Celsius Capital’s Bill Burnham: the a:c IMterview
Bill Burnham has China on his mind. He was fresh off the plane from Shanghai when we caught up with him earlier this week. Burnham was in China talking to investors and looking at companies as he prepares to launch Celsius Capital, an early stage VC firm investing in opportunities in the software and information services sectors across China and the United States.
How hot is China? Burnham told us the streets of Shanghai are already littered with “Sand Hill Road VCs” and that you could start anything from a semiconductor company to a restaurant. Celsius will seek to capitalize on this burgeoning entrepreneurial scene.
Before becoming a VC, Burnham covered Internet stocks for Credit Suisse First Boston, Deutsche Morgan Grenfell, and Piper Jaffray. You can learn more about his background here and be sure to check out Burnham’s Beat, his blog.
the alarm:clock: hi Bill… a:c here…
billburn: Hi there
billburn: fire away w/the questions
the alarm:clock: Cool. We know you just got back from China – we’ll get to that in sec. First off, can you give us the background on your new firm, Celsius Capital? Who’s involved?
billburn: Celsius is an early stage tech VC fund focused on software and information services investments across China and the US.
billburn: The idea is to do “information arbitrage” across the two geographies.
billburn: Celsius was formed by myself and two former colleagues of mine from CSFB, Carlos Bhola and Woo Kim.
billburn: Carlos was head of e-commerce banking when I was head of e-commerce research.
billburn: and Woo worked with both of us.
the alarm:clock: “Information arbitrage…” can you clarify that one for the slow kids at the back of the class? Practically speaking, what will that mean in terms of your investment approach?
billburn: Yeah, I admit that’s a bit of “marketing speak” but it actually has a lot of thought behind it.
billburn: When Carlos and I were on Wall Street during the 1st wave of Internet companies we noticed that Europe was lagging the US by about 18-24 months in terms of adopting new technologies.
billburn: I noticed the same thing at Softbank in terms of Japan — Japan was lagging the US by about 12-18 months.
billburn: When I met up with Carlos last year we both felt that the same thing was happening in China.
billburn: Thus, the idea behind Celsius is that we will make investments in the US…
billburn: and then use the insights created by those investments to invest “ahead of the curve/crowd” in businesses in China…
billburn: that use the same innovations/technologies, but do so 12-18 months later and with heavy localization.
billburn: As it happens, if you look at all of the Chinese Internet/Software IPOs to date, every firm that has gone public has really been a modified copy of a US firm.
the alarm:clock: OK. But what if you see opportunities in China that have no “innovation/technology” linkage with State-side investments. Are you free to invest in those as well?
the alarm:clock: How rigid is your investment mission?
billburn: I think we will technically have the freedom to invest in those kinds of deals, but I don’t see us making those kinds of investments because they will fall outside of our investment thesis.
billburn: There will be some deals in China that are actually ahead of the US in terms of innovations, especially in areas like broadband and mobile apps, and so we may make investments in those kinds of companies.
billburn: But most of the deals will be based on, or at least heavily informed by, US innovations.
billburn: The fund will make investments in both geographies so we don’t see this as a China-only fund. It’s more of a US/China fund that’s highly focused on a couple very specific sectors that are likely to be very promising in both places.
the alarm:clock: So you just returned from China – where did you go? And what did you see? Companies? Investors?
billburn: I was in Shanghai, Hong Kong, and Hangzhou.
billburn: We saw a variety of folks.
billburn: In Hong Kong it was mostly investors.
billburn: In Shanghai it was mostly co-investors and companies/entrepreneurs…
billburn: and in Hangzhou we spent time with a specific company Hangzhou Netcom.
billburn: I should add that there were a ton of Sand Hill Road VCs in Shanghai.
billburn: It’s kind of amusing and a little scary.
the alarm:clock: What’s the entrepreneurial vibe like in China? We hear cities like Shanghai are one big construction site – booming with activity.
billburn: The entrepreneurial vibe is pretty intense in China right now.
billburn: Basically the whole place is a green field.
billburn: You can start everything from a semiconductor plant to a restaurant.
billburn: The commercial infrastructure was so underdeveloped for so long… there are a lot of obvious holes.
billburn: There are lots of US-born Chinese (Called ABCs) returning to start businesses and lots of domestic entrepreneurs as well.
billburn: There is definitely a lot of construction in Shanghai, probably way too much.
the alarm:clock: We just wrote about a company called Huawei; it freaked us out! 25K employees, billions in revenues, private, and virtually unknown here.
billburn: Yeah, they are scaring the daylights out of Cisco in Asia these days.
