Episode 24: Ashley Peng of Xiaobu: When Chinese Millennials Become Parents

GGV Capital’s Hans Tung and Zara Zhang interview Ashley Peng (彭琳琳), the founder and CEO of Xiaobu (小步), a mobile platform for young parents in China with kids aged 0-6 years old. By providing high-quality content and tools, Xiaobu helps their users navigate parenthood, which is a confusing period for many millennial parents. Xiaobu literally means “little steps” in Chinese. On Xiaobu, parents can take courses on parenting, enter a “parenting university”, browse activities to do with their children, and post updates and photos to record their parenting journey. Xiaobu now has over 2 million users and growing fast.

Before starting Xiaobu last year, Ashley worked as a consultant at BCG China for 8 years, and then spent 2 years at Miya (蜜芽宝贝), a leading e-commerce company for mom-and-baby goods in China, where she was the VP of strategy and business assistant to the CEO. She holds a bachelor’s and master’s degree from Tsinghua University in journalism and public policy and obtained her MBA from the Stanford GSB in 2011. Xiaobu is a GGV portfolio company.

Ashley how she was inspired to start Xiaobu by her own journey as the mother of a young child, why millennial parents in China need a lot of help, and how she went about designing a product that’s highly engaging to users.

Transcript

HANS TUNG: Hi there. Welcome to the 996 Podcast, brought to you by GGV Capital. On this show, we interview movers and shakers of China’s tech industry, as well as tech leaders who have a U.S.-China cross-border perspective. My name’s Hans Tung. I am the managing partner at GGV Capital, and have been working at startups and investing in them in both the U.S. and China for the past 20 years.

ZARA ZHANG: My name is Zara Zhang. I’m the investment analyst at GGV Capital and a former journalist. Why is this show called 996? 9-9-6 is the work schedule that many Chinese founders have organically adopted. That is, 9 a.m. to 9 p.m., six days a week.

HANS TUNG: To us, 996 captures the intensity, drive, and speed of Chinese Internet companies, many of which are moving faster than even their American counterparts.

ZARA ZHANG: On the show today, we have Ashley Peng or Peng Linlin, the founder and CEO of Xiaobu, a mobile platform for young parents in China with kids aged 0 to 6 years old. By providing high quality content and tools, Xiaobu helps their users navigate parenthood which is a confusing period for many millennial parents. Xiaobu literally means little steps in Chinese. On Xiaobu, parents can take courses on parenting. Enter a parenting university, browse activities to do with their children and post updates and photos to record their parenting journey. Xiaobu now has over 2 million users and is experiencing rapid growth.

HANS TUNG: Before starting Xiaobu last year, Ashley worked as a consultant at BCG China for eight years and then spent two years at Miyabaobei, a leading E-Commerce company for mom and baby goods in China where she was the V.P. of strategy and also business assistant to the CEO. She holds a math bachelors and master’s degree from Tsinghua University in journalism and public policy and also obtained her MBA from Stanford GSB in 2011. Xiaobu is a GGV portfolio company. Our colleague Jenny Lee is the board member.

ZARA ZHANG: Welcome to the show Ashley.

ASHLEY PENG: Hello Zara, hello Hans.

HANS TUNG: Hi. Good to see you here.

ASHLEY PENG: Good to see you.

HANS TUNG: Great. How did you come up with idea for Xiaobu?

ASHLEY PENG: I still remember when Yunbao was two years old, she sat on her high chair and having some food and she just kept throwing her food away and her dad got really angry because he reminded her several times. She just didn’t listen to him at all and eventually her dad yelled at her and threw her into a dark room. And since then, my daughter was afraid of darkness and she always said, she didn’t like her dad. She hated him. She once said. It actually took us several years to correct this mistake not just the fearless part but also the intimacy between her dad and her and actually, I learned a lot in this process.

I think most importantly two lessons. First, both my husband and I, we had two master degrees, from Tsinghua University and Stanford University. So both of us, we received the best education. We are smart but we still know nothing about education. When it comes to like educating our daughter, we are no better than a nanny or our parents.

HANS TUNG: You’re very modest.

ASHLEY PENG: I really think so. Because we make very basic mistakes because we know nothing about parenting. So in that example I mentioned, there are many, many reasons. Because at two, my daughter was at this sensitive period where she was testing the space. She was experiencing the fun of throwing things away, getting control of something but we didn’t know about that. We just didn’t use our adult view to think that she didn’t listen to us. She was annoying but actually there are really many, many things that every parent should learn about parenthood. It’s not natural. It’s not that because you’re smart, you have a very good degree that you should naturally know about these. It’s not. It’s something that you really have to learn.

So this is the first lesson. And the second lesson is that, I actually used many ways to try to bring them back together. I tried to lecture my daughter that you should like your dad. Dad loves you. Things like that. But actually, it didn’t work at all. And eventually the most important tool that eventually helped us is game or the parenting activities that we do together with her.

So when they play together, they actually do things together. My daughter started to notice that, oh, dad can do a lot of things. And dad is so fun. And all these things bring her back to her dad. And actually, it was not that easy because like Chinese people tend to be more serious or rigid.

We are not really very used to outdoor activities or sports or handwork, DIY kind of thing. Yeah. Because when we were raised up, we didn’t have these. And nobody ever taught us this and we do not have that in our genes.

So, we had to learn about these things. And I actually spent a lot of time researching online and learn about things. I love Pinterest. I spend so much time searching all kinds of methods from the foreign website and try to find out the fun way to engage with my kids. And it was not that easy.

So I studied a lot of theories because you have to learn about the theories before you engage with her. And also I collect the ideas and I have to arrange them based on her age, based on her interest and I have to teach my family to do these things because it’s not only my job. I have to teach her dad, I have to teach her nanny and I even taught her grandparents how to use these interesting, fun way to really engage with her and I realized if every parent has to go through this process, it will be like the barrier is too high. But actually, this is very interesting way and I could see it works on children. Not only on my daughter.

Actually, I have some friends like sending their child to my home and we could see them. The children would change like within two or three days if you use the right way to engage with them. They change very fast. And I think all the parents should learn about these things and they don’t have to go through the painful and complicated process that I went through.

So I came up with the idea of Xiaobu that we can create something that let the parents learn about the things very quickly and easily and systematically. So basically, that’s how I came up with the idea of Xiaobu.

ZARA ZHANG: So it’s something that you wish existed when you were a new parent yourself?

ASHLEY PENG: So yeah, when I was new parent, I don’t think there’s anything that existed. I still remember I searched parenting activities with kids of 3 online. I searched on Baidu and I found probably 20 articles and 15 of them are the same. So, basically they were copying each other and the rest five, they gave me about 20 ideas and I tried and I picked. I think there were only about seven or eight ideas that attracted me. Without any picture, no mention to video.

