By Bridget Riley
After Silicon Valley, which tech hub can be considered No. 2? Brett Krause, Managing Partner of angel and early stage venture capital (VC) firm PurpleSky makes a convincing case, pointing to the number of exciting new companies and the hefty amount of capital to support them. At PurpleSky, he says he receives 10-15 unsolicited business plans every day. In five years, the firm has invested RMB 750 million in almost 50 companies, including Nasdaq-listed Momo.
Krause took the leap into life as a VC this year, after 20 years in banking, including his most recent position as President of JP Morgan Chase Bank China. He led teams across Asia, including as CEO of Citi Vietnam, and served eight times as a governor in American Chambers of Commerce across both China and Vietnam, and currently holds a seat in AmCham China’s board. He even was voted student body president at his high school in Iowa. A proven leader, he shared some lessons from his career so far with AmCham China.
What motivated your move from banking to VC?
There’s two aspects of that question for me – there’s a push and a pull.
The pull was a much bigger part of the equation – the pull to do something more entrepreneurial and independent where I could be an owner. (PurpleSky Founder) Scott Zheng asked me to join him a few years ago, but it just wasn’t the right time. Since then, I spent time getting to know both of my partners at PurpleSky. In other businesses you often get paid a sign-on bonus, but when you join a VC, you invest your own capital when you join. And, of course, it’s different when you tie your fortunes together professionally and financially. I have deep confidence in both the character and integrity of my two Chinese partners which have already built an amazing business. The opportunity to join them to continue to build PurpleSky into a world-class Venture platform was too exciting to pass up.
For banking, there is a kind of industry-wide push factor at the moment. Quite a number of bankers are leaving the industry. The first 15 years of my banking career were fun because you could build the business, be innovative, focus on clients and really see the payback because you could make clients happy and make their businesses more effective. In the last five years, post financial crisis, banking became much more complicated. The regulatory reaction globally has been really significant, and is not entirely related to the sources of the crisis. I don’t think the regulatory environment makes it easy to be a banker these days. This is often summed up in the words, “It just isn’t fun anymore.” When you aren’t having fun, it’s a good time to make a change.
How do you hope to impact China’s entrepreneurial growth story?
We want to make more of our investments more global, especially linking China to the US and other major markets. There’s this stereotype, founded in the past, that China is a place of copycats. A lot of companies we’ve invested in are really innovative and are doing things as well or better than anyone else in the world. China is maturing very rapidly and learning how to innovate on its own.
One of the companies we’re invested in, Inke, is the largest mobile live-streaming app in China, and, I think fills the space for millenials similar to Snapchat in the US, with people live-broadcasting their daily lives – a kind of personal TV channel. Inke is one of the first companies in the world that figured out how to make money from streaming video. The core compression streaming technology came from Chinese engineers and the business model and user interface were created here, too. Now there are knock-offs of this Chinese innovation popping up all around the world.
Does investment in China require any extra caution or occur at a slower pace?
I don’t think China goes slower. I think it goes as fast or faster. There are a lot of smart entrepreneurs in China. Everyone in this space is working really long hours to create new companies and value propositions. There’s a lot of private equity looking to back the next great idea. The environment is about as ramped up as you could get anywhere.
That said, you’re always cautious when you’re an investor. We’re a Sino-American VC. And personally, as the American here, I’m a guest in this country, and it’s my job to understand the laws and regulations of China, and the cultural assumptions being made on all sides. That in itself is a challenge requiring a lot of energy and effort. You need a good legal team, and you need to trust your partners.
What’s the biggest challenge for PurpleSky that you’re hoping to tackle this year?
We invest in brand new companies, but we are just over five years old ourselves. So we want to continue to raise our own professional processes to best-in-class globally. We’re planning to raise a US dollar fund in the future. We’re preparing ourselves to go more global, and make sure we have international-level reporting and transparent processes in place.
Your company is known for hands-on help with entrepreneurs. Can you share an example of this?
We’re known for being hands-on when companies need us. Some of the companies we invest in have great strategies and a strong management team and don’t really need us or want us (to interfere) in day-to-day management.
We scale our engagement with the needs of the company. Most startups have gaps in experience and capabilities. When asked for help we roll up our sleeves and do whatever is necessary to support.
A simple example: the other day one of the companies we’re invested in had a great opportunity to partner with a US multinational, but just weren’t able to set up a meeting with the right people. We sat down with them and it only took me a few phone calls to get them introduced to the right people and set up a senior meeting. We have many examples where we find something that is working very well in one portfolio company and we share it with others to see how it can also be applied.
You met PurpleSky Founder Scott Zheng while doing your MBA at Columbia Business School. Can you speak to the importance of building personal networks and how to best utilize them?
I met Scott at business school more than 20 years ago. In fact, I came to China the very first time with Scott, in January 1996. As a friend I’ve been involved with him and his various entrepreneurial enterprises over the last 15 years, supporting him with advice and ideas. Even when I was at JP Morgan, I was on the board of one of his more successful portfolio company investments.
My advice on networking is to be authentic and generous, but also deliberate and systematic about how you can maximize opportunities to create a network. When I was younger, I was hesitant about using my network and asking for help, advice, and input. The older and more confident I’ve gotten, the more willing and open I am to help other people and likewise ask for support.