the alarm:clock: We imagine it could spawn many would-be CEOs.
billburn: You’re already seeing the “trickle down” effect with folks leaving the more established firms to start their own gigs.
the alarm:clock: Makes sense. So what’s the ideal amount for your first fund?
billburn: We are targeting $150MM. I think what we close on will really depend on timing.
billburn: I would rather close on a smaller amount and get going given all the interesting deal flow we are seeing.
the alarm:clock: And are you anxious to get going? Sounds like Buck’s could open a Shanghai branch soon?
billburn: Then again, we may be able to round up the $150M quickly enough.
the alarm:clock: Ah, of course you’re anxious.
billburn: You never know with fund-raising, it’s very hit or miss
the alarm:clock: Let me change gears…
the alarm:clock: Your blog is a source of interesting insight – and you’ve made some good calls…
billburn: At least I know one person is reading it.
the alarm:clock: A year ago you wrote the following: “Somebody in Silicon Valley is passing around the 1999 vintage Kool-Aid again and this time it’s going by the name of social networking.”
You don’t have to gloat – we’ll do it for you – the space is way over-hyped. What’s going to happen with these sites?
billburn: They are going to become a feature of some larger application
the alarm:clock: We’ve been scratching our heads
billburn: I think that Yahoo’s new 360 service is probably a good indication of the future.
billburn: They have really created a full social environment that incorporates social networking as just one feature of the complete experience.
billburn: I still don’t know how they make money though
the alarm:clock: Agreed. Many of the “companies” we’ve been profiling are really just nice apps.
billburn: Yeah, and at one level there’s nothing wrong with that.
billburn: The world needs apps.
billburn: However, once the Silicon Valley hype machine gets a hold of something, it can really blow its importance out of perspective.
the alarm:clock: You’ve written a lot about RSS feeds and, for lack of a better term, blog infrastructure. Are these areas of personal interest because you have a blog – and/or do you think there might be investment opportunities in this space?
billburn: Part personal/part business.
billburn: I think that the blog infrastructure has become interesting as it’s clear that there are some really interesting services that can be offered.
billburn: However, the real business driver behind blogs is still paid search…
billburn: so the new businesses being created really are dependent on that business model for their continued success…
billburn: which is a bit unnerving.
billburn: I also think that tech blog writers love to talk about the blog infrastructure because they are all using it.
billburn: My posts on RSS et. al. tend to get a lot of comments because they are read by a lot of other bloggers, all of whom have an opinion because they are users.
billburn: However, in some respects this is really just a lot of navel gazing by a bunch of tech nerds.
the alarm:clock: Yes, and it’s actually still a pretty “clubby” group
billburn: Most people could care less about RSS, ATOM, etc.
the alarm:clock: Right.
billburn: i look at a lot of other kinds of blogs (political, poker, etc.) and almost none of them use RSS.
billburn: It makes me realize that the awareness of these blog technologies is still pretty small.
the alarm:clock: Yes, we’re not quite ready raise VC funding for the a:c just yet…
billburn: Ah, but there’s lots of VC money out there…
billburn: You never know.
the alarm:clock: Though a Shanghai office… that could be interesting. OK, last question.
billburn: Fire away
the alarm:clock: You still have a handful of active investments from your previous VC lives. Can you give us the tip sheet on one or two of these?
billburn: Yeah and I actually remain very enthusiastic about them.
the alarm:clock: but of course!
billburn: Datapower is an XML aware networking company that really pioneered the space…
billburn: and they are really doing well. The market for XAN appears to really be taking off, led largely by security issues.
billburn: I think the deal I am most excited about right now though is Stratify.
billburn: I am excited because we saw some dark days in 2002 and really had to rethink the business.
the alarm:clock: Legal field, yes?
billburn: Originally they had a generic unstructured data management software application.
billburn: It was great, but it was very expensive to install and operate.
billburn: In early 2003 we made a decision to focus on offering their platform as SaaS for legal eDiscovery…
billburn: and it turned out to be a great decision.
billburn: They have really turned the corner and are growing fast now.
the alarm:clock: OK, Datapower and Stratify – we’ll add them to our list of companies to profile.
billburn: Yeah, and United Devices. They were a pioneer in the grid computing space…
billburn: and now are the leading player in life science grid applications.
billburn: It’s taken longer than expected, but that market is really maturing now.
the alarm:clock: We looked at the site earlier – boggled our tiny minds – but we’ll take a closer look.
the alarm:clock: OK, well you’ve got $$ to raise. We really appreciate your time and look forward to writing about your first investment.
the alarm:clock: Thanks, Bill.
billburn: Thanks for having me!