Profile: E15 VC's Philip Liang

Philip Liang never intended to become an expert in surgical robotics. But after scoring a massive home run with Auris Health, accumulating a headful of random anatomical knowledge, and watching countless demo videos of robots in action, he knows what to look for.

"We get all kinds of robots shown to us, it's amazing how many emails we get every day," says Liang. "One of the lessons we've learned is don't ever watch the video at 30 frames per second, watch it at 300-500 frames, because one of the big issues is 'Does the robot experience tremors when it's inside you?' That's not a great idea, especially if it nicks something like your pancreas and you bleed out."

In 2019, Vicarious Surgical shattered the video fatigue. The start-up didn't just pass the tremor control test, it did so backwards – literally.

The basic premise for using robots instead of humans to perform surgery is that they can be designed to make small incisions and then negotiate their way around vital organs without causing collateral damage. Vicarious took this dexterity to the next level, enabling it to access areas with an efficiency beyond that of the most skilled surgeon, human or robot.

"If you think about clinical outcomes, it's a gamechanger," says Liang. "Then we looked at the company, its history, and its incredible founders who had spent seven years focusing on R&D. Bill Gates, Vinod Khosla [Khosla Ventures], Eric Schmidt [Innovation Endeavors], and Jerry Yang [AME Cloud Ventures] just said, ‘Here is some money, go develop a robot,' and that's what they did."

E15 VC, a venture capital firm Liang established in Hong Kong four years ago, led a $13.2 million Series A for Vicarious in August 2020. Earlier this year, Vicarious agreed to go public at a $1.1 billion valuation through a merger with D8 Holdings Corp, a US-listed special purpose acquisition company (SPAC) established by Donald Tang, formerly head of Asia Pacific at D.E. Shaw.

Expect the unexpected

Auris Health – acquired by Johnson & Johnson for $3.4 billion in 2019, three months after E15 invested – is a key value driver in the firm's 2017 debut fund and subsequent associated growth vehicle. The overall corpus was $15 million, most of it from family offices. Vicarious appears in Fund II, which closed at $32 million in January, with an anchor commitment of $15 million from Sun Hung Kai & Co.

The transition to institutional support is expected to continue as E15 prepares to launch a third fund, targeting $100 million. The portfolio will remain concentrated – approximately 10 companies, up from four apiece in Funds I and II – but the mandate is deliberately broad, in terms of geography and sector. E15 should not be viewed as a surgical robotics story, despite its success in this area.

"You don't know what exciting opportunities are going to appear in your inbox. It could be something that you've never thought of before or has yet to be invented, so would you restrict your mandate?" Liang explains, adding that investments must demonstrate the potential to return the entire fund.

"Bill Gates said most people overestimate what they can do in one year and underestimate what they can do in 10 years. That's the purpose of our fund: to find things that might exist in a decade."

This attitude reflects Liang's background as a product of the MIT Media Lab, a department within the Massachusetts Institute of Technology that draws upon technology, science, art, and design to generate innovative research. He went on to establish several start-ups, but the Media Lab was a breeding ground for ideas, some orthodox and others less so.

During his tenure between 2002 and 2006, Liang primarily focused on smart vehicles as part of a group tasked with rethinking how cities should be designed in the age of technology. Much of the work was sponsored by General Motors, an early leader in electric vehicles (EVs) until it controversially pulled the plug on the initiative.

The Media Lab took a deliberately holistic approach, even bringing in Frank Gehry to share his wisdom on architecture and design. "He came into the first class and said, ‘You must all become virgins again,'" Liang recalls. "The message was: forget everything you think you know about cities and forget everything you think you know about cars. We are starting from scratch."

They developed the MIT CityCar as a clean, economical, and sustainable solution for personal mobility in densely populated cities. The small, two-person vehicle was envisaged as the mainstay of one-way shared car schemes, with users picking them up and dropping them off as they pleased. In retrospect, Liang admits they should have come up with Uber, which serves much the same purpose.

What they underestimated was the speed of evolution in mobile devices – the iPhone and the App Store were launched in 2007 and 2008, respectively. Similarly, many of the smart city concepts under consideration back then involved context-based artificial intelligence, or the ability to recognize and respond to objects. They did not envisage people walking around with this capability in their pockets.

"And with that come the one-billion-and-one things you can do from autonomous driving to intelligent traffic lights," he observes. "There were things we developed back then that never ended up happening, as well as technologies we assumed were science fiction that soon became reality. We focused on EVs and didn't think that the entire ecosystem would evolve as quickly as it did or become so prolific and powerful."

The right fit

These experiences translated into two takeaways that Liang now repeatedly stresses to entrepreneurs. First, recognize when the train has left the station. Building a start-up requires tunnel vision and can lead to the bigger picture slipping from focus. E15 prefers that its founders fail fast, pick up and go again, rather than toil away on an idea that has no traction. Second, ensure there is a strong product-market fit before committing significant resources to a project.

