Hi everyone, Ed Amoroso here and welcome to our video interview series. I'm here with a friend of mine, Ray Cheng, who is an investor with Millennium Technology Value Partners. Did I say that right? >> Yes. >> We always say millennium. But we'll give you the nice formal name. >> Thank you. >> Thanks for coming. >> My pleasure. >> You're here in New York CIty. >> Yes. >> You guys are over in, moving to midtown. >> Moving in midtown right next to Grand Central. >> You're in midtown, good for you. You've been in New York City a long time? >> Let's see, probably 8 to 9 years by now. >> That's awesome, now, tell us about yourself. How did you get into the business and what attracted you to investment and venture capital and so on? >> Sure, I think the interesting set up is that I graduated from the worst time you could ever have an economy. >> [LAUGH] >> And it lasts maybe 15 years, maybe 20 years almost, we have a good run. So back then, coming out of school, you're always wondering what you want to do, what you want to learn. And turns out that a lot of jobs are really rigidly defined in terms of, this is a profession, you stay here two, three, four, five years, and you learn a trade, and then somehow you get to the next level in the same industry. And I had the luxury of starting a company when I was actually in college, which was a moving company. And the business was literally helping students take boxes, pack them, store them, and bring it back to their next semester, new campus the next year. And turns out that this is pretty profitable, so somehow I kind of like entrepreneurship, except when I was graduating my parents were like, so what do you want to do? I said, maybe my moving company can grow in scale. And my parents were like, did I really pay for an Ivy League education for you to become a mover? So immediately I know there's probably this Asian parents aversion towards starting a business when you're straight out of school and the tuition was so expensive. So I figured I had to find some job that probably has some similar aspects as entrepreneurship. That doesn't limit myself in terms of how I learn, how I grow at potentially structured other things. And so I was looking around and turns up something in finance, it's called venture capital, deals with startup, deals with technology. Deals wth things that people talk about every now and then, like the Facebook's of the world, the social networks, back in the day when e-commerce was a new thing. And so, having seen that a platform like that exists for young people coming out of school, meaning you could defer choosing a particular job. Perpetually, almost indefinitely, is a luxury. And so immediately I said, you know what, this is a no-brainer, sounds like a good opportunity for me to jump in. Because I just have not made up my mind. So that's really the setup to how I got, ended up in venture capital. >> Were Mom and Dad okay with the choice? >> I think at that point, they were a little confused. They were like, well, is this a startup, or is this finance, or is this investment banking, because investment banking was still a big thing. Al Wharton and everyone talks about Goldman and Saks, and JP Morgan. I did my banking internship, so I had my fair share of, hey parents, if you want me to work in those places you're not going to see me for two years. I'm going to be working 100 hours in a week. >> Right. >> So they understand that, they appreciate it, and somehow they think that it's actually a good fit because it satisfied my need for the creative nature, the entrepreneurship nature of being in a career. >> Now, I've known you a while and I see the e-mails late at night, I think you probably still work 100 hours a week though. >> That is by choice, not by necessity, so I would say that's the nice part about being in a job, you're always being stimulated by interesting new ideas and fun things to do and the nice part is it never stops. The reason why it never stops is because technology never stops coming up with a newer interesting better things. >> Right, now it would be great if, for our learning community, you could give them a 101 on kind of how the investment cycles work. The difference between seed and series A, and what all those things mean, I think it would help people. >> Absolutely. >> Just a little 101, you'd be the right guy to do it. >> I would say the easiest way to think about what venture capital is or investing is, it's someone who needs money and someone has money to support an entrepreneur company. And so depending on what a company is trying to accomplish, usually when you start off really small and early, you want to prove to people that you have an idea. And maybe at small scale you will reach a certain milestone, and after reaching that this idea can turn out to be successful and can get bigger and bigger. So the concept of investing is really over the course of the company from start to, maybe gets acquired, or maybe goes IPO. The process is- >> IPO is going public? >> Public, yeah. So, the process based on what the latest statistics have, is between 12 to 14 years now these days. So, if you think about in that duration, you have to start from scratch, and then you have to grow and you have to support yourself and then your team. And you might not even be generating revenue because you're still developing product. You need money, and so from the early days on, you don't even have a team yet, that's what we call seed. Meaning like friends and family, big leap of faith. So somehow you have to call your friends and say, hey I have this idea. I'm not sure what you think about it, but all I need is in the range of $100,000 to maybe $500,000. So that's typically how we'll define as a C-stage fence, friends and family around. >> Gets the airplane up off the ground. >> Yes, it's almost like giving a person or a team a small cushion to have, so that they don't have to work on another job at the same time, they don't have to do it part-time. They can actually use this resource to spend all their time developing and building out their technology or business or concept. Now, let's say once they have something. When I say something, it means that, when they feel like there's something that they could show to other people That sounds like a business or sounds like a technology platform that is interesting. Is that all of a sudden, instead of like pencil and paper, it's a product, it's a website app. It's probably not that complex but it shows you something that works from the mechanical standpoint. Then you can take it to these almost, I would say series C and A investors. So there are friends and family, there's also seed