This article first appeared on Niudao Caijing. Oasis is authorized to translate and publish its contents. The original text was translated by Yuqian Shi and Julianna Wu.
Neil Shen, the founding and managing partner of Sequoia Capital China, has been recognized by Forbes as the Midas List’s top investor from 2018 to 2020. Under Shen’s leadership, Sequoia China has invested in Alibaba, Didi, Meituan, Toutiao, DJI, and many other prominent Chinese internet companies.
Before embarking on a career in investment, Shen co-founded Trip.com, the most popular online travel agency in China, and Home Inn, the largest budget hotel chain in the country.
Shen went from being a highly respected entrepreneur in the internet sector to becoming one of the top venture capitalists in the world. He credits his success to studying mathematics for a decade. To Shen, everything in business, venture capital, and even life can be deduced through calculations.
Niudao Caijing compiled excerpts from Shen’s public speeches and interviews that unpack his philosophy and outlook.
A math prodigy on Wall Street
Neil Shen has won the top prizes in major mathematical competitions at home and abroad. He had always dreamed of becoming a mathematician.
However, in his second year as a doctoral student at Columbia University, Shen decided to drop out and pursue an MBA at Yale School of Management, as he realized that he wanted to apply mathematical methods in social and economic contexts, rather than immerse himself in purely theoretical mathematical research.
After obtaining his MBA, 23-year-old Shen struggled to find employment on Wall Street because of his lack of work experience.
Eventually, Citibank called him in for a test as part of its recruitment process. He solved a mathematics problem that had stumped many other candidates. It took him just ten minutes. He was hired.
Shen worked for multiple banks, going from Citibank to Lehman Brothers, and then to Deutsche Bank, where he was the youngest board member. In 1999, Shen co-founded Ctrip (which was rebranded as Trip.com in 2017).
Under his leadership, Ctrip went public in only four years after it was established.
Numbers are more reliable than luck
It took Shen even less time to take his second business public. In 2002, Shen sniffed out a fresh opportunity in the business travel market when he was still running Ctrip. He co-founded Home Inn, the first budget hotel chain in China.
At the time, many people were skeptical about the future of Shen’s hotel chain. Compared to online travel agencies, hotel management is inefficient and labor-intensive. Moreover, it wasn’t immediately clear whether a budget hotel chain had a place in a market where consumers heavily valued hotel star ratings.
Shen and his team equipped themselves with in-depth knowledge about market demand, the hospitality sector’s business models, and price standards through extensive market research. As a result, Home Inn was listed on the Nasdaq before the company turned three.
From working in investment banking to running companies of his own, Shen has always been a big believer in numbers, which he considers to be the most reliable indicators of market trends. As an investor, he still maintains this philosophy.
It’s said that Shen is adept at using mathematical models to gauge the likelihood of success of a company’s business model. Legend says that he does this within ten minutes. In any case, he is known to make decisions quickly, leaving no doubt when he seizes investment opportunities.
Shen detests leaving things to chance and prefers to make precise assessments of companies. This aversion to risk is also reflected in his personal life. He is less enthroned by the yachts favored by the super-rich, “because I find the yachts wobbly, and I prefer golf and mountain climbing—they give me the sense of stability compared to water activities.”
Invest in numbers or people
Shen doesn’t agree that investment is just about people, so Sequoia China remains sector-focused. After foreseeing the bright prospects in e-commerce, Shen led his team to invest in a number of enterprises within this field, like JD.com, VIPshop, and Alibaba.
As an investor who represents Sequoia, Shen prefers to start by gaining a deep understanding of every link within a given industry, including the companies involved and their development status. He builds a “map” in his mind, pinpointing the particular processes or companies that might be affected by potential future trends.
Shen’s over-reliance on data has also caused him to miss out on meaningful investment opportunities.
When Zhang Yiming, the founder of ByteDance, approached Sequoia in around 2011, Shen passed on the chance to take a stake because Toutiao’s performance metrics weren’t good enough. After passing on the chance to become an angel investor, Sequoia became a backer of the app factory during its Series C round.
Shen regrets missing out on Toutiao in its first fundraising round. Later on, he sought advice from Xu Xiaoping, the founder of Zhenfund, on identifying promising founders and good projects at their earlier stages.
Sequoia China uses a flat structure for decision-making so that young employees’ voices can be heard and taken into account. This also gives senior partners a way to spot bright stars who are on the rise.
In Shen’s view, investment is a combination of 20% luck and 80% hard work, and must be supplemented by a set of reference systems. “Only a few companies can break the rules of the game, and Sequoia needs to play the game better than others,” said the 53-year-old entrepreneur and investor.