IA Capital Group focuses on fintech and insurtech startupsRead more...
NGP Capital invests in growth-stage companies, with an initial check size of $10 million
Venture capital used to be a cottage industry, with very few investing in tomorrow's products and services. Oh, how times have changed!
While there are more startups than ever, there's also more money chasing them. In this series, we look at the new (or relatively new) VCs in the early stages: seed and Series A.
But just who are these funds and venture capitalists that run them? What kinds of investments do they like making, and how do they see themselves in the VC landscape?
We're highlighting key members of the community to find out.
Paul Asel is Managing Partner at NGP Capital.
Asel has realized 20 successful investments, including five IPOs and four $1 billion plus exits, of which UCWeb and Ganji were two of the largest technology acquisitions in China. Other successful exits include KongZhong, DQ Entertainment, Gridsum, Morpho, Madhouse, Whistle, CityMaps and Intermedia.
He has been engaged in acquisitions and IPOs valued cumulatively at over $25 billion. He is currently focused on NGP Capital’s investments in the US and Asia in the mobile, IOT and auto sectors.
Asel is currently on the Boards of Gigwalk, Workfusion and Zubie. Prior to NGP Capital, he was responsible for technology investments in Asia at the International Finance Corporation. Previously, he oversaw M&A and corporate venture activity at Cadence Design Systems and worked at Merrill Lynch in investment banking.
He received an MBA from Stanford and a BA from Dartmouth. Ansel is co-author of Upward Bound: Lessons of How Nine Leaders Achieved their Summits. He has served as an Advisory Board member at the University of Baltimore and Adjunct Professor of International Entrepreneurship at the George Mason School of Public Policy.
VatorNews: What is your investment philosophy or methodology?
Paul Asel: NGP Capital is a global firm. We have $1 billion under management, we’ve been operating since 2005 and we have four funds that we have been investing out of. We’re currently investing out of a $350 million fund IV.
We are global, thesis-driven investors. We have offices in China, Europe and the United States, and we really take a thesis-driven approach to investing so we source our companies locally, but we develop ideas globally. We believe that technology innovation is done globally now; when I started investing 30 years ago, we used to have the bridge rule, which is that if the investment involves crossing a bridge it’s a bridge too far, and the belief was that all good things emanate out of Silicon Valley. What we’ve found is that we’re now in a multi-polar world, where investments and great ideas are emerging from Asia, Europe and the United States. So, we look at different sectors, we look at them globally, we believe that global pattern recognition is helpful to identify good opportunities early, and then we invest in companies that we think have the opportunity to engage globally. So, we can accelerate their growth by being able to put them into our global network.
VN: What are your categories of interest?
PA: Our focus is on investing in the connected world. We believe that everything and everyone will transmit a signal, that we’re moving from a mobile-first to a data-first world, and that artificial intelligence, or what we believe to be augmented intelligence with a human in the loop, is translating those massive amounts of data from noise into signal.
VN: Obviously data is a very broad category, and just about everything can benefit from it. So, are there specific verticals you like to invest in?
PA: We’re investing in three different areas: the intelligent enterprise, so looking at ways in which data either enables or disrupts industries. Then we’re looking at the consumer and ways that data augments our daily personal lives. Specifically, we’re looking at the transportation industry, smart mobility, and the belief that we are moving from transportation an an owned asset to transportation-as-a-service.
So, the areas we invest in intelligent enterprise, smart mobility and then mobile technologies. The thing that brings that together is a focus on 5G, that everyone transmits a signal, and then looking specifically at the enterprise, sector, the consumer sector and then smart mobility, and ways in which that plays out in each of those sectors.
VN: What's the big macro trend you're betting on?
PA: The macro trend is really this connected world concept. So, we believe there’s a confluence of cloud, mobile, sensors and intelligence. With sensors, we’re seeing a profusion of different ways of having data transmitted through the cloud, which makes data available in real-time, and then intelligence enables that to translate into signals. So, it really is this idea that the connected world is moving us from a mobile-first to a data-first world.
It might be helpful to give examples of how we’re seeing that play out. So, think of the mobility space: Uber is a solution that could not have existed 10 years ago, but is really the basis of having mobile technology and smart mobile phones that have enabled that new business model to emerge. Similarly, we look at micromobility and companies like Lime, which we’ve invested in, and shared vehicles, whether it’s cars or mobile phones, really was not a viable business model until maybe the last five years. Now, by having sensors on scooters and bikes, it allows for a shared transport model. We think that this gives an opportunity for new industries to emerge and existing industries to be disrupted.
VN: How many investments do you typically make in a year?
PA: Across the portfolio, we will make about 25 investments. Typically we do about 10 investments per year.