I’ve kept every single business card I’ve ever received in China. I keep over 10,000 business card contacts on my phone. I come back from meetings, scan the cards and have little notes on them. In banking, when I met someone new, I often used this as an easy way to quickly connect with them. If someone works for, say Intel, I can glance at my phone and recall the dozens of people I’ve met at Intel over the years and reference things we’ve discussed. Building those mutual connections is always useful and clients would then say, “He really knows our company!”
The same is true for WeChat contacts. WeChat accounts top out at something like 5,000 contacts. Scott has maxed out his primary WeChat account and had to open another account. Scott also has 250,000 people that follow him on social media! That’s another way you can maximize your network. When he’s talking about investment ideas or new technology, he sometimes broadcasts himself on social media, and within a few minutes he can have 30,000 people watching him.
AmCham China has been another great way to connect with the Chinese and international business communities. AmCham China is one of the venues where you can very quickly find the right answer to problems. Probably more open than most other organizations, at AmCham you can quickly establish a network when you first arrive in a country like China.
How big is your team right now? Are you looking to grow?
The thing about angel/early-stage VC investing is that it’s not inherently scalable. You can invest $100 or $200 million in, say, 100 companies, but you’re not going to be able to invest $1 billion in 1000 companies. It’s too dependent on judgement. For every one company you invest in, you might look at 50. Today we’re 14 people, so we’ll grow a little bit as we expand to dollars and slightly later-stage investments. On the other hand, even if you look at successful and very large PE (private equity) firms, in terms of AUM (assets under management), they are seldom very big in terms of team members.
We will be hiring more deal scouts: young Chinese interested in new technology and the entrepreneurial space. These new team members will help us to continue to uncover the best new start-up opportuties.
How do you identify and foster high potential professionals?
Scott’s primary focus is to be constantly looking for new opportunities and thinking of the best investment approaches. As the Managing Partner, my initial focus is on our daily operations, developing the team, building a great culture at PurpleSky and helping our portfolio companies to grow. And in many ways that’s what I’ve been doing in my past career. At Citi, I was fortunate to have the opportunity to launch a number of new businesses in China and elsewhere in Asia; to go into a new market, launch a new business or product set from scratch, build a local management team and then turn the business over to them. So in many ways, what I am doing now at PurpleSky and with portfolio companies feels quite comfortable.
How do you hire the right people?
I guess that I’ve been involved in the hiring of at least 500 people across Asia over the years. That has become one of my core competencies. In interviews … you can ask questions in different ways, try to get a sense of who the person is, but over time it becomes more instinct than science.
Then you have to foster high potentials and when you have people that don’t fit, you’ve got to move them on to somewhere they’re going to excel and do better. If everyone on the team is working great, you can feel it. When you get into the groove everything goes smoothly. When I was a young manager, I was too kind and always gave people too long when they weren’t working out. When you do that you’re not doing anyone a favor and in fact undermining the rest of the team.
Who has been the biggest influence on your own management style?
One of the leaders I got the most inspiration from was Shayne Elliott, who is now CEO of ANZ Bank in Australia. He has a way to make you feel good about yourself. Even if you hadn’t done something all that well, you left a meeting with Shayne feeling inspired. You left wanting to do better. A number of people moved to ANZ after he joined and no one that has worked with Shayne was surprised to see him selected to serve as CEO! People want to work for a great boss. Hopefully if you pay attention and work hard you learn something from having great bosses.
From the very first time I started managing people, I aspired to be a great leader. That’s a good starting place; take leadership seriously, study and reflect on what works and what doesn’t, acknowledge that you can always improve and learn together with your team to be more effective.
You’ve gone from the suit-and-tie uniform of a banker to the more relaxed VC and tech world. Does that change how you feel at work?
People dress the part. If you’re a banker, you wear a suit. Banking is very structured, regulated and controlled, and the suited uniform reinforces that. If you’re in VC, it’s more relaxed. If I came in in a suit and tie to my current job, I might alienate some people, particularly in the young high-tech startups that have very casual dress cultures. It’s the nature of entrepreneurs and the culture around VCs as well. People dress to be comfortable, to be creative and innovative.
You have a long track record as a leader, all the way back to student body president at your high school in Iowa. Did taking on leadership roles always come naturally to you?
There’s more to leadership than simply character or personality, but I think that it’s true that most leaders have natural attributes that tend to show up early in life and then provide them with opportunities to practice leadership and excel at it. A desire and willingness to take ownership for outcomes, both good and bad, is also really critical. As a kid, I was involved in student government, as a leader in my 4-H Club, or as the captain of the high school tennis team. It was something that I put my hand up for.
Was your move away from banking at all motivated by work-life balance issues?
Both jobs can be all consuming. You can work 24/7 as a banker or as a VC. You have to determine your limits and then set your priorities accordingly. The jury is still out whether I will be any better at striking the right work-life balance that I have I the past. Balancing family, friends and work is something I think most people struggle to get right.
When you have free time, how do you use it?
I’ve got a fantastic family and two children who will take every minute I give them. Whether it be playing with them or taking them to soccer, gymnastics, birthday parties or whatever. I try to keep my weekends for them.