Since 2009, Idea Bulb has made a name for itself as an early stage investor in a wide range of tech start-ups. We spoke with Ricky Wong, one of the company's investment managers, about Idea Bulb's evolution and his view of the current venture landscape.
How is Idea Bulb currently structured?
Ricky Wong: We started as a technology incubator in China with huge co-working spaces in Beijing and Shanghai. Five years ago we morphed into a fund. We have 45 people on staff, but only 15 of them are investors. The rest are recruiters, lawyers, accountants and public relations people offering operational support for the companies we’re invested in. It’s allowed us to have a lot of early-stage involvement with Chinese companies.
Are you extending this model to the U.S.?
RW: About two years ago we started making investments in a group of U.S. companies. After a year or two of development, when those companies are ready to go into China, they feel like a brand-new startup, hiring a GM, trying to find office space. So the support services we offer are very useful and helpful.
One of your companies, Distill, builds online interview tools and was acquired by Yahoo! As an early investor, how much influence do you have over the decision to be acquired?
RW: We’re an institutional investor, so we never have any pressure to sell a company early. But sometimes a company will come in with a really good acquisition offer. And if a founder wants to sell, there’s nothing you can do as an early investor. Even if you veto it, how is that going to play out? In those situations, we aim for a big exit..
What trends are you seeing the venture capital market?
RW: There’s a lot more money around, both in early- and late-stage companies. The late-stage investment boom seems to be driven by a number of nontraditional investors that are coming into the market, like big corporations, hedge funds, pension funds and so on.
Which sectors are you most excited about these days?
RW: The Internet of Things (IoT). The two largest startup ecosystems today are the U.S. and China, and for the most part they’ve been developed independently, in silos. IoT is the exception. It’s been developed in both countries, which is exciting to us, because we are in both countries.
One IoT company we’ve invested in, Edyn.com, is building a smart gardening system. It’s a device that monitors soil conditions, weather and light conditions. It has two missions: to teach people how to be better gardeners and how to save water. So it has an emotional appeal, a rational economic benefit and an environmental angle. It helps address a huge problem.
You’ve written about something you call “distribution arbitrage.” Can you explain that?
RW: It’s a term I coined based on something I observed in China. The basic idea of distribution arbitrage is to identify a cheaper source of distribution and find ways to transform it into a higher-value asset. We have companies in China that started off as software companies building apps or websites and became very successful. Then at some point they create a hardware product, leveraging their software distribution channel to distribute hardware. It really works. Imagine Instagram or Pinterest coming out with a camera. Or Snapchat coming out with a phone.
How tied to capital markets is Idea Bulb in regard to the decisions you make? Are the recent troubles in the Chinese stock market a concern?
RW: The public market has less impact on us compared to other classes of investors because we’re very early-stage focused with our investments. There could be some impact in terms of short-term valuation or influencing founders’ decisions regarding potential exits. But we take a long view by design. Our fund life cycle is long enough that it can span multiple economic cycles. What matters in the end is if the companies we invest in are fundamentally strong.