Building Legacy & The Future of Finance w/ Steve Chen & Jack Fu, Draco Evolution

Sarah Chen-Spellings (Intro):

Hey there. I'm super pumped for this week's episode, which is brought to you by Tatler GenT, a community and media platform for tomorrow's leaders across Asia. As a proud GenT honoree where Tatler had recognized yours truly as a leader of tomorrow, I was thrilled to showcase the success of other honorees, namely Jack Fu and Steve Chan. Yes, Steve, who started YouTube, who are both named Asia's most influential.

In this exclusive episode, I'm on site at the New York Stock Exchange with Jack and Steve, now co-founders of Draco Evolution Corp., celebrating the groundbreaking launch of their AI driven ETF on the NYSE. We'll take you inside the excitement of the closing bell ceremony on July 12, delve into their journey of building global startups from Taiwan and Asia.

Why the Draco ETF now? And part one of Steve's personal journey after co-founding YouTube. Trust me, you want to be all ears on this one. 

Sarah Chen-Spellings:

Jack and Steve, so exciting, what an exciting day. How are you feeling today? We are in the New York Stock Exchange. Tell us what is happening.

Jack Fu:

Well, very excited, just walking downstairs, watching Draco Evolution on, you know, with façade, it's just amazing feeling we've been planning this for over a year.

Sarah Chen-Spellings:

And give us some context here because people don't know where we are, what's going on, us what we are celebrating today.

Jack Fu:

In just a couple of hours, we're launching our first actively managed ETF managed by AI and quantitative analysis. The DRAI ETF, we actually launched it on the ninth, and so today we'll be celebrating this bell ceremony in a couple hours.

Steve Chen:

Yeah. And on Wall Street, I mean, I don't spend much time in New York, but it was very easy to find just from two blocks away to see the big sign outside.

Today is a very special day, and I think we've been working on this for a long period leading up to this. But I think, no matter how long you work for this, that it's just something unreal when you actually see everything that you've been putting together all here on Wall Street.

Sarah Chen-Spellings:

Yeah. So maybe Jack, I'll start with you. We were chatting a little bit earlier about your background, you come from a rich history of investment banking, working for a union bank, then building your own hedge fund right? Working with family offices, investments that is in your blood.

What does it mean for you to be listing this product right here, right now?

Jack Fu:

Oh, this is a new chapter of my life. Before being in the asset management business, we had a hedge fund initially, and that was more focused on the private placement or private market where we focus only on high net worth individuals and institutions.

But with ETF, Steve and I, we always wanted to open up our product to the world. So there's no minimum requirement people to have access to our investment products, which we are proud of.

Sarah Chen-Spellings:

You've been doing this for years, looking at the different financial products out there. And of course, AI is the moment, right? Everybody is putting out a different AI driven product. How is your ETF different and what do you see it becoming in the market?

Jack Fu:

So we have our own way of training our AI. I can't really say that we're more experienced or we're unique, in any way. I say this all the time. It's really difficult to explain to people why Pepsi Cola is tastier than Coca Cola, right?

Because it’s just different. We are not the first actively managed ETF, AI powered, but we've been doing this for years. And then we have our own methodology and our take on which investment strategies that we like, and also the underlying assets that we focus on.

So at the moment, we're not focusing on products such as like cryptocurrency or any product of that. If it's pure AI, they probably choose like, the products or the investment assets that has risen tremendously in the last couple of years. But for us, our focus is mainly on the defensive side.

Strategies make money, right, when the market goes up. But what happens when it goes down? We care about that the most. Having an AI, having a system that tells us when to buy equity, when the market is bullish or when the market goes down, we would move into defensive assets.

So we don't have to decide what to buy, our AI does that for us. It just takes the worrying out, out of play with our investments.

Sarah Chen-Spellings:

So it's a multi-asset strategy. And of course, AI is guiding and it sort of makes sense, right? We sort of put ourselves in the financial markets to come to this point because it's a huge data ingest to get through AI is sort of removing the human error in that way.

