Investing in China: Fortune Brainstorm Tech International 2017

BPM
  • December 24, 2017
  • Scott
  • 0 Comments

A particularly interesting panel involved the funding of startups in China.  The panel was driven by: Cao Yi of Source Code Capital , Anna Fang of ZhenFund, and Hans Tung of GGV, moderated by Adam Lashinsky of Fortune. Following are some of my impressions:

Adam framed it well with quick introductions and then getting to the heart of it: that 10 years ago we might have asked some US-based VC’s what they thought about investing opportunities in China, and today we’re talking with funds who are in a sense, native to China investments.

One example of the shift:  Hans took a group of US CEOs of retailers to Beijing retail conference as well as to supermarkets and retailers. They saw how interactions with WeChat and QR Codes and credit cards worked.  All of them changed their product roadmap based on what they saw in mobile payments. Innovative ideas are being either originated or proven in China and then traveling to the West now.  He’s looking to be a value added investor that can help inspire their investments with knowledge from other countries and more global viewpoints.

There’s a pattern of fear across many growing “startups” or “unicorns” – if you don’t globalize quickly enough you risk losing out to a competitor.  You can’t “just wait til the time is right” to globalize.

A trend of note is that Chinese incomes are rising, and increasingly that buying power is being spent on Chinese brands.  Not exclusively, but increasingly.  Wh3ether it is yogurt or furniture, or makeup.  Hans’ advice is, if you’re going to do it in China, now is the time to do it.  The market is open to business for Chinese-native brands more than ever – and there is a consensus that winner-take-all dynamics are somewhat in play.

Like some other VC’s I’ve heard speak or write on the subject, Anna is all about investing in the team, and then having patience that they will find the product market fit (used the example of Little Red Book – started as travel and morphed into a large social/mobile commerce company).  So what do you look for in your investments?

  • Ability to learn
  • Authentic
  • Passion for what you do
  • Ability to influence and lead
  • Ability to tell a story and fund raise.

Is there a bubble, Adam asks?  Well there’s a real concern about herd mentality.  Temporary bubbles in whatever the hot space of the moment is. Also: government won’t intervene to protect investors, as their belief is that it is healthy for investors to lose their money once in a while to keep the value of risk in the system. Interesting here from Fortune’s own coverage:

TUNG: Every category that we have invested in since 2000 until now has been called a bubble. Before the bike sharing bubble, it was the ride-sharing bubble. Before that, it was the take-out delivery bubble. Before that, it was the e-commerce bubble. What people from outside of China don’t realize is that there is a period of rapid growth with lots of money being poured into a category. And then after the first three years, typically only two to three category leaders emerge. In e-commerce, you have Alibaba and JD.com. In ride-sharing, there’s Didi. In bike-sharing, you have three right now — Mobike, Ofo, and Hello-Bike.

Is government tipping the scales between startups?  The belief on the panel is that government intervention plays a minor role in the battles among Chinese startups for supremacy.  Belief is that success is determined by better product and moving faster.  As investors, rarely meeting with Chinese officials.  The sense I got from the conference is that it is only the really massive companies that have a lot of interaction with the government.

There’s a strong belief expressed on this panel – and evident in other discussions at the Forum –  in Chinese exceptionalism based on an incredible work ethic. At least half a dozen times I heard the phrase “9-9-6” – referencing 9am to 9pm workdays, 6 days a week. The believe is that this work schedule makes Chinese companies and startups more competitive and faster than  their competition in other countries.  The stories sound just like Silicon Valley exceptionalism to my ears.  Or NYC trader exceptionalism (80 hour weeks) as another example.  But it also might be confirmation bias – as long as the success stories involve companies that are running this hard, the assumption will be that that is *why* they are succeeding. I suspect the why has more to do with insights, customer focus, and pivoting, than it does hours of work put in per employee.

 

 

 

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