Profile: WestSummit Capital’s Raymond Yang

Raymond Yang was a member of the pioneer generation of Chinese serial entrepreneurs who got a taste of start-ups in Silicon Valley. This first-mover advantage translated into a 30-year career that stretches from early foreign attempts to sell hardware into China to Chinese companies developing hardware to compete with the world’s best.

Yang entered the growth equity space in 2010, with the establishment of WestSummit Capital, but he claims not to have strayed too far from his roots.

“I agree with the saying ‘once an entrepreneur, always an entrepreneur,’” Yang observed. “Identifying an emergent trend and making it happen – that’s in my bones. When I and my partners launched WestSummit, I approached it just like building any other company. In fact, it’s as challenging as running a start-up.”

A few years after graduating from Tsinghua University in 1983, Yang moved to the Bay Area and worked as a systems engineer at ABB and a software engineer at Centigram Communication. In 1995, he returned to Beijing as the founder and CEO of Saratoga Technology, a US-based communication equipment manufacturer that had ambitions to crack the Chinese market.

Yang made this happen, helping the company go from zero to a 70% local market share within four years. By 1999, however, he was back in the US, establishing a pattern of globe-trotting between the two markets. Yang founded RivalWatch, a data supplier to e-commerce merchants, secured funding from Arthur Rock, one of America's first venture capitalists, and ultimately exited by trade sale.

China called again, this time with the CEO role at Linktone, one of the country’s breakthrough mobile value-added service providers. Yang joined in 2003 and led the company through a rapid growth phase culminating in a NASDAQ IPO the following year. It was among the first China-concept stocks to list in the US.

Being the bridge

WestSummit emerged as a joint endeavour with Datong Chen, a Tsinghua graduate turned overseas returnee who had co-founded two semiconductor manufacturers – Spreadtrum Communications and Omnivision – that listed in the US. A sovereign-wealth fund provided the entire Fund I corpus in the expectation that WestSummit could bridge domestic and overseas technology ecosystems.

From the outset, the firm invested in both US and Chinese companies. More than USD 1.4bn has been realised to date through IPOs and secondary sales and trade sales. As of year-end 2021, distributions to paid-in across three flagship funds were 4.2x with a gross IRR of 38.2%.

WestSummit only started fundraising in the traditional sense – openly marketing beyond the initial close-knit circle of backers – in 2019. With tensions between China and the US mounting, the firm decided a more open and transparent approach would be beneficial.

Around the same time, China’s venture capital industry began to shift focus from mobile internet investments to hard-tech and deep-tech. Yang felt that WestSummit could play an important role.

Whereas previously local start-ups focused on low-end segments, relying on aggressive pricing for survival, the domestic substitution policy encourages companies to pursue markets monopolised by overseas giants. Semiconductors, for example, have become a national security issue, with China looking to ease its reliance on imports. However, with booms come valuation bubbles.

“In 2019, a huge opportunity emerged for the start-ups for deep-tech development, but it has also attracted investors with no domain expertise into the sector, and this has driven up valuations,” Yang said. “The winter will come in 6-12 months when GPs run out of dry powder. The feast of high valuations will be gone.”

WestSummit is bullish about the opportunity set, having demonstrated a willingness to make contrarian bets in pursuit of more reasonable valuations. It is also known for maintaining relatively concentrated portfolios. These predilections may dial up risk exposure, but the firm claims never to have lost money on any of its China investments.

Yang attributes this success rate to entrepreneurial instincts that help him distinguish the wheat from the chaff. He points to RivalWatch, the start-up he founded more than 20 years ago. For a monthly fee, a merchant would set it up to deliver sales data and analytics on competitors on an ongoing basis – a business model offered by other start-ups today, albeit in fancy wrappers.

“You put data on a remote server, rather than install local software, and it’s called a cloud service. You pay a subscription fee rather than buy software upfront and it’s called SaaS [software-as-a-service]. You collect information and analyse it, and it’s called big data analysis,” he said. “At the time, we didn’t have such terminology, but people were telling the same story under a different name.”

Yang eschews buzzwords in favour of focusing on fundamentals, an approach he claims often leads to unconventional decisions. However, they are rooted in his experience and judgment, which have been shaped by years of watching and working with start-ups across different markets.