But at the same time, there is some risk, right? In which any malfunction, technology doesn't always work. How do you think about that about what you deem to be a low risk?

Jack Fu:

The AI is not just like a robot that just does the trading, by itself. So our AI mainly tells us, after digesting all the macroeconomic data, it gives us a view of the next 7-10 days.

Sarah Chen-Spellings:

And Steve, let me turn to you a little bit. You were saying this is not an everyday life for Steve Chen. He's been with what PayPal, eBay, YouTube, and this is, somewhat a new chapter though with Taiwan being part of it.

And, both of you meeting in Taiwan. What does today mean to you?

Steve Chen:

Yeah. So, I mean, before the interview, we were kind of briefly talking really that, 20 years spent in Silicon Valley before going back to Taiwan in 2019 where I met Jack.

It was really all spent in San Francisco, Silicon Valley, and it was roles in a PayPal, YouTube, the acquisition with Google and then doing a lot of investing there as a kind of an angel investor or into venture capital funds.

But, in 2019, kind of influenced by family, by kids, wanting to have my two kids getting some exposure to living outside of the U.S. At the time it was just a month, but with COVID coming three months after we moved to Taiwan, we've extended and extended and extended.

Now it's indefinitely extended our stay in Taiwan. So now we're 2024, five, six years have passed, and we're still there. We're planning to fly back there again for when the school year starts. But I think from my own work life, I didn't know it at the time because when I first moved to Taiwan, most of my work was still done over Zoom with folks in Silicon Valley, but it was through meeting Jack that I started realizing, I think there's a few bullet points that's really, I think, to me, exciting about what we're doing with Draco AI, right?

One of them, there's been a disproportional high number of Taiwanese American entrepreneurs that have started companies from Silicon Valley. So, of course you have like Nvidia & AMD, even Twitch was a Taiwanese American co-founder, YouTube, and the list goes on.

And Taiwan is a 23 million person population. It's a pretty small country. But when you go to Taiwan, the governments, they're always asking what is so special about the Taiwanese American entrepreneurs. Because in the last 20 years, of course there are the TSMCs and the semiconductor industry there in Taiwan. But they're looking at more of the consumer base, more of the user facing startups.

And there, in the last 20 years, there haven't been many startups that have formed in Taiwan. But obviously, the engineers are very good there because you do have the products that they're creating that can't be replicated anywhere else in the world when it comes to semiconductors. And so even in the times that I've been going back to Taiwan, it's been meeting up with the government and just trying to throw out ideas of like, what are the things that can be actually done?

But it was really changing when I was there. Physically, you're living there and I had a hands on opportunity to be able to talk with, and work with many of the engineers there ,and then from talking with Jack, we started thinking about like, there's nothing that can prevent us from being able to kind of create almost like a satellite of Silicon Valley, of being able to create something within Taiwan, but really focusing on instead of just within the 23 million people.

Let's build it for something for the much larger audience for the entire world. And so that was the initial discussions of what we got started. I mean, I think we've definitely reached a checkbox phase here, to be celebrating this moment, this time in New York.

Sarah Chen-Spellings:

And you joined hands 2020. So it's been four years that you all have been building.

I guess a question for you, Steve, what did you see in Draco? Of all the different ways that you could be investing, why in this way, with this ETF?

Steve Chen:

It really came from my kind of personal life experiences, I'm kind of personally managing my own finances and trying to figure it out, doing it from remote, was working with a team from Singapore, in Silicon Valley, in New York, but it really still came down to kind of trying to simplify and after a period of years, I remember thinking like, wow, if we, if I had just known some of these things back in 2007, 2008, I wish it didn't take my own funds to have to learn these hard lessons this way, if I had just known some of these lessons.

And it was just really going through those stories. And as we started talking more and more, it seemed like I wasn't the only one that was experiencing some of these issues. I think there are many of these financial decisions that can be massively simplified, in many ways.

And so as we talked about possible ways that we could address this. That we can also bring in our past experiences and together in a hybrid way to create something together, me with my technology and ad background and then Jack with his financial background.