VN: What stage/series do you invest in and how much is that in dollar amount for you?
PA: We have a $350 million fund and we’re investing that over let’s say three years, so we’re investing, on average, about $100 million a year. So, the average initial investment is $10 million.
We’re investing in growth stage companies, so companies that have a proven technology that’s validated in the market with customers, and they’re looking for expansion capital to grow their business, and ideally companies that can grow globally.
VN: What kind of traction does a startup need for you to invest? Do you have any specific numbers?
PA: We’re looking for companies that have product market fit, so we define that as being companies that have referenceable customers that validate the technology and business model, and that they’re pursuing a large market opportunity that can build a significant company. We are typically Series B investors, so we’re not the first institution in, but we generally are in the round after that, so it varies by industry, but our sweet spot are companies that have $2 and $10 in revenue.
VN: What other signals do you look for? Team, product, macro market?
PA: Team is very important, and we believe that, ultimately, it’s the team that drives success for the business. So, we’re looking for a capable team, a proven technology and a large market opportunity.
Typically, we’re looking for companies that are able to grow at least 50 percent per year, where the unit economics of the business are positive and demonstrated. Then, really looking to try scale that business, so that it becomes the leader in its market segment.
VN: How do define a large market opportunity?
PA: One that would be serving a $1 billion plus market.
VN: What do you think about valuations these days? What's a typical Seed pre-money valuation and Series A?
PA: We are in a market that's a seller’s market. Prices have doubled over the last five years, so in order to get comparable returns, companies are going to need to be able to produce twice the results as they did five years ago. We’re looking to invest in good companies at fair prices, not fair companies at good prices; we’re looking for companies that have room to be able to substantially grow their business and produce a 10x type return for us.
VN: If companies need to produce twice the results than they did just five years ago, what does that mean for today’s companies in terms of meeting those expectations and to get to the next round?
PA: We’ve actually advised a lot of our companies to go out and bring in investors who can really help them build a business to its full potential, and to focus less on pricing. We find that entrepreneurs frequently have a price in mind, oftentimes a very aggressive price, and if you get investors that come in at an aggressive price, their expectations are much higher for the business. If an entrepreneur can deliver on that then that's great, but sometimes high price expectations causes companies to do unnatural acts. We actually advise our companies that they're better off making sure that they're bringing in quality investors who can help them grow the business.
At the end of the day, the only thing that matters to both entrepreneurs and investors is that they have a good outcome at the time of exit, so we want to maximize the likelihood of magnitude of success at the time of exit, rather than at each interim round of financing.
VN: There are many venture funds out there today, how do you differentiate yourself to limited partners?
PA: We think we are a unique asset in the market: we’re a global, thesis-driven investor that works very well with corporate partners, so we invest with insight, we have a global view that we offer to both limited partners and entrepreneurs. The combination of having a global perspective, with investment activities and people on the ground in Asia, Europe and the United States, there are very few firms that operate globally out of one fund; there are probably less than two or three who do that from a venture perspective.
Then, we take a thesis-driven approach, investing with deep industry expertise in mobile technology. We have seven partners who, together, have over 200 years investment experience. So, we have a very experienced team, and all of us have 20 or more years experience in investing and operating in the mobile sector. So, we have deep expertise, and the ability to apply that in a global engagement model, that’s a very unique value proposition for those who want to go global and are operating in the sectors we’re active in.
VN: Venture is a two-way street, where investors also have to pitch themselves. How do you differentiate your fund to entrepreneurs?
PA: Our value proposition is the same for investors as it for entrepreneurs: we’re global, we can help them expand globally, we’re deeply knowledgeable in the sectors in which we’re investing, we have a portfolio of companies that are relevant to them, so pattern recognition and network is very deep in the companies we’re investing in, and we’ve got a deep knowledge-base that will help them increase the likelihood of their success.
VN: What are some of the investments you’ve made that you're super excited about? Why did you want to invest in those companies?
PA: I’ve been investing now for over 25 years, and during that time I’ve been able to create well over $2 billion of value for my shareholders, and have invested about a half dozen companies in the early stage that have turned into $1 billion plus companies.
Before we invested in smart mobility, we were looking at location-based technology, the idea that search was to the internet as location was to the mobile industry, and that location was what made information highly targeted and monetizable in real time. As we were looking at location, we, ultimately, came on the idea of mobile classifieds. The idea was that you could put the old classified in newspapers into a mobile environment and make them actionable and searchable in real time, and that location was important for a variety of types of services. So, we looked at that area globally and we, ultimately, invested in Ganji in China. We invested in that company at a $75 million valuation, when they had $2 million revenues; ultimately they grew that by well over 100 times during the course of our investment, and we sold the company for $3.6 billion in a merger with 58.com, or WUBA, in China. So, we went from $75 million to about $3.6 billion.