He has found that WestSummit’s Beijing and Silicon Valley-based teams often differ markedly in their assessments of certain companies. This was the case with Twitch, a US video game streaming platform, in 2013. Quickly dismissed by the Silicon Valley investment professionals, the start-up was championed by their peers in Beijing as a rare opportunity.

Twitch had been on the road for six months without gaining much traction with investors. Yang decided to back it, a decision that paid off a year later when Amazon bought the company for USD 1.1bn, delivering a 10x return for WestSummit.

“The US lags China in B2C mobile internet, and US-based investors couldn’t understand why people would watch others playing games,” Yang said. “Chinese investors, on the other hand, think about deeper issues. Twitch’s user acquisition and content acquisition costs are very low: it uses YouTube to acquire customers for almost nothing and gamers produce content. The business model was sound.”

Risk mitigation

For all China’s pre-eminence in mobile internet, it is still following the US on hard-tech. Yang sees positives in this. Investment carries two major risks: market risk, where there is no product-market fit or products are simply ahead of their time; and technology risk.

Taking cues from the US means market risk is close to zero in China. This is ably demonstrated by the domestic substitution theme in semiconductors. Chinese players aspire to become the local equivalents of Nvidia or AMD, and the pathway to achieving this is clear, based on demand. If the technology works and the business plans is executed properly, they can get there.

“Chinese start-ups are imitating existing technology and following their US peers. The market for these products already exists, so the risk is relatively low,” he said.

WestSummit seeks to further minimise risk by supporting companies through the execution phase. For example, it helps chip designers address bottlenecks in foundry capacity by introducing them to Semiconductor Manufacturing International Corporation (SMIC).

The firm’s network, via existing portfolio companies or Tsinghua alumni, spans an array of potential suppliers and customers. In one instance, Union Optech, a China-based optical zoom lens subsystem provider, even shared its production line with another portfolio company.

Yang adds that assistance in strategic decision making – and avoiding pitfalls – is just as important, especially when working with Chinese companies that have little international experience. WestSummit successfully exited Decawave, an Ireland-based ultra-wideband chip provider in 2020 through an acquisition by NASDAQ-listed Qorvo, but business development was challenging.

“The company's technology is very good, but its use cases or markets were very fragmented. It didn’t progress as quickly as we had expected because you must enter all these different markets one after another. What can be done to accelerate growth? How should Chinese companies in the same space develop? These are the questions we keep on asking and discussing,” said Yang.

Another key discussion point is exits. The prospects for Chinese technology companies are uncertain with IPOs in the US drying up in the second half of last year and protracted waiting times – as well as some compliance hurdles – for those targeting Hong Kong listings instead. However, all WestSummit’s public market exits from Chinese companies have been onshore.

The firm has explored every possible path, with GigaDevice listing on Shanghai's main board in 2016, Union Optech going to Chinext in 2017, and Anji Microelectronics among the first batch of Star Market IPOs in 2019. A year later, another portfolio company, Segway-Ninebot, was the first to list on the Star Market with a variable interest entity (VIE) structure.

“As an overseas registered fund, we have accumulated experience of the entire process, from getting money onshore and dealing with regulatory agencies like SAFE [State Administration of Foreign Exchange] and the State Taxation Administration, to returning capital to investors in a timely manner,” Yang said. “The path is smooth, but it requires some expertise.”

Sources of inspiration

Through his years as an entrepreneur and an investor, Yang has engaged with countless stakeholders in the technology ecosystem. He fondly recalls nine years on the board of US game engine developer Unity, sitting alongside Roelof Botha, who leads Sequoia Capital’s US and Europe business. Andreessen Horowitz and Benchmark Partners are also singled out as investment firms built by entrepreneurs that prioritise returns over assets under management.

WestSummit looks to apply learnings from leading global investors to its own business. For example, the firm’s next fund will feature a sizeable GP commitment to ensure alignment of interests. Beyond that, it is simply a case of continuing to distil years of cross-border experience into contemporary investment theses and responses to market developments.

“Investing is a bit like traditional Chinese medicine, it’s somewhere between a science and an art. But it’s often about experience,” Yang noted.

“An old Chinese medicine practitioner is always more respected. When two practitioners observe a patient’s tongue and take a pulse, they may come to opposite conclusions. The one able to grasp the fundamental cause of a disease, rather than just tracking superficial symptoms, heals the patient.”

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• Topics
• Greater China
• North America
• Technology
• GPs
• China
• WestSummit Capital
• TMT
• hard-tech
• deep-tech
• USA