Interview With Jing (Gabriel) Zhong, Investment Director, Cash Capital

“The relationship often falls in two ways: sometimes investors become micromanagers haunting the growth of the companies, sometimes investors can’t even get involved. The first thing to remember is to keep the right distance, stay on board, but don’t give companies the feeling of being micromanaged. Try give a call every other week on daily matters, give some advice but control the big picture”.

Bio

Dr. Jing Zhong works as an Investment Director in Cash Capital, a direct subsidiary of Chinese Academy of Sciences Holdings. He covers fields including innovative medicine and biotech, IVD molecular diagnostics and precision medicine. Previously he worked with Kenan Institute of Private Enterprise, medtech startup Novocor Medical Systems, Starting Gate Partners and BGI Genomics, he also served as an executive in Chengdu Dikang Pharma. His investment portfolio includes Vision Medicals, Mygene, Wegene, Genewell, Nanjing Zhimao and so on. He also participated in BGI spinoff Genoimmune Series A financing.

Dr. Jing Zhong holds a B.A in biotech from Wuhan University, Ph.D in Cell and Molecular Biology from University of California, Riverside, and MBA in corporate finance from UNC Kenan-Flagler Business School. He is a mentor in Startupbootcamp and Tsinghua SEM X-elerator. He is also an awarded member of American Society of Virology, and Shenzhen Phoenix Tree Talent.

Interview

Portfolio ventures that are going great need almost no support, and the ones that are in the bottom aren’t worth helping. Apart from the two extremes, how do you know how much effort, time, persistent to put in the ones that are somewhere in the middle?

The threshold can be vague in most cases. Actually for a typical VC portfolio, only less than 10% can be too good for us to manage. Most portfolio companies lie in between. The typical number of hours spent on managing portfolio companies is difficult to calculate as well. I have an estimation based on work calendar which includes number of visits, hours of phone calls made, but real effort like arranging networks to help portfolio companies, research made is not clear to us. VC firms are usually not precisely and leanly managed organizations. I would say at least 15–20 hours per week will be spent on post investment management.

How do you balance your time between (1) sourcing quality prospect ventures (2) doing due diligence for prospective investments and (3) helping current entrepreneurs? Which of these are you comfortable outsourcing to principals/analysts and which do you absolutely have to do yourself?

It is well known, at least in China venture capitalists with too many portfolio companies are too busy to source new deals and do due diligence at all. Given around 70 hours of work per week, 20 hours will be spent on sourcing new deals, 30 hours will be spent on due diligence, negotiations and preparation. The rest time is spent on helping current entrepreneurs.

Among these practices, I believe sourcing quality ventures and most of due diligence have to be done by myself. For reasons: 1. Deal sourcing is the most important effort for the venture capitalist’s perspective formation, and our professional expertise are uniquely fit for deal negotiations/core due diligence, though some LDD or FDD are sourced out. But for post-investment management, sometimes we do source some of the work to our specific department, and sometimes third party too.

Many GPs are good investors but don’t master one of the core skills — adding value as a board member. What do you think are some tricks to a productive relationship with founders? What should the culture be for the board and CEO for a quality relationship?

The relationship often falls in two ways: sometimes investors become micromanagers haunting the growth of the companies, sometimes investors can’t even get involved. The first thing to remember is to keep the right distance, stay on board, but don’t give companies the feeling of being micromanaged. Try give a call every other week on daily matters, give some advice but control the big picture.

Secondly we should become experts, if not already are, at least speak like one. In that case your collaborations will be more productive and your network can be more useful. Besides, don’t hesitate to summon board meetings when serious situations happen. The best culture between GPs and invested companies is mutual partnership, more than just business.

Nowadays, mental health is more present than ever, with things like burnout, stress, depression, among others. What do you think of external intervenients like executive coaches, both for a founder and for a VC partner? Do they usually add value?

Mental health is key to success of many startups. We are always witnessing companies succeeded with a strong mental strength and optimistic leadership, and there are also always news entrepreneurs lost themselves. Executive coaches can help entrepreneurs stay confident and stay focused in a much pressured environment, we are doing that part of work in most occasions, and we appreciate experts who can do the job better.

Some may argue most entrepreneurs are business/science elites with decades of experience so they won’t fail mentally, well that’s not usually the case, pressure in startups is a very different one comparing to that in MNCs/universities.

How do you solve important conflicts with CEOs, such as lack of alignment on exits, strategy, or just the CEO being in denial about things like performance? Does the resolution begin with a private conversation or with involving other board members in a decision?

Hard to deal with though, I will start evaluating the personalities of CEOs, other stakeholders’ opinions, and the company itself. Private conversations will be made if entrepreneurs are responsive and still friendly, and tell him/her how you can help him and what the consequence is, in most cases some plans can be drafted, then two teams start negotiations. There is still mutual confidence between you and your portfolio companies. In rare cases, board action or legal actions are required, still.

When raising money from LPs, what is the thing you emphasize the most when “selling” the fund? Past returns? Team expertise (domain and/or entrepreneurial expertise)? Unique angle?

Returns and team expertise are very general selling point, necessary but everyone has. You should develop the unique characteristic of your own company, what makes you better than any one else in the world. Do you have a unique pool of projects (particular fields/location/deal source)? Do you have expertise from senior management/engineer in the fields you focused? Do you are a big name MNC collaborator or other value adders which can give you sources during portfolio management/exit? Use that well then. Every point can give your more hope in fund raising.

Key Lessons from Jing

• As a board member, keep the right distance. Don’t micromanage by pressuring the founder too much, but don’t be distant either. Find a balance between being involved and staying away that maximizes the output for the relationship;
• Leverage your unique point, be it dealflow, expertise, team, or others. Define precisely what your unfair advantage is as a VC, and then sell it to help you raise more funds;
• Leverage the stage of the process that is most aligned with your core competencies. If your VC has specific expertise to help with due diligence, then that is a stage you should not outsource, and should invest more in. If it’s sourcing from an elite pool, then do not outsource that. Invest in the stage that you are best equipped to based on your capabilities;