There was no video, no picture. I have to really imagine and try to understand what it means from all the wording and I picked seven and I tried five and I failed three. So there are only two left. So that was the situation when I started the whole thing. And I was so pissed off. I always felt like there’s no real guidance online on how to engage with your kids.

There are many lecturing content and they talk about how you should accompany your kids. You should do fun activities but what fun activities. I just cannot find fun activities because I can quickly understand that I should do fun activities but it took me so long to actually do one. So, I think that’s why I told all my users, my team that actually practicing it is the most difficult part because it’s really easy to understand the concept but actually doing it is the fun and the difficult part.

HANS TUNG: But I thought there are a lot of forums, community sites about how you can raise your kids especially from people in the same community share a lot of information with each other. Also, on the other side, there is Babytree who’ve been around for a long time that has a lot of content on it. Were they not enough for you?

ASHLEY PENG: Not enough. I think the most important thing is that, it’s not systematic. So first of all, the kind of content I mentioned is basically, it was actually almost not existed when Xiaobu started. Actually when I was a new mom, not too much content on the actual doing part. And also even if there was something, it was scattered.

ZARA CHANG: They’re fragmented?

ASHLEY PENG: Yeah, it’s very fragmented. It’s here and there. And you have to do a lot of work to organize them to really make them something that not only you can digest but also you can teach your family. That’s actually very difficult.

ZARA CHANG: So you are a millennial parent yourself. I wonder what are some characteristics of this generation of Millennial parents in China and thus being a millennial parent in China today, is it more difficult than before or is it easier?

ASHLEY PENG: I think one very important characteristic is that, lack of information is not the biggest pain for this generation. But we’re all looking for good information. There is just too much information and actually you don’t have enough time. You have to look for the information very efficiently. I think that’s a very big difference. So in my parents’ generation, there were only about a handful of experts talking about these things and there were just several magazines that you could trust and actually you could get this information and just blindly trust them. But now it’s very different.

I think that’s why the paid for content is really a new trend in China and all these parents, they know there’s so much information out there and they need more systematically, more authoritatively information for them to really follow. And also, they want the good information to be very easy to be digested.

Sometimes we feel that’s a little bit contradictory because normally we would think good information exists for example, in books. These systematic books and maybe courses in school. These are good information but it’s too much. It’s too heavy for these users. So they want the good information but in a very, very efficient way. So that’s how they required the content provider to support them. That’s one thing.

If you ask though whether it’s easier or more challenging to raise a child, I think it’s very difficult to say. Like when I was young, I still remember my mom worked six days a week and the stay-at-home mom didn’t even exist at that time in China and it’s not even possible. So most parents just threw their children to their grandparents.

I still remember when I spent a lot of time at my hometown. So nowadays, definitely, people have more choice. To some degree, they have more free time. Lot of things help them. For example, like we don’t have to cook now. We can order anything. That saves a lot of time. So maybe it’s easier but at the same time, it’s getting more and more challenging. I think my mom actually just did very basic things to me and she understood several basic principles and she did it very well and I grew up but now I think most parents are not joining the trend of like pushing very hard on their children and chasing among like different –

ZARA ZHANG: Like tiger mothers.

ASHLEY PENG: Yeah, the tiger mother. I think it’s very difficult for them not to do this because everyone is doing it and everyone is so anxious and the competition is getting more and more fierce. I would say that the most challenging part is just understanding what you really want for your child. And what is really good for them and stick to it.

ZARA ZHANG: Yeah. Instead of just being driven by FOMO or Fear of missing out.

ASHLEY PENG: Yeah exactly.

ZARA ZHANG: One term that I frequently see on the Xiaobu app is quality companionship. This is actually kind of opposed to what many Chinese parents are used to do which is to send their children to various classes and activities and camps and hope that these activities will shape their children into who they want them to be. So why do you think quality companionship is so important?

ASHLEY PENG: First, I think everyone with a little bit knowledge in education would know that parenthood is the basis for everything, for all the education and good companionship is the basis for parenthood. If you don’t spend time with your kind, especially spend high quality time with your kid, there’s no way that they trust you, love you and follow your guidance. If that lack of trust and love is missing in the relationship, it’s very, very difficult for you to do anything with your kids. And I think a lot of parents actually didn’t realize how important it is. They always feel like correcting the child at that moment is more important than anything like doing the right thing. The so-called right thing is more important than maintaining a good relationship with your child.

So first, it’s really the fundamental. If you ask any educators or any researchers, they would definitely agree about that. And secondly, I think no one can be better teacher than the parents for children at this age especially for children before school because for children from 0 to 6, they are so different. You know like why almost all the countries require the children to start going to real school at the age of about 6 or 7. No earlier than that because before this age, children develop so differently.

Some children start very strongly at [inaudible 17:32] motion and they developed relatively slowly on fine motor and some children, they are very strong in language skill and some children are capable at cognitive but they’re very different. There’s no standard or no general principles that you can adopt. So at this stage, it really requires parents to really bring up their kids based on your observation, based on your understanding and also based on your knowledge in education.

So, this all comes very naturally with good, high quality companionship. Nobody can ever really substitute this. So it’s so important to teach the parents the correct way to engage with your child. Spending time with your child for about half-an-hour may be more effective than sending them to a school especially those schools with very like commercial driven schools with very limited training teachers.

Actually parents should have the confidence that they can do much better than these so-called teachers. They are not even like serious teachers. They are just like employees hired by a commercial training center and maybe get trained for about 10 days and started to teach your child. I think all the parents should have the confidence and should have the responsibility to really think that you are the best teacher for your child at this stage.

HANS TUNG: Quality companionship is something that’s relatively new in China. It’s a concept that’s popular in developed countries. So, I think the fact that you realize that’s important and want to make that popular in China is very admirable and it makes a lot of sense. But, as you know, most of the Chinese families have dual income parents. So it’s harder for the mom to spend a lot of quality time with their kids. What would be your advice to most families that are in that situation to achieve quality companionship?

ASHLEY PENG: Yeah I think there are two ways. The first is that you really have to find information very efficiently. When I said half-an-hour high quality companionship, actually, the time you should spend is much more than just half-an-hour because you have to think about what you should do with your child.

If you read books, you have to select books for them. If you play games, you have to understand what games you can play with your child although children can initiate a lot of activities and games but if the parents want to be inspiring and want to give new ideas to children, they do have to do their homework. So, actually the time required is much more than the time you spend with your children. And again, that’s why, we do Xiaobu because we want to save time for parents and we want to find these good ideas and the parents can spend very, very limited time.