Sarah Chen-Spellings:

So that leads me very nicely to this next question, how has your partnership evolved over the years? I think Steve has been pretty good in choosing his co-founders and from seeing from one chapter to the next, with Chad, with Jawed, right? Like you've continued those relationships.

And now he's in partnership with you. What has that meant for you and Draco?

Jack Fu:

Well, well, you know, he's Steve Chen, right? So he's like, he's a star everywhere. No words .

Sarah Chen-Spellings:

No words needed.

Jack Fu:

Yeah, no words needed.

Sarah Chen-Spellings:

But I guess we don't see Steve in the way that you have working with him on a new product.

Realistically, if you look at his background, yes, he has technology background, but this is the first time he's doing anything in the hedge fund. Well, am I right in saying that?

Jack Fu:

Yes. You know, Draco Evolution is more of a tech company. So this is where Steve comes in.

We had a question yesterday. Why is he the CTO, not the CEO right? CTO is more like the brain of the company, right? So CEO does a lot of the selling, a lot of the dirty work, but Steve gives us direction. Steve would have a different take on, because I'm more of a traditional hedge fund investor, company mindset.

Sarah Chen-Spellings:

What does that mean? We've got people from family offices who may not be in the hedge fund world more directly, what should they understand about your thinking as a hedge fund manager?

Jack Fu:

As a hedge fund manager is more traditional. For example, with Draco evolution, we also have an app we haven't launched it yet, but when building a product, we want to know where the money will be coming from the income.

But, talking with Steve, he has a different mindset of how YouTube was built. So instead of charging people like, you know, 4.99 per month or 19. 99 per month, he wants to offer everything for free. So that's me, that's not what I'm used to. Because building a company, we want to be able to make money. But Steve thinks about reaching and getting to the global market, getting people to use the product.

Sarah Chen-Spellings:

User experience before the ads.

Steve Chen:

Always the consumer, I think when it comes to innovation, right? The key metrics that are always important is just, at the end of the day, like, user happiness, and none of the users are that happy when they have to be paying for hefty fees, subscription fees, this was done at PayPal, this was done at YouTube, this is still done today, even Google, or what Google's doing with YouTube.  I think they tried as much as possible to make sure that at the end of the day, if they have to show you an ad, let's make the ad relevant.

There are ways where on Google AdSense, where people do conduct searches on Google, and they're conducting searches just to actually see what ads are the highest placed, because generally those are the ads that have been given the most amount of advertising dollars, advertising money to be able to be in that space, and they're just curious to actually see who's gonna be the biggest provider for the service that they're looking for.

The ads have become so relevant on Google that they've become somewhat useful in the same way. I think that, for a long time at YouTube, it was always trying to figure out if I have to show these 15 second ads, 15 second free rolls, interstitials, if we can make the ads relevant.

Then you have times when people are actually sharing videos, but those videos are actually of, you know, Coca Cola ads or Nike ads or something. Like one of the most popular videos on YouTube early on that reached a million views was this Ronaldinho Nike video that he was juggling this soccer ball.

And I thought that, you know, look like that became a million, but that was actually an ad and every time people are sharing this, they're actually endorsing and they're actually helping market Nike but people don't see it that way because that's actually entertainment. And so I think that there's this blend between the two and when we were talking about what things we should prioritize especially in the early phases of the app. When it comes to the consumer side, I think this is very different from many of the other startups that you see in Taiwan, where it's one thing to be dealing with semiconductors and hardware, but when you're a customer is the actual consumer themselves, then you have to actually really think about what that end user experience is like.

And so when talking with Jack, it was about, let's make sure that we build a product that's actually a loved app by the actual users, an app that they want to virally share, they want to share by themselves. They want to tell other people about, and that's more important than let's figure out what the monetization strategy is from day one.

Sarah Chen-Spellings:

Ooh, so Steve is disrupting you, I can see him shifting a little bit, as he's thinking about monetization here, but this is good, this is good. It's bringing sort of interdisciplinary views into what ultimately is a consumer facing product, right?

