Startups and VCs: Behind the scenes

Ronald Chwang is a seasoned entrepreneur and venture capitalist. After obtaining a B.Eng. from McGill in 1972 and a Ph.D. from USC in 1977, he worked several years at Acer before moving to the venture capitalist industry in 1988. He is now the Chairman and President of iD Ventures America, a VC firm based in Sillicon Valley. Last May, Dr. Chwang received an honorary degree from McGill’s Faculty of Engineering and we got a chance to interview him before his commencement speech.

CAREER PATH

When you started your Ph.D., did you know you would go to industry upon graduating?

No. In fact, I did a Ph.D. because I wanted to figure out whether I wanted to pursue a career in academia or industry. By the time I started my research work in the mid 1970’s, silicon integrated circuits (ICs) really took off and I was immediately attracted by that direction. By the time I was writing my Ph.D. thesis, I knew that I would probably pursue a career in industry.

My thesis was a very theoretical analysis of semiconductor device behavior and I wanted to know how to do IC design. One of the job offers I received was to do IC design at Bell Northern Research, so I went back from California to Ottawa, where I designed one of the components of the first digital switch machine.

What did you do after Bell-Northern?

Intel started a research center in Portland, Oregon and they recruited a lot of the research scientists from Bell-Northern Research, so I decided to join Intel where I got to work on their commercial products. I was there for about 6 years.

But in 1983 – 1984, Taiwan started to become a hub for the semiconductor industry and they encouraged people with that background to go back to Taiwan and start semiconductor companies. So I had a decision to make: do I stay at Intel doing advanced product design, or do I take a big risk and join an early-stage startup and be unsure of what the future has in store for me a year down the road?

I went for the startup, which was called Quasel, as Chief Engineer. We wanted to build dynamic memory (DRAM), but I was very naïve at the time and didn’t realize that there are cycles to any industry: By the time we could produce our components, DRAM chips were selling cheaper than we could produce ours, so the company didn’t succeed. This was in 1986.

After that, I gathered a small team and started a small company that moved away from commodity components such as DRAM chips (because it’s a difficult market) and instead, focused on programmable chips.

How did you go from that to becoming an investor?

Almost a year into that startup, one of the investors of Quasel, Acer CEO Stan Shih, offered to merge my company with Acer, where I ran the Acer R&D Labs. That’s when I started my corporate executive career. About six years later, I came back to Silicon Valley as the President and CEO of Acer America, where I also got exposure to the field of investment because I felt that it was a rising trend.

In 1997, we setup Acer Technology Ventures (ATV), a venture fund that invested in very early stage startups. That’s how I evolved from a corporate executive to an investor. And I’ve been an investor ever since.

What do you think made you successful?

I was willing to take risks because I wasn’t afraid of failure. I told myself “If I fail, I will have learned something”.

STARTUPS & VCs

How does venture capital work from an investor’s point of view?

If I raise $100M from other investors, usually that money has to be invested in 5 to 7 years; you can’t sit on the money. So you have to use up the money during that period.How successful you are depends on how good is the return you get. And the successful VCs start to get more money so their size gets bigger and bigger. Some large Silicon Valley funds are now half a billion dollars; that’s a huge amount of money.

That’s a good thing, right?

It depends. Each VC has so-called venture partners and a large VC may have 10 or 20 partners that look for companies to invest. But if you have $500M overall to invest, each person needs to invest $25M in a short period. So what happens is that you tend to not invest in companies that require small amounts of money, which is bad news for early-stage companies.

Since the VCs now generally look for very large deals, that has changed the original nature of the VC industry. Today, those early-stage startups are now picked up by angel investors or seed stage/early-stage funds. Those early-stage companies will also typically get more one-on-one mentorship. But the way people get funding is constantly evolving. Outside of VCs, there’s also crowdfunding websites such as Kickstarter that are good places to start.

What makes you invest in a startup?

Three things: idea, market and team. Beyond the idea, I consider whether it covers a reasonably large market. The other aspect I consider is the team. Are they passionate about what they do? Experience is not as critical for young entrepreneurs but most importantly, do they have the ability to learn quickly and build a solid team around them?

Do VCs fund new ideas or better approaches to the same idea?

Some investors prefer investing in companies that do things better, faster or cheaper, while others prefer companies who do things that have never been done before. I prefer the latter.

Do you prefer when the founder stays in the company once investment is made?

It really depends. There are two kinds of founders: those who are very technical and only want to see their idea come to fruition, after which they want to return to do more fundamental research. In that case, we can find someone who’s capable of managing the company. Then there are founders who want to expand their knowledge on how to build up their business. When you start, ideally you’ll have a founder who has a technical background and who will eventually become a capable CEO. That’s the ideal case.

But often, a company will be started by 2-3 individuals and among them, maybe one will be more technical and the other will be more business oriented. That person usually ends up running the company.

LOOKING BACK…

Have you ever invested in a company and later found out you made a big mistake?

Oh yes! Typically, VCs invest in a number of portfolio companies. Our business model is that, out of 10 companies, there will be a spectrum of success: a couple will be very successful, 2 or 3 will be good and the rest will fail.

And even the very successful ones are very rarely overnight successes. Companies often find themselves redefining their business model along the way, and a good VC always tries to help companies figure out a way to go around those challenges

Some undergraduate students are nearing graduation and aren’t sure whether they should go on to grad school or industry. Do you have any advice for them?

The opportunities of today are much broader than 30-40 years ago and I don’t think there is one definite path. I think what students need to do is to find out where their passions lie.

For example, if you’re interested in doing research and experimentation, there are two paths. One is to continue on the academic path by going to graduate school, while the other is to conduct research in industrial labs. Today, the latter opportunity is less of an option; back in my day, there were many research institutions like Bell Labs, RCA Labs and Xerox PARC who were dedicated to tackling research questions. But today, this research is mostly attached to large corporations and has become more targeted to commercial applications, although a few of them still do advanced research like Intel and Google.

But once you get into that industry environment, I think it’s difficult to go back to academia. On the other hand, you can do a postdoctoral fellowship and maybe even become an assistant professor, and you probably still have the chance to go back to industry.

How do you remember your time at McGill?

I always felt like the time I spent at McGill was one of the best moments of my life. I really enjoyed the city, the school, the people I met and the professors I worked with.

Later on in your life, you will find that what matters is not only what you learn in class and in exams, but also the people you meet and the culture you’re exposed to, because each of you come from diverse background and have different ways of thinking