We liked that trend, and based on our positive experience in China, we invested in a mobile classified business in India called Quikr when it had zero revenues and $35 million pre-money valuation. It has grown over the last five years and is now valued at over $1.5 billion. That’s an example of having pattern recognition, where we saw the online classifieds industry, we didn't really any experience when we initially invested in having that be mobile but we were really investing in some of the mobile leaders, and then we applied that across a couple of our different markets in China and India.
Another example of our global model in action is our investments Lime and a Chinese moped company. We saw the shared bike market emerging in China back in late 2016, with Mobike and Ofo and the very significant traction they were getting. Those two companies each were producing about four million rides per day using a shared biking model. We, ultimately, thought that that model would be better in Europe and the United States, because the hardware cost would be the same but there would be a higher average price per ride. So, we looked at all the companies in Europe and the United States and we chose to invest in Lime when they had about $30,000 in revenue, they had just launched their operations three months before. We invested in September 2017, so just over two years ago, and the company has grown tremendously since then; they have well over 100 million rides that they have provided to people so far, so really tremendous growth. They’ve expanded to over 100 cities in Europe and the United States in the last two years.
Based on our positive experience with Lime, we ended up going full circle, back to China, and this Spring invested in a shared moped company operating in smaller cities in China, cities of 250,000 and 1 million people. That company has grown extremely well, even in the six months that we’ve been invested they’ve over 5x in terms of ride volume and is operating profitably. We are delighted with a number of the things that we’re investing in in smart mobility. Another company that we invested in was GetYourGuide in Europe, and that company has grown extremely well; Softbank just invested $500 million into that business this Spring. So, across our smart mobility area, which is the global practice that I’m heading, we’ve made about 20 investments so far and we've already have four different investments that have turned into $1 billion companies.
VN: What are some lessons you learned?
PA: I’ve learned that, ultimately, we’re investing in people, so we believe in investing in great teams. We have a saying that we are kingmakers, not kings; that, ultimately, it’s the people that we’re investing in that we want to see succeed and if they, and their companies, succeed then we benefit from that success.
When we look at companies, we’re looking for entrepreneurs that have tremendous passion, a sense of urgency, industry insight and experience where we think they can drive a large outcome. When we invest with them, we spend a lot of time talking to them up front about what their vision is for the business, and it’s very important that we get a vision match, that we have a shared perspective on how we think the industry will involve and the company’s role in that. If we have a vision match, then we’re largely focused on executing on that together.
VN: What excites you the most about your position as VC?
PA: It’s three things: one is that we really enjoy working with the entrepreneurs. Secondly, we want to make a difference in the world. And, third, is we’re constantly learning; we’re investing in new areas, and constantly having to learn about new technologies and new business opportunities.
One of the first meetings I had was when I was in Russia back in 1991. Russia was just changing from a Soviet system to a more open, capitalist system, and one of the first entrepreneurs I met came in and he started describing the problems in Russia. He said, ‘We’ve got 2,000 percent inflation, 25 percent unemployment. We’ve got people who are selling their treasures out on the street, just trying to survive.’ So I started feeling a bit depressed, and when I got a tear in my eye, he got a twinkle in his and he said, ‘So, that’s the problem, now let me tell you about the opportunity.’ That’s when I realized I just love working with entrepreneurs because the bigger the problem, the greater the opportunity.
VN: Is there anything else that you think I should know about you or the firm or your thoughts about the venture industry in general?
PA: I talked a bit in the beginning about our connected world thesis; the one thing I’d want to highlight on that is that McKinsey has that said the internet impacted 15 percent of GDP, and the Internet of Things is going to impact the other 85 percent. So, we believe that this connected world vision applies to a broad set of industries, and, as you said, data can apply in a variety of ways. We think that the areas that we’re focused on are a couple of areas where this is going to be particularly impactful.
The other thing I want to highlight is that we think that technology has a profound opportunity to change the world and to have an impact on some of the world’s great problems. We think about areas like income inequality. One of the companies I’m invested in is Juvo, which helps provide a banking solution for the unbanked. About half the people in the world do not have steady access to credit or to a banking account, so this is a company that is now working with over 250 million people around the world, giving them access to credit. So, we think there’s an opportunity for technology to have a profound impact and that’s what I’m excited about. We’re operating on a global scale, and we’re looking for solutions that really can impact the lives of hundreds of millions of people. In fact, a number of the companies that we’ve invested in are operating at that level.
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