You're listing right here for the world as you said versus private placements that you've been used to doing. Talk a little bit about Draco and the evolution, right? This is one of many steps, right?

I read in your last Tatler interview, you actually talked about two products as well this year. And today we're celebrating of course the Key ETF versus the platform. Tell us a little bit about the road map here.

I'm an ultra high net worth that's looking to invest with you. What do I need to know about where you're heading?

Jack Fu:

DRAI is our first actively managed ETF, but we have so many good strategies. We're constantly doing R&D all the time. We have different strategies. We do commodity, we do futures, we do pair trading, we do day trading. We have so many strategies, but it takes years of testing. 

We actually put our money into these strategies and try to see things that we can improve. But we could launch an ETF every year different strategy. So DRAI would be the first one, and then we could launch another ETF, in the planning next year. And then it is just for different investor appetites.

We chose the ETF because the transparency, liquidity, and also, it's just so easy to reach the global investors.

Sarah Chen-Spellings:

Yeah, and I know it's hard to describe what is the security's limitations and what you can say, but to the extent that you can speak about what you're building here, what we have to be excited by?

Steve Chen:

I've been interested in it from a perspective of just placing myself in the shoes of the average consumer.

And what I'm expecting, I think, adjectives like, fun or exciting or simple to use are hardly words that you hear when you think about financial apps, when you think about the financial. But at the end of the day, that's probably one of the most important things in everybody's lives is how you're managing financials.

And many people, like my parents included sometimes, they're like, it's just when we let somebody else that we have no handle in, and we talk once a month and they do everything. This is, I think, coming from a different background, coming from sort of a more, again, 20 years in the game.

Specifically, not hardware space, not back end, not B2B space, but really in the consumer space. How do you actually make an app that somebody, especially in the financial sector, that somebody gets excited about, that it makes logical sense of some of the very complex items that you have to deal with, and then something that becomes trusted, and to the point where you want to share it and you want to talk about it with other people.

It's a high hurdle to be able to get there and we're well on our way with the engineering and development team on building this app.

Sarah Chen-Spellings:

Let's zoom out a little bit in terms of the markets and macro conditions, right? We're coming up to the elections. We're not going to speak about that, but as you're launching your product here, as a businessman that is thinking about America as a base for global investors.

What comes to mind here in terms of timing? Was there a reason why this product now?

Jack Fu:

So just picture this, our ETF, there's an AI, like a machine that, absorbs all the macroeconomic data and then it gives us a 7 to 10 day view of the market, into the future. We kind of predict. It's going to be bullish or bearish. So once you know the direction, it's much easier to do the asset allocation for your portfolio.

So we know that, there's a high percentage, a high chance of the market being in a bullish side in the next 7 to 10 days. We would hold more equities, stocks, you know, high tech stocks. So when the market takes off, we make money.

If we, on the other hand, we're expecting the market to go down. We don't want to hold too much stocks, right? We will hold more defensive assets, bonds, gold, long term treasuries, or sometimes like, you know, during times of COVID, we even have options or like futures.

We use inverse ETF within our ETF for hedging purposes. So in a sense, our actively managed ETF is dynamic, so we don't just buy and hold, for like three or five years, we don't touch it. The holdings could be changed two times per month.

Sometimes when we hold on to, like, an index ETF, like S&P ETF, we just hold on to it. Expect it to like, have maybe a 10% return per year. But, you know, certain years during COVID, there was like a drawdown of like 40 to 50%. So that wasn't a good feeling.

That's what we're trying to avoid with our ETF, we capture the upside potential. But on the downside, we try to limit. We aim to just minimize the drawdowns.

Sarah Chen-Spellings:

Yeah, I hear you. So you're taking very much a hedging approach, whatever way the markets flow, you will be in a position to benefit from it informed by the large amounts of data that your AI is building and then informing you and then guiding the decisions.

So Taiwan is top of mind because both of you have built your relationship there. This is an American company, but both of you are Taiwanese American and have decided to spend more of your time in Taiwan. For Asian startups building for the world, looking at both of you, what are some of your lessons that you can share here in building a global company?

