 'social value' and 'economic value'."
Patient Capital
China's Rise in Science and Technology
What role should venture capital play in the rise of science and technology? This is undoubtedly worth pondering.
As we all know, scientific and technological innovation is not a one-day job. To achieve original and disruptive results, one often has to go through a bumpy process of technological foundation and breakthrough, as well as the process of commercializing and applying the results. The return cycle is long and faces many uncertainties.
In the market tide, many technology start-ups have difficulty in achieving good financial performance for a long time due to large initial capital investment and obstacles in the transformation of results. They may even "collapse before dawn". The more this is the case, the more they need to strengthen patient capital.
What is patient capital? As the name suggests, it is to guide capital to be a "friend of time", not to be disturbed by short-term market fluctuations, and to accompany hard technology, scientists and entrepreneurs in the "long run". However, facing the current reality, some investment institutions seem to no longer attach so much importance to imagination and long-termism.
A local venture capital tycoon in Shenzhen said frankly that the general duration of domestic venture capital funds is 3+2 years, with a maximum of 7 years. However, it takes 6-10 years for a general enterprise to meet the listing requirements from its establishment, which makes it impossible for some RMB funds to hold excellent enterprises for a long time.
"Some investors are used to making quick money and are accustomed to the short-term and fast investment rhythm. It is indeed difficult to convince them to invest for more than ten years. Moreover, Chinese investors do not like to entrust their funds to professional institutions and often invest on their own." Yang Bin, president of Shanghai Science and Technology Innovation Fund, once lamented this.
Starting a business is difficult, and innovation from "0 to 1" is the most exciting. However, before this moment arrives, one often has to go through a long, difficult and lonely road, and venture capital is needed to accompany him all the way. As Don Valentine said in "The History of Venture Capital":
“Venture capital is not about looking at the world from a God’s perspective, it is also about starting a business, and starting a business together with entrepreneurs.”
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