Profile: MSA Capital's Jenny Zeng

There is a well-trod stereotypical career path in private equity that features ivy league universities, investment banking jobs with Goldman Sachs or J.P. Morgan, maybe a stint in consulting at McKinsey & Company, and then upwardly mobile roles with large regional or global GPs. Jenny Zeng, founder and managing partner of China-focused MSA Capital, didn't take it.

Zeng's 20 years in private equity, culminating in the launch of her own firm, is testament – in her view – to having a clear-eyed awareness of what she wanted and a cast-iron will to achieve it.

"I'm from Chongqing, and I start every day eating chilli for breakfast. I'm a passionate and straightforward person," said Zeng. "From the first day I was exposed to the industry, I knew that's what I wanted to do with my life. Investing is a life-long learning career, and I love it."

That first taste of the asset class was at one step removed. In 1999, Zeng joined 3721, a local search engine that sold Chinese-language keywords for Roman-alphabet domain names. It was founded by Hongyi Zhou, who went on to establish web security specialist Qihoo 360. 3721 went on to raise four rounds of VC funding and was eventually sold to Yahoo for USD 120m in 2003.

Having witnessed the first wave of China's internet industry and recognising the enabling power of venture capital, Zeng was hungry for more. Another opportunity arrived in 2003 when Chang Sun and Weijian Shan, then of Warburg Pincus and Newbridge Capital, respectively, served as driving forces in the establishment of the China Venture Capital Association (CVCA).

Zeng became the organisation's first executive director, tasked with coordinating council meetings, putting on seminars, and running training programs. She jokes that it was a perfect opportunity to steal knowledge from the assorted industry pioneers who participated in these events.

At the time, many investors were still in learning mode. Zeng notes that, in these early stages of private equity in China, best practices in legal and financial due diligence had yet to be established. Many investors didn't know how to prepare a term sheet.

Into investment

CVCA was also a valuable networking experience. Two years later, Zeng founded Maple Valley Investment, one of China's earliest financial advisors and a conduit for angel investment and private placements by local companies. This was followed by a foray into fund-of-funds management, first with Jade Invest and then with Magic Stone Alternative Investments.

Jade Invest was responsible for China's first US dollar-denominated fund-of-funds, while Magic Stone sought to replicate the international institutional approach in the renminbi space.

Nevertheless, Zeng had always harboured a desire – from her time at CVCA – to run a direct investment organisation. This came to fruition in 2014 with launch of MSA, which raised USD 152m in its debut fund.

Perhaps because of her non-traditional background, Zeng was happy for MSA to be non-consensus. "China has too many fast followers. There is no need for another identical GP. Frankly speaking, the market is already full of bubbles and involution. MSA has a clear reason for being."

The strategy appears to have paid off, with Fund I said to be marked at 7.4x. MSA followed up with a second vehicle of USD 224m. Even now, with China facing untold difficulties across public and private markets, the firm is looking to deploy as others hold back.

"This year and next year may prove to be among the best vintage years to invest in China. When the tide rises, everyone is on the beach, hoping to pick up pearls. Many of them even regard sand grains as pearls; When the tide ebbs, a lot of shiny pearls appear, undisguised and uncovered, but no one interested," said Zeng.

Avoiding the crowds and identifying quality entrepreneurs with concepts that, for whatever reason, are overlooked and undervalued by the wider market has worked for MSA in the past.

In late 2014, Zeng met Peng Zhao, a veteran of online recruitment platform Zhaopin who had struck out on his own with Boss Zhipin. Peng's idea was to take a PC-based industry onto mobile devices, making it easier for employers to communicate with applicants. However, he was struggling to win over investors. Prior to seeing Zeng, Peng had pitched around 100 VCs to little effect.

MSA agreed to lead Boss Zhipin's Series B – a decision Zeng made less than an hour into her conversation with Peng. His experience, insights, and passion were compelling, but she also detected empathy and mutual understanding.

"His story is the same as mine: we were both denied and questioned. We both wanted to prove ourselves to the world. After a brief conversation, I quickly understood him. I was ecstatic that I had found such a treasure," said Zeng, "In those moments, I feel a deep intellectual and emotional connection with founders."

MSA invested at a valuation of USD 36m and re-upped in each subsequent round ahead of Boss Zhipin's USD 1bn IPO in May 2021. It held a 4% stake in the company on listing and claims to have generated a 100x return.