For example, like every video in Xiaobu is just like one minute. You just spend one minute to learn about it and the activity we select is already based on their age, and even tailor-made for your child based on your feedback. All these things. You have to first do the homework or you find someone to do the homework for you and then you concentrate and you play with your children.

So that’s the first part. And second part, I do think you have to teach your family to do this. This may be not very common in the States but in China, it’s very, very normal. I heard a number. More than 80% of children raised in cities are raised up actually by the grandparents. So, you really, really have to educate the whole family. You have to mobilize and you have to let them study as well. It’s actually very challenging because it’s difficult for the elderlies’ to really get open mind and to start a new approach. But if you really find a very effective way to make them feel, oh, this is fun. This is actually very interesting. This is new and new is good.

That’s actually very, very important. I think again, doing is much more effective than lecturing. This is true to your children and also true to your parents, to the elderlies’. So you have to teach them and let them use scientific and systematic way to engage with your child because you cannot just rely on yourself.

HANS TUNG: So obviously, you have gone through a lot and also accumulated a lot of good knowledge that works for your family and potentially for many others as well. So, how do you think about when you design your product, do you design for the parents, do you design for the grandparents as well. How do you organize your information so that’s easy for parents as yourself who are very hands on to learn about them and how do you get more people to share their experience and content on your platform too?

ASHLEY PENG: When we got started, at first, we adopted a very scientific way because we want this to be first like educationally. I still remember I discussed with professors in Stanford and also very experienced teacher from Gymboree and we discussed a framework. It is very important. That really defines the product and how you organize all the content, all the information. So that’s the first thing and also we are definitely bringing a lot of like mobile internet product design concept because we know that the users want the information quick, easy. They want to share with other people especially with their family and it has to be very easy to operate.

All these things, we combined them together. So, it’s not just a course. It’s more a platform. Xiaobu actually offers both. If we divide the parenthood content into two parts. I think it’s first the theory part where we teach the parents the general principles of doing things and then the activity part where we teach them the concrete things that you can do with your child in different areas.

So these two parts are the two pillars. We also have a free content and a paid content. When you think of the free content, normally, online education company don’t offer any free content because it’s mostly for the paid part but we do offer a lot of free content for many reasons. First, we think the free content really helps the users to understand who we are and what principles we believe and what value we can create for them.

The users who have used our free content have much higher conversion rate than the pure new users. I think that’s actually very important. We also offer actually a very broad selection in the free content part and we offer relatively limited selection of content in the pay part because we think for free part, parents are looking for inspiration. They’re looking for diversities and ideas and there are many ideas out there. We just collect all these ideas and make it easier for them to search.

But for the pay part, we really offer service. It’s not just the content. We really offer a lot of service to help them to really practice it and to really do it and when they come up with questions, we help them to improve. So it’s not just the content. Let me put it this way. If we divide the whole industry into several formats, there are community-based content where people just discuss a lot of things and they discuss the things in a very random way and the information is rich but lack of authoritative and also not very systematic.

Then, there’s like just the content approach where they offer lectures, they offer organized content but they don’t offer service and I think we are at the third stage. I think the most important part is practicing. I keep saying that. Any activities that you do with your children could be very different from your own imagination because you could think this is boring. This looks boring because you’re in a doubt.

You would think throwing things, throwing a plate away is very boring but actually for your children, it could be very, very fun. The actual doing part is very important and that’s why we use a lot of mechanisms and product? 00:28:35] functions to help the parents to actually do things. And this is also a very important feature of the Xiaobu community. I know there are many tools that help the parent to share their photos with their family.

They store their photos and I think most of the people took pictures of their children without a story. They just feel, oh, you look so cute. Let’s take a picture. But if you look back, I think this is especially true for Chinese people. If you look back, if you look at every photo and you can just say, it’s cute, cute, cute, there’s nothing left other than cuteness. But if you do activities with your child and you leave photos, it will be totally different. Every record will tell you a story. And that’s why parents, they really love to write so many words on our platform.

We used to have word limit of 300 words and then we’ll have to lift it to 500 and 1000 and then we completely released and said, no limit. You can write however long you want because some parents really want to remember what happened when they took that picture. So, I think our record is really so different from other like just photo albums. It’s not just another photo album. It’s really a diary. It’s really a full diary of how you accompany your child to grow up.

ZARA ZHANG: Obviously to start any company in China, you need to pick very large market and just to give some background, the early childhood education market in China is actually huge today. So there are 20 million new babies born in China every year. The government is actually encouraging people to have more babies now. Because we’re living in a time where we’re really starting to feel the consequences of the one child policy which has contributed to an aging society.

It’s projected that by 2040, 24% of Chinese population will be aged 65 or older. So the Chinese government has actually reversed the decade long one child policy and it’s pursuing a two child policy now. And it even started handing out subsidies and benefits to persuade people to have a second child. And this is why we at GGV felt like the early childhood education market is worth betting on.

HANS TUNG: But did you go to the Stanford China Economic Forum or Economic Summit two weekends ago.

ASHLEY PENG: I had to say no. Yeah. I had a business trip to Shanghai.

HANS TUNG: It was very difficult to get tickets, I know.

ASHLEY PENG: Yeah I know but actually I got the news and I almost got the tickets and I gave up because I had another meeting at Shanghai and I had to go.

HANS TUNG: Too bad. Yeah, I brought over that point because James Liang, chairman of Ctrip is Stanford GSB alumni. He has PhD from Stanford. And he wrote a book on the population policy that China had. He specifically talked about how having only a one child policy makes China an aged society and decrease productivity and base foundation for economic growth. So thanks to some of his efforts, now, China has a two child policy. Are you seeing the impact of that as something that’s positive for your business, do you see Chinese parents these days are more willing to have the second child or do you see they still take some time to adjust for that because the pace of life is still very fast and people are very busy.

ASHLEY PENG: I think it’s definitely good news for the industry because people started to have more kids and when they started to have more kids, they will feel… I think people with one kid are really different from people with several kids.

HANS TUNG: I know we have two and the second one is exponentially more work.

ASHLEY PENG: Yeah exactly. So they actually require much more service, much more efficient service and it’s definitely good for the industry. I cannot focus like whether Chinese people would have more or less children. But I think one thing is definitely true that people started to raise the child in more smarter way.

HANS TUNG: Yeah more enlightened, more knowledgeable.

ASHLEY PENG: Yeah exactly. I think less and less parents chasing are chasing for the so called just like school results and these days, I think more and more people have a broader view on education. This definitely helps the whole generation.