and A investors which is a stage later. These guys typically write checks between half a million dollars to $3 million. And so, in this setup, you end up Talking to investors that are now going to give you more money. But they only give you more money because you have more to show and that you have more ways to spend this money and take this idea or this concept that you have to the next level. >> Is that important to know exactly what you'd be doing with the money when it comes in? >> Absolutely, I think one of the bad things that could also happen for a lot of companies is when you have too much money and you don't know where to spend them, you start spending them in ways that are not necessary and irresponsible. And so what that creates is a unneccessary wastage resource where, had you not spent that money now, because let's say you'll need to hire five people, but because there's money hire 10 people. What ends up happening is two years later, you keep paying that extra five person for two years, when that money could be spent later for something else, for some new stuff. So, I think like having a concept of knowing concretely what you're going to do is important. Now the typical way to think about like how much money to raise is You need to know what you're trying to show for the next step when you're talking to a new investor. We would say it's probably safe to raise money or have a budget for 18 to 24 months each time you raise [INAUDIBLE]. And the reason for that is also because fundraising. As a process takes anywhere from two to six months, meaning sometimes you just have to meet and meet and meet people. >> Fundraising means the principles of the company. [CROSSTALK] >> Correct. Doing their PowerPoint presentation. >> PowerPoint product- >> I bet you see a lot of PowerPoints. [LAUGH]. >> Yeah. This is the interesting thing about the job. Which is you end up seeing a lot of creative, aggressive, hungry entrepreneurs trying to pitch you why their idea is so important and so big. People talk about like a unicorn idea, billing your idea You know, as an entrepreneur you want to sell that kind of vision because from an investor perspective, if I am investing, you know, anywhere from like $1 to 5 million, I would like to see the company being worth not like $5 to 10 million, but more like $100 to 500 million in order to make my return. >> I have to ask you a question and we're going to get back to your explanation. But what is the craziest thing You've never seen somebody do to get your attention. Like has anybody come in dressed like a chicken, [LAUGH], like trying to stand out and be different. Do you see that once in a while. >> In terms of how they dress, not necessarily, but what you're saying that, I think every person would have their own style and try to make a statement. There are entrepreneurs that would wear a tee shirt and flip flops and come in. That's because they think that's what they represent. >> That is part of the statement. >> Yes. They're entrepreneurs that are in successful companies that before you even go into the meeting room, they'll have their feet on the table You have seen that. It's not an uncommon thing. They're really confident. They want to convey this aura of confidence and leadership, that they have full control and they're extremely comfortable. >> So much. >> Absolutely. And so there's also this concept of fit. Meaning not every entrepreneur or presenter, would have the right style for other investor. So this concept of fit is also really interesting, right? Because in the end, if everyone that you end up seeing wears a tie and a suit, completely polished shoes, that gets a little boring. >> Yeah. >> So, once in a while, you have to think, well, if you're going to present something to an investor, what are you trying to say, what statement are you trying to make? >> Would the right advice be to be yourself? >> Absolutely, comfortable. >> Well, whatever you are. >> I think being comfortable is most important because the personal comfort level is the basic thing that you need to have under your feet so that when you present, you focus on the business, not how you dress, or whether you're over or under dressed. >> So once a company's been through, say, seed series A or something in that range, and they're still kind of chugging along, but not IPO, and acquisition's not happening. Is series B, C, D, do those things happen? And does it ever get to the point where maybe that runs out of gas? And what happens then? >> Yeah. So there are many aspects to think about a business. And the fundamental underlying metric that you still need to look for is are you Building towards an exit, or some level of success. And, so having the metric to measure success is important. For some companies, if it's all about generating financial results, that's revenue. So, revenue growth, revenue generation, and the speed of revenue growth is something that is important. Because if my company's revenue is only growing between 10 to 20% every year, then it's a ver-, relatively slow business. And if I'm a Venture Capital Investor, I'm looking for a rate of return far greater than 20%. >> Yeah, much higher. Much higher. >> Meaning like I need to make sure that the investments I make are growing 50-100% year after year. In order to justify me taking so much risk investing in a company. So for companies that end up growing slow or small, they might actually be a perfectly okay small business That small business can figure out whether they want to sell it themself to someone, they want to just run it as a small business, or they want to take a leap of faith and take more money and spend more in marketing and sales and grow bigger to drive up the growth rate. So those are decisions an entrepreneur can think about. There are also businesses that When revenue was not a metric. Meaning they're probably getting something else. Then an investor needs to look at it as hold on a second. If this company doesn't make revenue, there must still be value. What if it's strategically valuable for a company like maybe Google, Facebook or AT&T? What if this company has developed the world's most advanced face recognition engine, except that that's not how to make money out of it. Does Facebook have a lot of use for that? So companies like that, they're usually quantified by other types Of metrics such as accuracy, computing efficiency, speed, power. And they are not necessarily correlated with possible revenue, but they will still get acquired. That's why you see companies like DeepMind being acquired by Google for $4 to $600 million. >> They want the technology. >> Yeah. >> Yeah. >> Absolutely. >> Right.