Investing In The Era Of ‘Cloud’ | Exclusive Q&A With Nick Adams, Managing Director At AME Cloud Ventures
Nick Adams has been managing director at AME Cloud Ventures since 2012 after spending five years in the two powerhouses of Asia -- India then China. Previously, he was the director for international business development at Edward Tian’s Cloud Valley. Adams holds a M.Eng in electronic and electrical engineer from Imperial College.
Adams was recently named on Trusted Insight's Top 30 Family-Backed VC Investors. He graciously spoke with us on May 30, 2017.
Trusted Insight: What does your typical day-to-day look like at AME?
Nick Adams: That’s a good question. It's a very self-dependent job, so we plan most of our days individually. My days usually consist of meeting with new companies, existing portfolio companies, with other investors and with external contacts, business development people, potential hires for my companies, etc. It's a lot of meetings. The biggest joy is obviously getting to work with really amazing people every day. I'm either meeting with people in person or on a call that’s half an hour or so. Either way I'm trying to figure out whether this is a team, idea and space that we're interested to work with and be invested in the long-term.
If it's an existing portfolio company, I'm figuring out what their needs are, getting updates and looking for ways we can be helpful. There's a lot of meetings.
Trusted Insight: Does the firm invest directly in startups or in the right managers?
Nick Adams: We exclusively invest in startups. AME Cloud Ventures is Jerry Yang's venture arm. Jerry left the board of Yahoo in 2012 and decided to start investing directly in startups. We are a small team of four that looks for data-driven companies and high technology companies. We're doing mostly direct investing.
Trusted Insight: You've been with AME for about five years now as managing director. How has the firm's portfolio evolved since you joined?
Nick Adams: It's been almost five years. There are four people on the team. There are two managing directors, myself and Jeff Chung and a principal Wretch Chien. The portfolio has evolved in terms of the composition a little bit, but mostly it's just been fun watching the portfolio grow in terms of each company and their journey. We have quite a few portfolio companies. We initially started off mostly investing in infrastructure and backend systems and since then have evolved into a wider range of data driven companies in various interesting areas like automation, healthcare, biotech, genomics and life sciences. That's how the portfolio's evolved. In general, our investing has moved up the stack, from low level infrastructure into more application level companies.
Trusted Insight: What was your time abroad in Asia like, and how successful were the companies you co-founded and invested in?
Nick Adams: Before being in the U.S., I spent five years in Asia. When I left college, I wanted to do something a little bit more interesting. A friend and I from college went to India. We started mashing together a bunch of different systems online like Google Maps, Kayak and various other services as well as providing our own offerings. We went to India because it was a cheaper place to live and to hire people. That company eventually shut down. We started another company that was making a healthy profit doing services work in iOS, when iOS was first launched. We did that for about another year. I spent two years in India and we ended up selling that company to a local entity.
Then, I went to China. My wife is Chinese. Initially, I didn't know what I was going to do in Beijing. I learned Mandarin and started working for a local entrepreneur named Edward Tian. He started the first company to go public on NASDAQ out of China back in 2002. Through Edward, I was exposed to a variety of different startups in Beijing and worked for one of them, in particular, doing system integration for enterprise clouds. I was the only foreigner in that company. The company grew from 80 to about 330 people when I left to come here to the U.S.
The other thing that we did in China together is Edward and I helped a bunch of U.S. companies like Evernote, and later Airbnb, LinkedIn and Amazon enter the U.S. through partnering. That was another angle. Then, I decided to come to the U.S. It was super interesting to see both India and China as a foreigner and to spend time there early in my career.
Trusted Insight: What sectors do you find hot now? Are there any industries in particular that investors have not shown much attention to?
Nick Adams: I think it's a slow period right now. I feel like we're going through a little bit of a, not exactly a downturn, but it feels like there's a lot of the existing technologies have become a little bit more mature. We used to invest in a lot of the infrastructure but developers are blessed with a lot of open source tools now. I think the best areas are where no one else is. We have invested a lot in the last two years in some of the life sciences areas and finding breakthrough drugs using machine learning, using machine learning to analyze genomic patterns for hereditary diseases, figuring out how to drive cars and stuff. Some of that stuff is little bit hotter now, yet traditionally we've tried to get ahead of the curve a little bit and invest in areas that are not so mainstream.
Right now it feels a little bit like maybe 2005 or 2006, just before the iPhone, just before mobile became big, though there's a lot of value still in what companies are doing today. I'm not discounting that, but I think in terms of new, frontier areas, it certainly feels a little bit slower these days. We're exploring a lot of different things, but I don't have any solid advice in that department just yet.