HANS TUNG: You mentioned the word knowledge. It seems like given the proliferation of mobile commerce in China. Now, 90% of transactions on e-commerce are all done over a smartphone. You can also see that WeChat Pay is extremely popular. People share money with each other and pay each other and so forth. And so given that mobile payments is so big in China, it’s 11 times the size of mobile payment market in the U.S. Do you see that people are now used to paying for knowledge as well and therefore you’re more of a user willing to pay for premium content because it’s so easy and they see the value.

ASHLEY PENG: Yeah definitely. Payment is definitely something that enabled them to pay for the knowledge, pay for the continent. I think more importantly, as I mentioned, there is just too much information there and the people started to see the value of selection and see the value of high quality content. So that’s a very good trend for us.

ZARA ZHANG: And you’ve also worked at an e-commerce company Miyabaobei before. How did that experience inform how you’re running Xiaobu today?

ASHLEY PENG: I think in Miya, I really got a chance to observe the young parents. I realized that they are really anxious and they can buy because they are anxious. There are many companies that try to leverage that anxiousness to get them to buy a lot and a lot more, more than they need. However, they trust you because you release their anxiousness, not increase their anxiousness. So, they can buy for once. They can buy under certain kind of stimulation. But eventually they understand who is really helping them.

I think trust is so important in this industry. You are dealing with parents and you really have to remember. This is something eventually that will help your company to grow big, to get into a really bigger vision.

HANS TUNG: You can be called a Haigui or a sea turtle founder who was educated. Part of education was done overseas and then came back to China to start companies after staying in the US. How do you think your experience with GSB and spending time in the U.S. help you to shape your experience as a young parent and therefore as a founder in this early childhood education category?

ASHLEY PENG: First of all, my GSB alumni founded me. So, it’s very important for fundraising.

HANS TUNG: The Stanford VC network is very, very strong.

ASHLEY PENG: Yeah. When I had just an idea, I had nothing. I had a team and I had an idea. I had no product at all. They funded me. So, it is very helpful and more importantly, I think being in Stanford is definitely life-changing experience for me. I got a chance to learn how the best education philosophy and method really works. I still remember, I was so surprised. I found even innovation can be taught in Stanford. I didn’t realize this can be taught and taught in such an efficient way. Also, you feel like this encouragement on critical thinking and analytical thinking is so different from the education I received in China.

The whole project-based approach or the conversational-based approach between the professors and the students, all these things really opened my eyes on education. So, when I’m designing courses on Xiaobu now, I tried to adopt these principles or these methods. And I think they are very new to all the Chinese parents. They were new to me and I think they are very new and very welcomed to all the parents in China.

This is really something that could change the Chinese education system. I do think if everybody understands what critical and analytical thinking is and everybody understands why we should encourage children to do projects and why we learn based on things, not based on disciplines. I think they could really help the Chinese educator and the parents.

HANS TUNG: Yeah. We can relate to what you mean. Zara got her undergrad degree from Harvard. I did mine at Stanford and the first time I heard innovation was in one of the class that I took in my junior year in values, technology and science department. I’m curious. You did your undergrad at Tsinghua in China and you then come to Stanford for MBA.

One could argue, we have the best of both worlds. You have the college alumni network from China. That’s very helpful. As well as getting an exposure to western education, the critical thinking that Stanford taught you. So, do you see that as the best combo or are you seeing that more and more families are having their kids from China come to you as earlier even for high school if not for college in the U.S. before one day they may go back to China to work. How do you think what’s the best combination or what’s the best experiences?

ASHLEY PENG: This is actually a very difficult question because I am a parent now and I have to think about my child.

HANS TUNG: That’s why I asked you this. Yes.

ASHLEY PENG: Yeah. I had a very difficult decision on whether and when I should send her abroad for studying. Yeah, for sure, I think whether is not a question. I think for her, it’s very important for her to get an international view and experience. At some stage of her life, it’s really eye opening but When is a big question. Because I do think there are some things that cannot be missing if you want to do something in China and I truly believe that the future of China is limited. There are so many opportunities for Chinese.

So if you give up that part, I would say it’s unfortunate or it’s not wise to really give up one of your biggest advantage. So, you really have to learn about all this society work and even it means that you have to follow some of the rules that you don’t fully agree.

For example, my daughter, she just studied her first grade this September.

HANS TUNG: In local school?

ASHLEY PENG: In local school. And she attended a very foreign style, international style kindergarten and she was raised up by me with all kinds of freedom and creativity. And you can imagine now like – in the first week, she was shocked and she was complaining every day. She said, the teacher doesn’t allow us to talk at all when we were walking and they don’t allow me to go to the bathroom before I get the lunch. And why should they have these rules. This is unfair and this is ridiculous. And I do have to explain that in the public school system, there are so many children. There are 800 children in their school for grade 1.

You have to understand why the teachers don’t allow you to go to the playground during class break because there are just too many people.

HANS TUNG: Too difficult to control, that’s right.

ASHLEY PENG: So she has to go through these things so that she understands how does society work. And she would not look at these things like a foreigner. She’s looking at these things as a foreigner now. She feels this is so absurd. I have to really let her experience this. So, that’s why I sent her to a public school and actually many of my friends were very surprised about my decision. But meanwhile, I do think the parents are very important. You have to teach them how to have their own opinion, keep their critical thinking, keep their free mind. At least, I will tell her, it is still right for her to have doubt on these things. So, it’s important that the parents know about things. If the parents just follow what the teacher said, then maybe there will be challenges if they come to the future work or come to the more international environment. But that’s again why the role of the parents is so important. And if you know about these, you can correct them. You can supplement a lot of the other things other than schools. So I do think that very basic education, you should still do it in China despite of all these flaws.

HANS TUNG: So elementary school, you do public school, local school?

ASHLEY PENG: Yeah.

HANS TUNG: How about junior high school and high school?

ASHLEY PENG: I don’t know yet because I think for elementary school, the parents make all the decisions and for junior high and high school, the more and more –

HANS TUNG: They become more independent.

ASHLEY PENG: Yeah. They are more independent. They can think on their own. I think the thing I will do is, I will expose her to both parts and I will let her make more decisions on her own. So I cannot foresee from now. Maybe she thinks, that’s actually in 10 years. I don’t know what things will change in 10 years. When she started to select the universities and maybe there are many changes in Chinese education system. So, difficult to say.

ZARA ZHANG: Now we’ll move to the last part of the interview which is round of quick fire questions. The first one is, who is the entrepreneur you admire the most and why?

ASHLEY PENG: Jack Ma. Honestly he is – Because I worked in Mia which is e-commerce company. So the closer you get, the more familiar you get into the industry, the more you admire how he is able to build up this whole empire.