Steve Chen:

Taiwan has its gold card program to try to attract entrepreneurs, especially serial entrepreneurs that have started companies outside of Taiwan to move to Taiwan.

There are similar programs all over countries throughout Asia, and I think that it's an interesting period right now to be trying to build something from Taiwan, but really not targeting just that audience that have got 23 million people, but really targeting the global audience from day one.

It's a little bit different because I think having been spent 20 years since, for example, in Silicon Valley, whenever we talked about building a product, it was just trying to build a solution to a problem that we face. We don't even talk about it. It's just for us to use, but for us to use, that means all Americans, the 300 plus million Americans that are also going to be using these products.

I think it was only realized when I moved to Taiwan in 2019 that it's different when you're trying to think about maybe something that you're solving for the 23 million people in Taiwan. And a problem that they face may not be a problem that's faced in Taiwan, may not be a problem that is faced elsewhere, in the US or globally. And so that's definitely one of kind of the hurdles that we've had to kind of overcome.

But coming back to Draco itself. I think it's actually fortunate that we happen to be geographically based in Asia. And so, if not the group of potential investors and customers in Taiwan, but that broader region, I think that we happen to be there and we have a better understanding. I think so much can only be passed through reading text and reading tweets or something online versus actually living, fully being there for, and truly living there. I mean actually having family, having kids, whatever it is out there.

And so there's a lot of things that I'm also juggling while I'm over there in Taiwan, including like, the Gold Card program, which is what I've used to be able to stay for five, six years in Taiwan to be able to try to make the gold card program more attractive to attract talent. It's not just attracting people to come to Taiwan, but it's actually to move in there and to really move in.

You need to start thinking about things about education for kids. You need to think about how to entry into schools for kids. You need to think about just even getting how to get a cell phone, opening bank accounts, credit cards. All these things are beyond just getting out of the airport. You need to be able to think about all these things.

The inverse is true is, as I start getting to know more people within Asia, not just Taiwan, broader Asia, they're also thinking about, you know, they read the Wall Street Journal, they read about all the financial news and what are the ways and the bridges that we can connect outside of our island or outside of our Asia region. And I think that this is where definitely Draco can act and serve as that bridge.

Sarah Chen-Spellings:

And how about for you, Jack, as closing words here lessons learned as a leader, as a Taiwanese American launching this global product, building a global business. If some, a younger you is building and in the rough, what are the leadership lessons you'd like to impart to him?

Jack Fu:

Steve had an example of focusing outside of Taiwan. Sometimes we focus on what we know, but we just have to leave our comfort zone. Get out, get out to the global market, which is very difficult at the initial stage.

Because in the beginning, building a company, it's all about spending your money to burn rate. So it's kind of scary to step outside of your comfort zone. Dare to go out and try to ask. If I were to do it again, I'd find a great mentor to guide me.

Sarah Chen-Spellings:

Specifically, you were MD of an investment banking platform before going into building your own hedge fund. How did that journey inform what you're doing now with Draco? How are you doing it differently?

Jack Fu:

When we're managing assets, we purchase a lot of different investment funds for our investors. And to be able to sell the investments to your investors, we have to personally understand what they're doing.

And most of the investments that we were selling, I wasn't satisfied with their returns, the way they manage their assets. Once you gain enough knowledge, there is like a voice in your head like, oh, I can build something better than this. At a lower cost, more transparent, and we don't have to charge that much.

Instead of just focusing on these high net worth, who have tens of millions, hundreds of millions already. We should focus on everyone else, to allow them to have access to our investment. And that's what I want.

I don't want to just focus on the 0.5%, 1%, you know, ultra high net worth. I want to focus on opening up the doors for just everyday mom and pops, right?

Sarah Chen-Spellings:

And the impact that you seek to make then is, if you could sum it up, would it be bridging sort of the different generations in thinking about financial access? 

Jack Fu:

The future of finance, yes. So that's what we're aiming, bringing good investment products to the world.