Liang learned the product-market fit lesson the hard way at the Media Lab. As part of the tangible media course, he and Jonathan Gips authored a paper that advocated creating a social network for dogs to help owners connect with one another. The paper gained a popular following and some media coverage, and suddenly investors were willing to fund a start-up based on the concept.

Snif Labs emerged in 2005 as an RFID-enabled collar accessory that not only tracked a dog's exercise, but also its interaction with other animals. Owners could catalog this engagement – and engage with each other – via an online platform. They licensed the product to Mattel and moved on. Meanwhile, Fitbit pushed ahead with a similar offering, just not for pets.

"We had the whole tech stack developed and it was more feature-packed than the first Fitbits. We should have built it for humans, but we built it for pets," Liang observes. "That's why when companies come to us today, we tell them it's all about product-market fit."

Snif Labs rebranded as General Sensing and pivoted, offering the same tracking technology to hospitals where it is invaluable in monitoring doctor and patient movement and hygiene compliance. This was where Liang learned how to sell to healthcare customers and discovered how difficult the process can be when products deliver efficiencies rather than directly contributing to the bottom line. The knowledge proved useful years later in surgical robotics.

In the meantime, he was developing networks in Silicon Valley, making angel investments – in SpaceX, among other start-ups – and ultimately founding smart lighting start-up Noon Home in 2014. Working with the pre-acquisition team from Google Nest, this was a deep dive into deep-tech. It involved establishing relationships with tech manufacturers and understanding industrial production processes, as well as appreciating the challenges of the consumer-retail market.

Noon Home raised more than $50 million in venture capital funding and was sold last year to Racepoint Energy, a sister company of high-end smart lighting incumbent Savant.

Solving big problems

A confluence of events precipitated the shift into venture capital. Liang's third child was born, he wanted to return to Hong Kong where most of his family live, and someone asked if he was interested in managing their money. It also promised to feed a hunger for new ideas, business models, and knowledge, a condition Liang compares to attention deficit disorder (ADD).

"Starting a company is incredibly challenging and incredibly stressful, and you have to be laser-focused and very target-oriented. Being a VC, you learn a lot about everything. You are always getting decks and covering new fields. You get an interesting macro perspective of the world because it's like you are sitting on the moon and nitpicking knowledge from a large group of people," he says.

"You tie this information up in your brain and think about where it might end up. It's a mental challenge. If you want to dive in and learn about something for 10 minutes, there's no better job."

Liang embarked on this journey with Shrikant Patnaik, a hardware and software engineer by training, and formerly a colleague at General Sensing and Noon Home. They share a fascination with people who are trying to solve big problems through deep-tech. Auris – introduced to them, like many deals, through Liang's VC network – fit the bill perfectly.

The company was founded by Frederic Moll, a surgical robotics pioneer who previously established Intuitive Surgical, developer of the da Vinci system for robotic-assisted procedures. Aiming to reinvent surgery once again, Moll came up with the Monarch robot-assisted endoscope tool that turned Auris into healthcare's latest hot property.

Liang and Patnaik seized the opportunity to participate in a Series D round, offering to assist with expansion into Asia. They don't comment on the IRR. "It's one of those funny numbers in VC that's so big you just joke about it," Liang says. "Getting 3x your money, cash-on-cash, in a matter of days, we've told our investors that's unlikely to happen again. We were in the right place at the right time."

Nevertheless, fashioning a concentrated venture capital portfolio means having a high degree of conviction in the bets you make. Half the Fund III companies will be selected with IRR in mind and the potential to deliver a relatively quick return. The others will be longer-term plays that may deliver stellar multiples, but also come with more developmental risk.

"People say that VCs love risk, but we are among the most risk averse people in the world. We mitigate risk by spending a lot of time on portfolio management. Once you start working with a company you can quickly figure out where they are, and write them off if you need to," he says. "A 100x return doesn't come overnight and we build relationships with entrepreneurs and try to be helpful where others are not. If a company doesn't want to talk to us, it's not an investment for us."

Asian nexus

COVID-19 has not proved an insurmountable obstacle, even for a venture capital firm that invests globally. E15 has become more creative in due diligence – hiring investigators to stake out the offices of target companies – and more accommodating in portfolio management. Liang starts work at 6 a.m. to catch founders in the US; distance is irrelevant, he claims, only time zones matter.

And E15 has turned its Hong Kong location into a virtue. The firm conducts a lot of fundamental research into Asia, establishing whether it is a viable market for US start-ups and how it might be accessed. As a result, there are plenty of referrals from US-based VCs. Liang also brings together his US and Asian networks to support future fundraising activity.

"Hong Kong has become the center of the universe for venture capital," he explains. "There is an amazing network of private equity shops and hedge funds here, so we can set up companies for their next rounds. It's very powerful being able to say to a founder, ‘If you reach this target, I can get these guys to lead another round, or we can work on a SPAC exit.'"

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Greater China
• Technology
• GPs
• Venture
• Hong Kong (China)
• deep-tech
• Sun Hung Kai & Co
• E15 VC