HANS TUNG: And made e-commerce popular in China. Without him, e-commerce may take a lot more time to take off in China.

ASHLEY PENG: Yeah. And as a founder of a company and who’s managing – I am also managing like 70 people now. And I observed how Miya CEO managed a 1,000 employee company and I think the more I admire Jack that he really built a system that makes the whole thing work on its own culture and really company value not just exists on paper. It really exists in their company and in every people’s mind. I think that’s very challenging. It’s not so easy. When you are doing that, you know how difficult it is.

HANS TUNG: Yeah. Very good point.

ZARA ZHANG: What’s something you read recently that you recommend?

ASHLEY PENG: There’s a book called Turning Learning Right Side Up: Putting Education Back on Track. It’s written by Russell Ackoff and Daniel Greenberg. It’s a very interesting book on education and how the future education would look like and I think it’s a very interesting book to take a look.

HANS TUNG: Yeah. I’ve heard it’s good. My wife and I have two kids, 10 and 6 years old. It’s a book that she mentioned to me but I haven’t read it yet. So now like you recommend it, I will definitely make sure I read it.

ZARA ZHANG: What do you do for fun?

ASHLEY PENG: I play with my kid for fun.

HANS TUNG: What’s your most favorite activity that you do with your kid?

ASHLEY PENG: Pillow war.

HANS TUNG: Interesting.

ASHLEY PENG: Yeah, Pillow War. We have so many ways to play the Pillow War.

ZARA ZHANG: Pillow fight.

ASHLEY PENG: Yeah. Every time we play it, we burst into laughter and it really releases all the anxiety and all the stress and anything. It’s really fun. Everyone should try it.

HANS TUNG: Sounds good. Last question. Are you hiring and are you hiring locally or from Silicon Valley from Stanford?

ASHLEY PENG: Yes, we are always hiring. We are looking for very good talent to help us to grow our business. Especially if you are passionate in education, in helping the families and in mobile internet, so we definitely welcome all the talents to join us.

ZARA ZHANG: And now you’re looking for people with education background and tech background or both?

ASHLEY PENG: I think both.

ZARA ZHANG: So if people are interested, how can they reach you?

ASHLEY PENG: You can search us on WeChat, search the account “xiaobuqinzi and leave a message to us.

ZARA CHANG: Great. Thank you, Ashley.

ASHLEY PENG: Thank you.

HANS TUNG: Thanks for listening to this episode of 996.

ZARA ZHANG: GGV Capital is a multi-stage venture capital firm based in Silicon Valley, Shanghai and Beijing. We have been partnering with leading technology entrepreneurs for the past 18 years from seed to pre-IPO with $3.8 billion in capital under management across eight funds. GGV invests in globally minded entrepreneurs in consumer, new retail, social Internet, enterprise cloud and frontier tech.

GGV has invested in over 290 companies with more than 45 companies valued at over $1 billion.

Portfolio companies include Airbnb, Alibaba, Ctrip, Didi Chuxing, Domo, Hashicorp, Hellobike, Houzz, Keep, Slack, Square, Toutiao, Wish, Xiaohongshu, YY and others. Find out more at ggvc.com.

We also highly recommend joining our listeners WeChat group and Slack channel, where we regularly share insights, events and job opportunities related to tech in China. Join these groups at 996.ggvc.com/community.

HANS TUNG: I want to tell you about our sister podcast: Founder Real Talk. It is a biweekly show that gets real with founders about the challenges that founders and startup executives face and also how they have grown from tough experience. This show is hosted by my fellow managing partner at GGV Capital, Glenn Solomon out of our Menlo Park office, produced by our colleague Fischer Yan out of San Francisco office.

ZARA ZHANG: Past episodes of the show include Stewart Butterfield from Slack, Sarah Friar from Square and Nate Blecharczyk from Airbnb.

You can take a listen by searching “Founder Real Talk” in any podcast app.

HANS TUNG: If you have any feedback on this podcast, or would like to recommend a guest, please email us at 996@ggvc.com.

Episode 23: David Li of YY on Pioneering Live Streaming in China

GGV Capital’s Hans Tung and Zara Zhang interview David Li (李学凌), the founder and CEO of YY, one of the first live streaming platforms in China. YY went public on the NASDAQ in 2012 and is now a multi-billion dollar company. YY also owns Huya, the leading game streaming platform in China which went public on the NYSE this May. David is also the co-founder and CEO of the Singapore-based BIGO, which is the leading live streaming platform in Southeast Asia. Before founding YY in 2005, David served as the editor in chief at NetEase. David received a bachelor’s degree in philosophy from Renmin University of China in 1997.

GGV is lucky to count YY as a portfolio company, and our managing partner Jenny Lee was on the board of YY for seven years.

David discussed his evolution from a philosophy major to a journalist to an Internet entrepreneur, what it’s like to take a Chinese company public in 2012, and how YY came to spearhead innovative features of modern live-streaming products such as in-app tipping and virtual gifts.

Transcript

HANS TUNG: Hi there. Welcome to the 996 Podcast, brought to you by GGV Capital. On this show, we interview movers and shakers of China’s tech industry, as well as tech leaders who have a U.S.-China cross-border perspective. My name’s Hans Tung. I am the managing partner at GGV Capital, and have been working at startups and investing in them in both the U.S. and China for the past 20 years.

ZARA ZHANG: My name is Zara Zhang. I’m the investment analyst at GGV Capital and a former journalist. Why is this show called 996? 9-9-6 is the work schedule that many Chinese founders have organically adopted. That is, 9 a.m. to 9 p.m., six days a week.

HANS TUNG: To us, 996 captures the intensity, drive, and speed of Chinese Internet companies, many of which are moving faster than even their American counterparts.

ZARA ZHANG: On the show today, we have David Li, or Li Xueling in Chinese, who is the founder and CEO of YY, one of the first livestreaming platforms in China that went public on the Nasdaq in 2012 and is now a multi-billion dollar company. YY also owns Huya 虎牙, the leading game-streaming platform in China, which went public on NYSE this May. He’s also the co-founder and CEO of the Singapore-based BIGO, which is the leading livestream platform in Southeast Asia. Before founding YY in 2005, David served as editor in chief at NetEase 网易and, before that, founded a website providing a copyright trading platform for journalists and photographers. David received a BA in Philosophy from the Renmin University of China in 1997.

HANS TUNG: GGV is lucky to count YY as a portfolio company and our managing partner, Jenny Lee, was on the board of YY for seven years.

Hi, Xueling, David. Welcome to the show.

DAVID LI: Thank you.

