Roots

Walter Chen was exposed to entrepreneurship at a young age. His aunt founded Golden Wok, one of the first Chinese restaurants in Central Pennsylvania, and he has watched his family operate the business for most of his life.  A Taiwanese immigrant, she started the restaurant with only Walter’s father’s support.  With this investment, Golden Wok took off and ran for 30 years.

It was a teenage Walter who bought the domain for GoldenWok.com and built their website. An entrepreneur at heart, Walter has been dedicated to helping startups, learning from founders, and understanding how businesses build. This passion led to him co-founding Sacra, which publishes research reports on private companies. When his aunt sold Golden Wok, Walter took the domain back to build Golden Wok, the venture capital version. Much like his father, he is using the Golden Wok name to invest in other companies, helping founders bring their vision to life.

Turning to Secondaries

Golden Wok has primarily focused on helping companies in their founding stages. Walter’s passions and expertise have led him to work with founders to build their businesses from zero to one.

“I am excited not about investing per se, but about building businesses with people I have a good relationship with.”

In addition to feeding his passions, Walter also knew that early-stage investing was where he could get the best returns. But with the recent downturn resulting in compressed valuations for tech companies, he realized that there were more and more appealing opportunities within the secondary markets. He saw shareholders looking for liquidity, giving secondary investors an opportunity to buy shares at great prices. 

Taking the leap into secondary markets didn’t mean a departure from Walter’s investment thesis. Just like his early-stage investing is premised on relationships, many of his secondary investments have come about from relationships built over time. 

Relationship-based Secondary Sourcing

Walter and Chris Savage, CEO of Wistia, have been friends for over a decade. Walter had long admired the company and enjoyed watching it grow over the years. While he has long wanted to be a shareholder, the timing had never worked out. Wistia had only raised outside capital (a modest $1.5M) to seed their business in 2005. They used that initial funding to build a highly profitable, capital-efficient business off the bat.

Given the recent downturn, some Wistia shareholders sought liquidity, finally opening up an opportunity for Walter to invest. 

This process of sourcing a secondary deal through a relationship was not new to Walter. His investment into Podia was similar. It was sourced out of an 8-year relationship with the founder. 

Given these long-standing relationships, the diligence process for Walter’s investments in Wistia and Podia looked a lot different from his early-stage investments. Instead of having just a few days or weeks to look through a startup’s data room before making the investment, he benefited from years of watching the founders build their companies. He had first-hand knowledge of the founders’ capabilities and knew that he wanted to invest long before the investment opportunity came about. This expedited his due diligence process and gave him full confidence when investing. 

Beyond the financial opportunity, Walter found these investments extra rewarding, as he had grown with the founders and cheered them on for years. 

Early-stage to Secondary Investing

For investors familiar with early-stage investing, secondaries seem like a whole different game. Due diligence in early-stage investing often revolves around qualitative analysis, focused on the founders, the market opportunity, and an idea. There are few (if any) revenue numbers to consider. In contrast, secondary transactions usually occur later in a company’s lifecycle. These investment decisions are typically made based on years of performance data and pattern-based predictions.

Despite these core differences, early-stage investors have an advantage when considering secondary opportunities. They have a surfeit of relationships with founders from the earliest stages. In watching these founders and companies grow, investors develop a full picture of market opportunities that informs their due diligence process. They are primed to evaluate deals at any stage within their specific sector. 

This advantage can make secondaries a fitting supplement in an early investor’s strategy and help assuage their FOMO from early-stage deals they do not do. Investors who miss out on early-stage deals need not fret with regret over missing a great deal. In this market, there may be a secondary opportunity. 

Looking forward, Walter envisions secondaries will continue to play a role in his investing and a larger role in the ecosystem as a whole. It is speculated that with fewer distributions, investors may turn to secondaries to gain liquidity. 

While secondary investors will have to sift through companies that have been overhyped with inflated valuations, they are many opportunities to purchase equity at a significant discount from the past year or two. This is the time for early-stage investors who missed out or felt priced out to leverage their relationships and bring secondary investing into their strategy. 

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