Kelly Chen@Data Collective VC - Entrepreneurship Talk

This episode features Kelly Chen, Principal at Data Collective VC.

Kelly graduated with Bachelor’s and Master’s Degrees from Columbia University in Financial Engineering and Operations Research. She worked as a Vice President of Agency CMO Derivatives at Barclays, where she was the head trader of a 1.8 billion total balance sheet and helped establish a $800 million new trading desk. Kelly then pursued an MBA in Entrepreneurship Management at Wharton.

Kelly shared her career experience from a Wall Street trader to a Silicon Valley investor and her insights on deep tech investment strategies during this episode.

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Full Transcript

Host: is a video content platform, where we help engineers and researchers to have a better understanding about entrepreneurship, leadership as well as business insight. We aim to help you to become the next generations of leaders and entrepreneurs. Today we have the pleasure to have Kelly Chen with us. Hi Kelly, thank you for coming.

Kelly Chen: Thanks for having me.

Host: Kelly Chen graduated with Bachelor’s and Master’s Degrees from Columbia University in Financial Engineering and Operations Research. She worked as a Vice President of Agency CMO Derivatives at Barclays. During her years at Barclays, she was the head trader of a 1.8 billion total balance sheet. And she helped establish a $800 million new trading desk. Later on, Kelly pursued MBA in Entrepreneurship Management at Wharton. And right now, Kelly works at Data Collective VC as a Principal. Kelly, I know that your major was Financial Engineering and Operations Research. What made you go into the field?

Kelly Chen: So like midway through high school, I had no idea what financial engineering was. It was really one experience during high school that helped shape where I decided to go to college, and what I was majoring in.

Host: What was it?

Kelly Chen: I joined a program called Goldman Sachs Scholars. And it’s a two-year mentorship program where they introduced high school seniors to the different parts of an investment bank. They’ll show you investment management, investment banking, trading - in high school I couldn’t tell the difference at all. So after going through that program and after the first time that I stepped down to the trading floor, it was like: This is what I want to do. And I feel like the rest of my four years - four years in college and many years after that - that drove a lot of my decisions. So for (the decision of) going to Columbia - it was in New York, it was close to Wall Street. And then Financial Engineering, it’s a major that a lot of quants choose before they go out into the industry. So a lot of people were like what is financial engineering? - It’s a lot less finance than it is engineering. By the time I graduated, I couldn’t really tell you what was on a balance sheet on the finance side. But we had taken a lot of computer science classes. I could code in a number of languages. I took a lot of (classes on) probability models, statistic models, simulations, numerical methods, ODE (ordinary differential equation) - a lot of the foundations of currently what is Data Science.

Host: That’s amazing. Because when I was doing research, I also realized that financial engineering is a really interdisciplinary major that combines economics, statistics and computer science. As right now, you are working closely with lots of startups in the deep tech world. Do you think that computer science helps you right now?

Kelly Chen: It certainly helps me (to be more) quantitative. So at Data Collective, I think we’re pretty special in the Valley, like all of the investment team is quantitative. So for me, I did bachelor’s and master’s degrees. So I have two engineering degrees and I’d say I am the least quantitative person at the firm. And I think that’s a great thing that shows you how technical the team is to be able to valuate deep tech.

Host: Right. When you worked as a fixed income trader at Barclays, one of the really big achievements is that you helped Barclays establish that $800 million new trading desk. Kelly, I’m sure there was a lot of work that you had done behind that number. I’m really curious. What is it? Is it like building new structures, and helping the new sales team? Tell us about it.

Kelly Chen: Yeah. So right before that, I was the head trader of a product within CMO derivatives. It’s meaning like a $1 billion balance sheet book. And then in starting this new product line, it was basically a product that was taking off. We didn’t have a trading desk for it before. So basically we were starting from scratch, first learning what the product is. It was pretty different from what I used to be trading. So that was from scratch. And then from there, building a model around defaults, around prepayments, and then building on top of our already pretty complex interest rate model. And then after that it was building the structuring for these loans. So once you’ve structured, and then you need to originate new deal. So you need to work with lawyers, accountants to close the deals to originate new deals every month. And so once the structuring side is built out, how the product works is that we would buy hundreds of thousands of loans. We would structure it, and then would sell the different pieces to different clients. So when you are buying it here, you buy from originators. And part of what I did was went out to really develop relationships with those originators, because the scarcity of a product, like what they choose to show you and what they choose to sell to you, you have exclusive to look at these products, that’s a huge advantage for you to be able to buy it. So developing that originator pipeline, developing those relationships. And then after that to train the sales force to sell to clients a brand-new product they had never understood before, and I had never understood before starting this line. So basically, the entire process: origination, structuring and then sales. And then by the end of that year, it was lucky to be a very profitable desk.