HANS TUNG: You and I have known each other for more than 10 years. The first time I met you was in March 2008 when I came to visit to talk to you about Duowan 多玩 and, through you, actually met Lei Jun 雷军. I brought it up because of this past 10-year period, many things have changed in China and for you, personally. So, as you look back to the last 10 years, what are the things that stuck out to you as a turning point in your life and also in the evolution of Duowan多玩/YY as a company?

DAVID LI: Yeah, I think the most important turning point was when YY was established. Before YY, we were a web-based company.

HANS TUNG: Yes, a web-based and media company, gaming media.

DAVID LI: Yeah. Following the launch of YY, we have changed into a software-based company and we became a social platform and community business. It’s a totally different kind of business. I was thinking very few companies changed from a website company into a software company at that time.

HANS TUNG: As a media company there’s not much technology involved. You’re not a software technology company. As a media company, there’s more of a ceiling of how big you could be. Many journalists and media companies worldwide are trying to look for answers on how to grow. How did you decide to that you would become a technology-driven software platform and build social networking in the form of YY? How did you come to that decision and how did you make it work?

DAVID LI: Because I did not confine myself to a certain category. Before I established YY, I was a journalist, but after three years I abandoned being a journalist and never wrote articles since then, and I think I cannot write articles for the rest of my life. So I quit that job, but at that time I thought I could be a good editor. I do not write articles myself, but instead could rewrite other people’s articles and could live longer.

HANS TUNG: Right, live longer.

DAVID LI: Live longer, yes. But, after that, when I joined the internet company, I began to think I would never work as an editor again.

HANS TUNG: Sohu 搜狐 and NetEase 网易?

DAVID LI: And Sohu 搜狐. So I changed my job description, and after that I never edited any article again.

HANS TUNG: And you continued to evolve and grow.

DAVID LI: I continued to change myself, yes. Each time I abandoned a scene, I did so very professionally.

HANS TUNG: Yeah, you already did well, but you reinvent yourself.

DAVID LI: It was very difficult, yes. So, when I left NetEase 网易, I worked on launching Duowan 多玩. I think I will never touch the news business again, because at NetEase 网易 I was in charge of the portal, but the main part of the portal was news, but when we started the Duowan 多玩 business we would do nothing related to news. We’re related to entertainment.

When Duowan 多玩 grew and we hit a ceiling, and we thought of changing it to a different kind of company at that time. When we decided to step into the software area, we had no engineer. All my engineers at the company write Java and we have no one who understands C++, but even in this situation we decided to change the direction of our company to a brand-new area. At that time we separated our money. We dedicated about 10 percent of the money to the website business.

HANS TUNG: And 90 percent to the new business.

DAVID LI: Yes, 90 percent of the money into the new business. At the time we would tell anyone, a dying wish would not help him.

HANS TUNG: How did you find new engineers? How did you recruit new engineers?

DAVID LI: We recruit brand new engineers to start up the business. I was the only person who moved from the old business to the new business. I charted the new business and recruited people from there on and started the business, but I was very fortunate to find a very good partner.

HANS TUNG: Who was that?

DAVID LI: His name is Chen Zhou 陈洲 and, because at that time he had been working five years for NetEase 网易 and to write the software named Paopao 泡泡. Paopao 泡泡was the second-largest instant messenger in China.

HANS TUNG: After QQ.

DAVID LI: After QQ, yes, but the quantities for each are very different, but still the second-largest one, and their peak concurrent users was one million back then.

HANS TUNG: Back then in 2007, around then.

DAVID LI: It’s not a small member. The entire structure is working very well.

HANS TUNG: And Paopao 泡泡 was based in Guangzhou or Canton, the same city you are in. that’s also very fortunate.

DAVID LI: Yes. So, when I asked Chen Zhou 陈洲 to join us, at that time he had nothing to do, so I was lucky and we joined together to start up the business and we recruited highly talented people at the time. We was very lucky because we knew nothing about that area. After 10 years, this deal built the best people in that area.

ZARA ZHANG: How do you transform yourself from a writer or an editor – because you also did philosophy in college, so very much in the humanities side – into a successful internet entrepreneur and leading a tech company?

DAVID LI: I think because I studied philosophy in university – yes, the best thing in studying philosophy is that you cannot find a job and on my first day that I joined at university they told me, ‘You can’t find a job after graduation, so you must help yourself to find some way to survive.’

HANS TUNG: Right, now I know why you’re so argumentative and love to debate. My wife is like that, too – she knows I love her very much.

DAVID LI: You want to survive and living on a philosophy degree is impossible. Philosophy is what we study, but we work for a living. We should learn something very different.

ZARA ZHANG: So how did you land your first job?

DAVID LI: My first job was an accident.

HANS TUNG: Despite being a philosophy major.

DAVID LI: Yes, it was really an accident. At that time I interned at a newspaper and when I joined as an intern they told me they wouldn’t give me a job opportunity, but just an internship.

HANS TUNG: Giving you a chance, yes.

DAVID LI: But when I was working in that internship, I met some people from other newspapers. We talked a lot and she told me, “We need an article about Kingsoft 金山. Do you want to write an article about Kingsoft 金山?”

HANS TUNG: And that’s how you met Lei Jun 雷军?

DAVID LI: Yes, I started a catalogue. Yes, I wrote a 7,000-word article.

ZARA ZHANG: In-depth feature.

DAVID LI: Yeah, it was wholly published. As you know, it’s very difficult for a newspaper to have enough space for 7,000-word articles. So, I wrote an article and it got published. I got 300.

ZARA ZHANG: RMB.

HANS TUNG: RMB. It was paid.

DAVID LI: Yes, they paid for that, but following that there was no job offer from that newspaper. We all graduated in July, as you know, in China, but it was already May and everybody would get job offers and I didn’t have one. One day, the editor of the newspaper called my friend, because I didn’t have a phone. I didn’t have a pager, yeah.

HANS TUNG: Pager.

DAVID LI: One of my roommates had a pager. He got the message that this was a job opportunity for me because someone quit their job.

HANS TUNG: Right, that was The Computer Times? What was the name of the newspaper again?

DAVID LI: This newspaper is China News Daily.

HANS TUNG: China News Daily, got it.

DAVID LI: But I was very lucky. It’s a very famous newspaper and everybody in the university read that newspaper.

HANS TUNG: How did the chief editor there remember you?

DAVID LI: Because of that article.

HANS TUNG: The 7,000-word article that you got paid $40 U.S. for on Kingsoft 金山?

DAVID LI: Yes.

ZARA ZHANG: How long did that take you to write?

DAVID LI: So, I got the job.

HANS TUNG: How long did it take you to write the article?

DAVID LI: Maybe a week. I took a week to write that.