The VC firm enjoyed similar runs to IPO with the likes of electric vehicle (EV) manufacturer Nio and gene sequencing specialist BGI Group. "When we invested in Nio eight years ago, no one believed that Chinese companies would build EVs by themselves let alone a brand like Nio. Now everyone sees the impact of China's EV industry and the competitive differentiation of Nio," said Zeng.

Biotech and beyond

In addition to non-consensus investments, MSA has a strong interest in high-threshold technologies, regarding them as more reliable prospects than business model innovation plays. Biotech sits alongside new consumer and enterprise technology as one of the firm's core strategies. It has built a seven-strong healthcare investment team, all with PhDs and post-doctorate degrees in medicine.

Recent additions to the portfolio include Therorna, a specialist in circular RNA technology intended to bring greater stability and durability to mRNA vaccines for COVID-19, and Pyrotech Therapeutics, which targets small molecule inflammation and oncology treatments. Zeng describes it as one of China's first homegrown first-in-class drug developers.

"In the past decade, the low-hanging fruit in the biomedical industry was based on ‘license-in' or ‘me too' strategies, but these have now largely disappeared. Businesses with low entry barriers can't last long," she added. "Investment in original and first-in-class new drug companies is just beginning in China. There will be dark times, so GPs, LPs, and entrepreneurs need to be more patient."

Many of MSA's technology investments are interdisciplinary, such as Yidu Tech, which combines healthcare, artificial intelligence, and big data. The GP is also keen on working across borders. While Zeng is mainly responsible for China coverage, she has two foreign partners who address emerging markets such as the Middle East and North Africa, Southeast Asia, and South America.

"We found that what we had backed in China 7-8 years ago is reappeared in other emerging markets. It's like taking a time machine," said Zeng. "We are trying to bring our experience and best practices from China to these markets as well as capitalise on the inherent competitive advantages our Chinese portfolio companies have when entering these markets with our assistance and playbook ,"

Cross-border fashion brand Cider is currently pursuing market development opportunities in the Middle East and North Africa with MSA's assistance. It led a pre-Series A round for the company in December 2020. Since then, Cider has progressed to the Series B stage – DST Global led a USD 130m round last September – and achieved unicorn status.

Regardless of geography, the biggest challenge for investors is often identifying strong entrepreneurs. Zeng has compiled a list of desired characteristics: curiosity and the ability to learn; a willingness to be honest with oneself; and no outsized ego, in the office or at home.

Entrepreneurs who meet these criteria are generally well-equipped to address the trials and tribulations that come with scaling a start-up. Zeng notes that a strong founder, even when confronted with a business model that doesn't work properly, can emerge successful through continuous improvements based on trial and error.

"First, she must accept that poor decisions have been made – 90% of people are afraid of admitting and facing up to their own incorrect decisions. Second, once an error is recognised, she must learn from it and gain new insights," Zeng explained.

"Last and importantly, she must apply what she has learned to new daily tasks, whether those involve building organisational structures or developing new clients."

Being better

Zeng tries to adhere to the same standards as a GP. Missed investment opportunities are not rued – they are a daily reality for early-stage players – but they are reviewed, and lessons are learned.

MSA has a policy of collective responsibility, for successes and failures. The primary objective is to give younger team members the confidence to speak up and express themselves. This is regarded as essential to preserving a culture of creative thought, which in turn enables the "non-consensus" decision making that underpins the firm's strategy.

"Even if you are proven wrong tomorrow, it is important that you speak up today," said Zeng. "We need people to be honest with themselves and participate in discussions. Without exploring every viewpoint and perspective, we cannot achieve the best possible results. This is part of the process for innovation-driven organizations and it's how MSA is always getting better."

Chinese GPs are naturally drawn to their older US peers when ruminating on how to maintain the vitality of a firm across investment cycles and in response to fundamental shifts in the technology landscape. Sequoia Capital and Founders Fund are both inspirations for Zeng: the former for its longevity and robust returns; the latter for championing revolutionary, world-changing technologies.

Zeng believes she shares that founder spirit. Asked about her most challenging times, she thought for a while and then said they came when her founders were experiencing difficulties. On the flip side, when a founder finds success, she shares in the joy.

"I have experienced the same pain, fears, and anxieties as them," Zeng added. "Whether it's a lack of liquidity, a business order that cannot be signed, or an IPO getting delayed, I continue to encourage them and help them figure out a way forward."

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• Topics
• Greater China
• GPs
• China
• MSA Capital