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Sequoia Capital's Neil Shen knows how to pick a winner

China's 'most successful early-stage investor' sees more opportunity

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Neil Shen, founder of Sequoia Capital's China unit   © Reuters

HONG KONG It is just before the Christmas holidays and Neil Shen, founder of Sequoia Capital's China unit, has arrived in Hong Kong's former industrial heartland of Kowloon, a relatively low-rent district that is becoming a trendy home for everything from struggling dot-coms to a new Citigroup office tower.

Among the new tenants in one nondescript industrial building is Hong Kong X-Tech Startup Platform, which Shen created earlier in 2016 to kick-start innovation in the city, partnering with a group of Hong Kong-based professors and the heads of its top three universities.

Shen, who has donated $300 million Hong Kong dollars ($38.7 million) to X-Tech as seed money for the best projects, is one of the first residents of the city to put his own money into trying to do something about postindustrial Hong Kong's overreliance on financial services.

He is also widely considered the most successful early-stage investor in China. "He is the king of alpha," says one of his main competitors, referring to increases in company value that reflect factors specific to the company rather than general market movements.

Shen has been so successful in his 11 years as the founding partner of Sequoia in China that his status is equal to that of the managing partners at the renowned venture capital's head office in Silicon Valley.

He is widely respected among his peers, both for his ability to pick winners and for his willingness to move quickly. He was, for example, the first investor in China's DJI, which now accounts for more than 50% of the global market for drones. He has been known to invest in new companies on day one when he believes in their founders.

Shen, who describes his mission as "giving small and fast fish money so they can compete successfully with bigger, slower fish," remains widely known in mainland China as a mathematical and computer programming genius, having first come to public attention through competitions he took part in while still a teenager.

Half a generation younger than compatriots who went abroad after the turmoil of China's Cultural Revolution, Shen was born in Zhejiang and studied at Jiao Tong University in Shanghai, then at Yale University's School of Management, which is famous for producing some of China's best investors. But, he says, he really only flourished when he returned to China.

These days he tries to lead a balanced life with his wife, a former investment banker, and his children. But he remains driven -- constantly on the phone with entrepreneurs, even when he is at his beach house in Sanya, on China's southern Hainan Island.

Shen's influence on China's entrepreneurial culture has been huge. Business leaders who have received capital from Shen include stellar names such as Wang Xing, chairman of Meituan-Dianping, China's biggest online seller of movie tickets and restaurant bookings, Richard Liu, founder of e-commerce giant, and Li Zhifei, founder of Mobvoi, a fast-growing developer of interactive voice response technology.

He is an entrepreneur himself, as one of the three founders of Ctrip, the most popular travel website in China. "It is because I was an entrepreneur that I can relate to them," he says.

FAMOUSLY COOL Shen is also famously cool under pressure. When Chinese stock markets were in meltdown in 2015 he counseled panicky investors to wait. Now he thinks China's economic slowdown and Beijing's efforts to tighten controls over capital flows will be good for Sequoia. "My competition may fade away," he says, noting that with dollar funds offshore and yuan funds onshore he has a degree of investment flexibility that many rivals lack.

His future targets include companies with positions in artificial intelligence, big data, pharmaceuticals and medical technology. Shen has already made a return of 10 times Sequoia's investment in one pharma company -- in which Lilly Ventures, the venture capital arm of Eli Lilly, a U.S. pharmaceutical company, has taken a stake -- and says he has high hopes for another drugmaker in his stable, Betta Pharmaceuticals.

Meanwhile, BGI, another medical technology company in the Sequoia family, will hold an initial public offering in China early in 2017 at a valuation likely to give Sequoia investors a return of at least three times their money.

BGI is the world's largest genomics sequencing organization, according to Sequoia, and works in close collaboration with the Bill & Melinda Gates Foundation, one of the world's largest philanthropic organizations, in areas such as diagnostic kits and ways of identifying early markers for cancer.

The Mandarin- and English-speaking Shen has one other big goal for 2017: to improve his command of Cantonese, the language of Hong Kong. When he next visits Hong Kong X-Tech, he vows, "I will speak to everybody in Cantonese."

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