ZARA ZHANG: That’s fast.

HANS TUNG: Very fast.

ZARA ZHANG: So, what made you decide it was time to leave journalism and what specifically attracted you about the internet?

DAVID LI: Because I love technology very much. In university since I had no job offers, I needed to find some capability to live on it. When I was in university, I helped with computers. At that time all computers were very expensive, so all the computers had a special room. You had to buy a ticket, an hour’s ticket to use the computer.

HANS TUNG: Time share. What year was this?

DAVID LI: It was 1993, but at that time, as you know, there were no computers services like with today’s internet bars. You restarted it automatically when a student would leave it, but at that time there were no such functions and many students were trying to do things on the computer, so many of the computers crashed.

HANS TUNG: Too many documents. Too many files. Too many things.

DAVID LI: Yes. So found a chance in that. I fixed it for the teachers, so I got many, many free hours to use the computer and from that time I learned lots of computer technology.

HANS TUNG: What led you to join Sohu 搜狐, your first internet job?

DAVID LI: I joined Sohu 搜狐 for only four months.

HANS TUNG: Only four months? Okay, and then from there to NetEase 网易?

DAVID LI: Yes.

HANS TUNG: Why?

DAVID LI: Because when I joined Sohu 搜狐 , they gave me a job to be in charge of the IT channel.

HANS TUNG: IT channel for news.

DAVID LI: Yes, the IT channel for news, but I found that I had a very talented assistant already in that channel, so I promoted him to chief editor.

HANS TUNG: For the IT channel.

DAVID LI: Yes, for the IT channel. Every month I would be the first.

HANS TUNG: The IT channel for Sohu News was the fastest growing among all the channels at Sohu News.

DAVID LI: Yes, among all the channels, so I was very lucky and I didn’t go to work every day.

HANS TUNG: Then NetEase 网易 realized you were very good, so they headhunted you from Sohu 搜狐.

DAVID LI: So I’d stay at home and play games every day, but doing very well at my job. My boss find that it’s very strange in that I didn’t go to office very often and we had SARS in the country.

HANS TUNG: SARS was in 2003?

DAVID LI: Yes, at that time. Because of SARS, I’d stay at home working at home and did not go to the office maybe for a month. So they asked me, “Well, what do you want to do? Because everybody is working hard at the office.” I said, “I found a very good person to do that.”

HANS TUNG: So, how did NetEase 网易 track you down?

DAVID LI: So, when my boss asked me, “What do you want to do?” I said, “Because I’m already the first one to make the channel grow, you have 12 channels. Fire me here or give me more jobs.”

HANS TUNG: Give more channels to manage.

DAVID LI: They said, “Okay, I will give you a new channel. This channel may be the gaming channel.”

HANS TUNG: Sohu 搜狐 gave you the gaming channel.

DAVID LI: Yes.

HANS TUNG: So it was before they bought 17173 or they already had 17173?

DAVID LI: Maybe at the same time. They wanted to give 17173 to me to manage. I wanted to diagnose the market and so I interviewed many gaming people.

HANS TUNG: Including NetEase 网易?

DAVID LI: The last one was Ding Lei 丁磊.

HANS TUNG: Ding Lei 丁磊, the CEO and founder of NetEase 网易.

DAVID LI: Because NetEase 网易 at the time was doing very well in the gaming industry. So I flew to Guangzhou to talk with Ding Lei 丁磊 about how they could give me business and how Sohu 搜狐 could provide better services for NetEase 网易, but after maybe three or four meetings, Ding Lei says, “Do you want to join NetEase 网易? I will give all the portal control to you.”

HANS TUNG: The entire portal, because he was focused on gaming.

DAVID LI: Everything.

HANS TUNG: He was following the gaming, so he wanted you to take over the whole channels.

DAVID LI: I said, “Of course. I have enough time.”

HANS TUNG: You went to college in Beijing and you worked as a journalist for probably five or six years as a journalist in Beijing. Then you went to Sohu 搜狐 for four months. You just picked up your bags and moved to Guangzhou just like that?

DAVID LI: Yes, and it was just a box, one box.

HANS TUNG: You liked Ding Lei 丁磊. You liked the challenge of managing all the channels.

DAVID LI: I liked the challenge.

HANS TUNG: You had never lived in Guangzhou before, but that didn’t stop you. You just got up and went there.

DAVID LI: Yes, at that time I had a car in Beijing, do you know?

HANS TUNG: That was rare.

DAVID LI: Yes, it’s very rare.

HANS TUNG: Yes, high status in Beijing.

DAVID LI: I have a Citroën.

HANS TUNG: The car, that’s right.

DAVID LI: So I took one box with me to fly to Guangzhou to get a new job.

HANS TUNG: In Beijing I remember there were four young chief editors who were all quite famous at that point in time, Jingcheng Sigongzi 京城四公子. Who are the other three of again? You were one of them.

DAVID LI: Journalists? Four journalists.

HANS TUNG: Okay, fine, four journalists. Who were the other three, again?

DAVID LI: Hu Yanping 胡延平, Liu Ren 刘韧, Zou Jianyu 邹剑宇 and me.

HANS TUNG: Got it. So you gave up quite a bit to leave Beijing, sort of the center of the universe in China in internet, certainly for news, going out to Guangzhou, and you’ve been there ever since.

DAVID LI: Because I had a very big opportunity there, so I even forgot to talk about the salary.

HANS TUNG: You just wanted the responsibility and a chance to do stuff.

DAVID LI: So after I joined NetEase 网易, I asked Ding Lei 丁磊 , “What’s my salary?” He says, “It’s too late, so this year you do not have the opportunity to get options, so you just get a cash salary only.” So I asked, “How much cash?” He said, “It’s the same as your old one.”

HANS TUNG: More responsibility, but the same pay. Got it.

DAVID LI: Actually at that time I had already founded a business on my own from 2000, so in 2003 I already had a total payment of about RMB 25,000 per month, but that has only given 15,000, so I’d lost 10,000.

HANS TUNG: When you started working at NetEase 网易, how long did you work there? What were your lessons and takeaways from that experience?

DAVID LI: I worked for NetEase 网易 for–?

HANS TUNG: Should be about three years, because you were at Sohu 搜狐 in 2003.

DAVID LI: One-and-a-half years.

HANS TUNG: Then you joined NetEase 网易 in the same year.

DAVID LI: I only worked at NetEase 网易 for one-and-a-half years.

HANS TUNG: So you left there in 2005.

DAVID LI: 2005, yes. In July 2003 I joined NetEase and left in May 2005.

HANS TUNG: July 2003 and then May 2005, so almost 20 months, 22 months.

ZARA ZHANG: Were you a gamer yourself?