Trusted Insight: AME means ‘rain’ in Japanese, is there some sort of significance to that?
Nick Adams: It signifies that now we are in era of cloud and hopefully we are all able to make rain from it.
Trusted Insight: How would you say that AME differs from some of its peers in terms of culture, portfolio structure, et cetera?
Nick Adams: We try to be different both in terms of personal investment vehicles and also in terms of what we do with other venture firms. What I mean by that is, because we're direct investing, we're getting our hands dirty and feet on the ground.
Then, the other thing is when compared to venture capitalists and things other people are doing, I think we try and think outside the box a little and invest in new areas, and were largely focused on machine learning and data driven companies long before it was cool. We try to understand technology deeply, get to the frontier of these new trends, and then also how can we think different to some of the VCs out there and get ahead of the pack as well. It's definitely a hard job, and who knows if we’re good at it, but it's a lot of fun. It's why we exist.
Trusted Insight: Do you see venture capital as a viable source of returns for institutional investors?
Nick Adams: Yeah. The curve, I think, is a pretty steep curve from those that return five to seven X repeatedly to those that return less than one X. There's a long tail. I think the key is to figure out who is in that first, top 10th percentile and make sure that you're backing those guys. Yeah, I do think it's a source of returns if you're consistently backing high performers, first time funds from great GPs that are doing something different and actually can create returns. At the end of the day, it is about returns. People can claim to be as paper wealthy as want, but in reality, you have to look at actual money returned.
It's a long game. It takes time. It's very patient game, but I think if you're backing the right firms it's absolutely a source of money.
Trusted Insight: You studied engineering before moving into the investing side. Does your technical background play a role in selecting these portfolio companies?
Nick Adams: All of our team is operational, technical or has studied technology in some capacity and understands it. We make efforts to understand the technology that we're investing in. We really care about defensibility and differentiation. Getting in the weeds of the technology, really getting interested in what the entrepreneur's doing, I think helps in a number of ways. One is obviously from a diligence point of view. Another is from a new deal, scouting point of view to make sure that we're actually doing things that are the cutting edge.
In my experience, it helps bond with the entrepreneur, too. When you get in and technical with what they're actually doing, it doesn't need to be the focus of the whole conversation or relationship, but at least for part of the conversation, and to show that you understand a little bit more deeply than probably most investors. Often entrepreneurs will leave meetings with us and say, "No one's ever asked me those questions before," or, "Thank you for going in depth with some of this stuff." We love getting our hands dirty. It helps with building relationships and winning good deals as well. It's a big part of our philosophy at AME.
Trusted Insight: You say it’s important to bond with the entrepreneur. Would you consider that to be an important lesson learned in your investing career and, if not, is there any other particular lesson that you've learned?
Nick Adams: I think it's important to bond with anybody you're doing business with. With entrepreneurs and investors, there's often this kind of tension and there always will be, I think. If you come across as someone who they want to work with, and I don't say this as an expert, because I've only done this for five years, then I think it's important that you win respect on both sides of the table and that you are as entrepreneur friendly as you can be. That's always been a big part of our philosophy at AME. It’s long term thinking, and in this respect it helps having just Jerry as sole LP.
Another thing I've learned is that you've got to be patient. Even companies that have great IRR or mark-on-mark are still paper money until you actually exit. I've also learned that people are often more important than any particular technology or trend. If you invest in really great people and you're a part of their story, you end up doing better. Even though our focus is finding data driven companies, and we certainly try to make sure that we are on the cutting edge in that respect, it's also important, really, to look at people. We've found that being people driven is also very, very important.
Trusted Insight: Is there anything you’d like to add about yourself, the firm or just your role at AME?
Nick Adams: I think there's one thing that I would add. One of the things that differentiates us is our ties to Asia, our foot in the door in Asia, particularly in China. Jerry's on the board of Alibaba, Lenovo and Didi Chuxing. We help companies in our portfolio think about China and Asia if and when the time is right. We don't push them, but if it makes sense for them to partner, go to market it in China, get a Chinese investor on board or do manufacturing in China, whatever happens to be. We're often the first point of call for figuring out what's what. We've done a bunch of trips out there as well with some of our entrepreneurs. That's another part of our value added. Obviously, myself having spent three years there is beneficial, too. That's something I would add about AME Cloud, and what we do for entrepreneurs.
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