Host: That job required so many soft skills as well as rational thinking and technical work. When I was doing research on you and the whole industries yesterday, one thing I am really interested in that I want to bring it up is that, last financial global crisis happened in 2008, and you did your internship at Lehman Brothers in 2008. And Lehman's parent company went bankrupt at the same year. I just think it’s really interesting that you experienced it as a young intern. Do you remember any story back then? How did you feel?

Kelly Chen: Yeah, so in the spring of 2008, I was on the trading floor when Bear Stearns went down, so like the week before and during that week. So I kind of saw the commotion and the craziness that went on. And then as an intern - basically everyone else was just super busy - and I was just like: Oh my god, this is insane, this looks insane. So from there, from my experience at Lehman, what happened like personally for me, is that I had gotten a return offer at Lehman. And that was the end of August. And then suddenly in September, they stopped responding. And then in September Lehman actually went down. So for a while there’s no contact. And I was like: Oh shoot! I got a return offer, but now looks they have to re-recruit throughout the year. And then a few months later, someone from Barclays reached out to me. Barclays just bought that New York office. Basically that’s an investment bank. That’s why I went to go work for Barclays, and it turned out to be a very similar team as last year. I think that the biggest difference is that the color of the carpets changed from Lehman’s green to Barclay’s blue. Some of the teams in different other groups, a lot of teams changed, but for my team, a lot of similar people in Lehman and Barclays.

Host: Interesting. Would you say that the last global financial crisis left any mark in your career development? Were you scared because (at that time) you were still in college and this happened?

Kelly Chen: So people asked me that because I worked in mortgages, and mortgages were what people think caused the financial crisis. But actually, so the issue was with subprime mortgages. And that was in 2008 and the product I worked in was government-backed mortgages, it's a lot safer. So you are not afraid of defaults, you are not afraid of prepayments. So with this, like with the fall of subprime mortgages, there was like that entire product collapsed. People rushed to quality, and quality was government-backed mortgages. So in 2010-2011, that product had record years, like the P&L on those were like many times of what it was before, just because the entire product collapsed. So I was lucky to kind of see the cycle, and people say that like you don't really understand a financial product until you've seen the full cycle of what can happen to it. So that part was really cool. And something else that I've kind of learned from that experience is, before I always thought it's important to be quantitative to like really understand a product. But during hard times like customers are going to pull back, they're going to be worried obviously for their books, a lot of customers will go down like the funds will just collapse. And what's most important there as a broker dealer is that your customers trust you to recommend the right products to, during hard times, to be able to know that what you're selling them is something of quality and not something that will continue to cause that collapse.

Host: That's true, thank you. So we know that you pursued a MBA in Entrepreneurship at Wharton. Why did you choose Entrepreneurship Management over other field?

Kelly Chen: Yeah, so I felt like my undergrad and my master's degree was pretty quantitative - lots of coding, lots of math. So at Wharton, I went back to business school, because I wanted to do more of the soft skills side. So the most useful classes for me were, I’d say like writing and public speaking and then with entrepreneurial management. I felt like I had a taste of entrepreneurship within a larger firm, and then I wanted to study more about the problems that startups face both like large and small. So you go to a case study, you go to successes and failures and really learn more about like a lot of different industries and what causes success and failure in each industry. And then also I got a double major in - so entrepreneurial management, and I also did the Operations Strategy, because before I majored - I did my Master's in Operations Research, which is like a tactical side of operations, but then Operations Strategy is more like on the qualitative side about how to manage up operations for both large and small firms.

Host: That’s really useful. The other thing that I’m really curious is that, it's a remarkable career transfer from a trader to an investor, because I believe that the required professional skill set is quite different. How did you build a career from a trader to an investor?

Kelly Chen: So when I was trading, you're restricted in investing in the public market because you’re trading day to day. So something I did on the side was I started angel investing.

Host: You did on the side?

Kelly Chen: Yes. So some of my friends were - I would never just go into a field and put money somewhere that I completely didn't understand, but I had close friends that work in the industry and then they'd show m. We would look at deals together and then get much more familiar with the process. And we started co-investing. We invested in some deeper tech firms that I had done diligence around that space. So if something that we’re familiar with going into Wharton, and then outward I was like: Okay I’m going to channel all my activities and all my time towards working in VC, it’s something that I had a strong interest in, something I had played, but something I hadn't done before as a career. I did entrepreneurship club, I did Wharton Venture Partners, which was one of the most valuable things I did for a career in VC. And that they choose 6 people out of typically 100 applicants, and you're pitching a thesis and you're pitching two companies within that thesis. So you're talking to dozens of companies to kind of narrow down and really learn about it like a really specific industry. Once you're accepted into the club, you go out to pitch to Silicon Valley VCs like all the top names. And then from there you get feedbacks, you also get to meet them and then kind of develop a relationship, but it's also helpful for the VCs to hear six different deep dives in different industries, so they're learning what's going on there too.

Host: That’s amazing that you've started to dive into this industry when you were still a trader, that kind of shaped your career I think. As right now, do you think that you're making a bigger impact in the industry as an investor than the trader before?

Kelly Chen: I've definitely spent more time in trading so far, because it was the majority of my careers so far. But I'd say the difference is as a trader, say in that new product that I started in the beginning - I was one of five people in the world that was specializing on that product. So I feel like there's so few people that you go to, who like day-in and day-out are working on that product versus here in deep tech, the community is reasonably small but it's still pretty big like there are a lot of people already.

Host: You’re in the Silicon Valley.

Kelly Chen: Exactly. So I'd say there, it was like super specialized; and here, you're looking at a much broader community, but I'm excited for the opportunity to go ahead and make an impact in that community.

Host: So as right now, how actively are you involved in the portfolio companies and how do you leverage your expertise and help to guide them?

Kelly Chen: Let me take a tiny step back and talk a little bit about Data Collective. So we're an early-stage deep tech firm, so early stage that the next sweet spot is seeded in Series A. So we'll get involved this early as you're like Y Combinator stage - couple hundred K checks, all the way to - last year we led a 120 million Series A round. So early stages when we’d like to get in, the chances are fairly flexible. And then within deep tech, we invest in robotics and applied AI across a number of sectors - so our portfolio companies span from space infrastructure, cybersecurity, quantum computing, health tech, computational biology. We're still a pretty small investment team on the ground, on the early-stage side we have two co-founding partners and then we have two partners, myself and an associate. So within those four like on the ground - I'm very much a generalist, but then in terms of how we help companies - we’re lucky to have an incredible network of deep tech professionals. So we have been investing in deep tech for the better part of a decade now. So throughout that specialty in deep tech helps us build the specific deep tech network and expertise. And then separate from that, something else that I think makes us pretty special is that we have a portfolio of equity partners. So these are 50 CTOs, CIOs of Fortune 50, 100 tech companies as well as like university professors. And they get part of the carry of our fund, so they're deeply incentivized how the source, as well as your technical diligence in the specific 50 different verticals that they represent, as well as once companies become our portfolio companies like really use their network and their resources to help our companies succeed. So we have the equity partners to really help our portfolio companies, but on the ground, the investment team is helping with hiring, helping with operations and then helping to introduce new investors for future rounds, as well as we have two dedicated operating partners who - one of them sits on the biopharma side that has decades of experience in biopharma, and then the other one is the former co-founder CTO of Planet Labs, PhD in Aerospace like knows all of the hardware. So I think we have an incredible resource phase.

Host: Yeah I think so too. That’s something really amazing, that's financial side and as well as the resources as an analyst, right? Very professional. So you were talking about AI and health care, and all the hypes right now. As a principal at Data Collective VC, what do you think is the biggest hype right now?

Kelly Chen: The most we’re aware of is blockchain-X, where that X factor really doesn't require blockchain. And then when you ask the entrepreneur like: Hmm okay, this is an interesting thing that you're building, but why also include the blockchain X component of it? And then they don't have a really good answer. Because it's just popular right now. It’s something that’s hype right now. And I think similar to a few years back when it was like AI-X, and then you’re like: Oh well, you can do this kind of with regressions. Why do you need the AI component? I don’t know. I think that’s a representative of hype, where you want to put that because your company is doing that.

Host: Right, that's interesting. I want to take a step back: Tell us about how’s life like in general, working for Data Collective VC. Do you like the working environment and what you do?

Kelly Chen: I love it. And I was in a good position where I interned for them previously, so I kind of knew what I was getting into. So I had met the team, I was like working with the team. And then at the end of the internship, I basically - it was like, I’m choosing between my old career and this, like I find my days super intellectually stimulating, and like it's really exciting to - like every day I'm really seeing really excited entrepreneurs, really want to make a difference in the world. And that's really inspirational for me.

Host: Yeah, you’re making an impact in Silicon Valley. So coming back to Data Collective VC, can you tell us a little bit about what's the investing strategy that you have, is it like reserve cash and double the winners or what's the timing and exit strategies?

Kelly Chen: Yeah. So we're now over a billion AUM and we're investing our fourth early-stage fund. And then we also have an opportunity fund to be able to follow on our early-stage investments, so this way to support our portfolio companies throughout the lifecycle. So we certainly try to reserve it like enough to be able to support. And then on that front - you're saying what's the exit strategy? So that's really specific to the company of course. Something on the deep tech side that's slightly different is that often you're investing in technologies that require a longer R&D cycle, so there's a lot of more initial R&D you're expecting the company to take longer to get you on the position. And that's something that we're more comfortable with, because we have kind of that expertise to know where our product will probably go, and we're comfortable with waiting longer for that much more explosive upside.

Host: Interesting. So I know that you are passionate about entrepreneurship and stuff. Among all the characteristics like market opportunities and sales team and the whole team building and opportunities and competitions, and this and that - what do you value the most when you’re in the first around like contact with those companies?

Kelly Chen: So I think it's slightly different in that we’re enterprise and we're also deep tech. So on the deep tech side a really important part is that we look for very defensible tech asset. So whether that's hardware or software, that has to be there for us to invest. And then once you had that defensible tech asset, I’d say that helps make the competition aspect a lot easier, because you have a defensible asset that your competitors can't get to. Theoretically this is easier for you to acquire customers, because customers can't get this kind of asset anywhere else. And then on the other side, we look at the team and the entrepreneur. So one thing that I would say we - not struggle, so one challenge that sometimes entrepreneurs have in our field is that they're very deeply technical people. They’re world-class technical, PhDs, and like really specific fields, like probably some of the smartest people I've ever met, and then they don't have experience on the business side. So their focus is like building product and that's great. And then the other side, it's pushing them to be able to think forward on how to monetize. So it's like you have this great product, but it's not gonna sell itself, like how are you going to make a pricing model and go to market and acquire customers through marketing, so that this will really take that huge upside as opposed to slow organic growth.

Host: Yeah, that's the one thing that lots of VCs are concerned about with their team, like if it's down the earth, they can make the products into the market; or it’s just very technical ideas. As we know that 2019 is approaching and I know there will be lots of exciting things happening for you in 2019. Can you share with us what's the most exciting things that you are very looking forward in terms of work in 2019?

Kelly Chen: Something that I really love about this job is that you get to kind of get a glimpse of what the future will look like, and then you also kind of decide what that is. So I’d say a few weeks ago, I was looking at a new display technology that was the coolest thing I've ever seen. I can't believe this is even something real - they have dozens of patents around it. Or seeing a new robotics play that will really change how people do something and this is really specifically vertical. So maybe not and just like the next year, but in the next coming years, I'm really excited to see how these really cool things I’ve seen today will change the future. So I think that's something that I love about this job - it’s to be able to get a glimpse of what the future will look like.

Host: Yeah, that's how I feel as well. Just feel like we’re contacting lots of like autonomous drives and robotics, and it’s just incredible to see it like just a little glimpse of a future that only we can see some of the progress in the world. So here comes the last question - if I were you, I don't know what the answer will be, but if time can go back and you get a chance to change one thing, what would you do?

Kelly Chen: One thing? So honestly on the career side, I feel like the big decisions that I’ve made are things that I'm extremely happy and not regretful at all about. So I think about fund trading, like that's something that I still look back like very fondly of. So while I was at business school and taking some like markets classes like we were talking about specific parts of the market, still feel like my heart is beating fast, because I remember those days that were very exciting days.

Host: That's why if I were you, I don't know what the answer would be like, maybe nothing?

Kelly Chen: Well so like that big decision, so I do that and like to have been a part of running a large book, and that sense of responsibility and that sense of pressure like something I feel like as really helped shape my personality and work, and I think lot of parts that I can - it doesn't seem like they're transferrable directly, sounds like the industries are very different, but I think it helped shape negotiations, helped shape how you talk to those clients, and how you build relationships. So there are a lot of things that you can port over in terms of soft skills and life skills. And then and beyond it, just being it's just a super interesting thing that I’ve been a part of. And then now within deep tech, I certainly don't regret being here. In my past job, I think you meet new people, you can talk about like their work, but it's not like directly relevant to your work. Now, for example, a few weeks ago, I was in an Uber Pool with someone who was a QA engineer. I was like: Oh, QA engineer! I was talking to a company in the QA space and I had different questions that I wanted to ask him. So I feel a lot of people that I'd met are - even it’s not in QA, even it’s in, retail or say other spaces, it's probably a company that I'm working with in retail, or it’s probably an issue that I’ve always been wanting to think about, like this is an area that I haven't explored yet. So I feel like everyone I talked to has such interesting experiences to lend, and for once it's now relevant to my job. So I find that really exciting.

Host: That’s amazing. Well, that wraps up our interview today. Thank you so much for coming, Kelly!

Kelly Chen: Thanks for having me!