DAVID LI: Yes, I played very often, because I had enough time.

HANS TUNG: Starting at Sohu 搜狐 and actually even before that as a journalist. What made you leave NetEase 网易? Because you wanted your own startup?

DAVID LI: That was not why I left NetEase 网易. When I was working at NetEase 网易 my boss gave me a KPI, 30 percent growth per year. At that time I did not know what was meant by “KPI”, because I’d never worked for an English-based company. So my answer was “I do not know. I cannot complete that KPI, but I will work very hard to do that,” yes. After a year I completed a growth about 16 times, one-six times of the traffic growth.

HANS TUNG: 16 times traffic growth, not 30 percent times 16, but 16 times.

DAVID LI: Yes.

HANS TUNG: That’s impressive.

DAVID LI: I didn’t know the KPI.

HANS TUNG: How did you do it?

DAVID LI: At that time I think it was very simple. Because Sina 新浪 is the leading English news portal in China, but they are very serious news. So we repositioned ourselves into a news media more concerned with your daily life.

HANS TUNG: Daily life. Yeah. It fits your personality. You’re fun, outgoing, and you love to chat about things, so I can see that reflects your personality, yes.

DAVID LI: And at that I decided and made a decision that comments are a part of news.

HANS TUNG: Comments from the users.

DAVID LI: Online users’ comments is a part of news, not a different part of news, so we combined all the comments and the news together for the first one of the portal.

ZARA ZHANG: UGC.

DAVID LI: Even today it’s still a very…

HANS TUNG: Yes, my wife would use the NetEase 网易 user app as well. People love reading the comments and the comments actually are very well-written, high quality, highest quality.

DAVID LI: That was begun at that time, yes.

ZARA ZHANG: When you start YY, it was called Duowan 多玩, right? And it was an online game web portal for gamers or a communication and community tool for gamers, sort of like Discord in the U.S. So why did you pick this particular market? Why the gamers?

DAVID LI: Because at that time I thought we could come up with Sina 新浪, but it’s very difficult to exceed Sina新浪. I thought that if we wanted to be a bigger media than Sina新浪 for the next five years, we had to do something different from Sina新浪. At that time, because Sina新浪 was already focused on media itself, I thought, “No, I will not focus on media itself. I will focus on the information business.”

So, I planned to invest in four channels for gaming, real estate, automobile and information technology. So I wanted to invest in four different channels and make this channel an independent brand, and we provided services for the readers, not just news for the readers only, but the company did not allow or I didn’t have the chance to persuade the company to do that.

I wanted to tell them I could do it with my own money, not only because the company had invested money in this business, but I wanted to control that business. Even if there was no money, I could use my own money to invest in that business. After that, I left the company to start up this business.

ZARA ZHANG: Why gamers? Why did you choose that market?

DAVID LI: Because that was one of the four choices. I didn’t have enough money to do all those four things at the same time, so I chose one.

HANS TUNG: What were the four choices?

DAVID LI: Gaming, real estate, auto and IT.

HANS TUNG: The other three, real estate, IT and auto, there are a lot of people doing it. Your personality fits gaming very well.

DAVID LI: Lei Jun 雷军 recommended to do gaming first.

HANS TUNG: He’s at Kingsoft 金山, so he knows his gaming well.

DAVID LI: Yes, so we would do gaming first.

HANS TUNG: Yeah, he was also your angel investor.

DAVID LI: Yes.

HANS TUNG: Did you guys meet each other at the Zhanzhang Dahui 站长大会?

DAVID LI: We knew Lei Jun 雷军 quite a while ago.

HANS TUNG: Because you interviewed him for Kingsoft, but it was after the Zhanzhang Dahui 站长大会 — the website master conference that you guys decided to work together to do this.

DAVID LI: Yes.

HANS TUNG: It was 2005.

DAVID LI: 2005, yes.

ZARA ZHANG: Why did you call the company YY? Because the Chinese name is Huanju Shidai 欢聚时代, which means “happy times.”

DAVID LI: YY is from the Chinese acronym as Yuyin 语音.

HANS TUNG: Okay, as in voice, messaging.

DAVID LI: We use voice, language, yes.

ZARA ZHANG: So it started out as a voice chat tool.

DAVID LI: Voice chat. We began with voice chat, yes.

ZARA ZHANG: And how did the product evolve over time?

DAVID LI: I think after that it was automatic, because at that time all the people in my office were playing games after work and we ended work at 9:00 p.m. and we began to play games together until midnight, so we’d talk to each other and playing games together. The whole company would be playing games together, so we found that some people were not in the office, it was very difficult to communicate with them.

HANS TUNG: Different locations.

DAVID LI: Yes, we found that it had a huge demand. It was also from the idea initially that we did not want to only provide information, but also wanted provide services, so we found that there was a very huge demand for that, so we changed it from the news media or media into a service provider company.

HANS TUNG: I remember there were other people trying to do this, including iSpeak, but you out-executed everyone else and you were not a first mover, but you ended up being the most dominant.

DAVID LI: We moved very, very early, but we did not have a technical, good engineer, so we found other people were growing very fast and we decided to move 90 percent of our money into that area.

HANS TUNG: Be serious about it.

DAVID LI: Yes.

ZARA ZHANG: So how did you think about monetization if you were a consumer-facing company in the beginning?

HANS TUNG: Back then a lot of people were worried that there was not enough internet advertising dollars in China, as you know. At the West Lake Sword Summit (西湖论剑) that Alibaba started in 2005, everybody was crying that there’s not enough advertising dollars, but through e-commerce and then virtual items, things changed very quickly. What is your experience with virtual items, virtual goods?

DAVID LI: It’s because I’m a journalist and I write articles, I did articles and media, I hate advertisements because advertisements do two things. The first is it disturbs the user’s experience and the second is they want to change our editorial principles. I think those two things are too bad and I know in the U.S. it’s called the firewall between the admin department and editorial department.

HANS TUNG: In each department, there’s a firewall.

DAVID LI: But I think I didn’t want to do that kind of business. You must cut yourself into two parts and fight each other. I think it’s not a good business or business model. I wanted to change the media business model, so at that time I said I would never sell any advertisement.

HANS TUNG: So how did you make virtual good work for voice messaging? It’s hard for people in the West to imagen how that could work.

DAVID LI: I did not want to build a business model like that because we had a lot of traffic, so we operated gaming by ourselves. That was my plan. I think many media managers that repeat a very old business model like the newspaper with advertisements, and magazines with advertisements and portals with advertisements.

HANS TUNG: Advertising was out, but how did you make virtual goods work for you as a monetizing tool?

DAVID LI: At that time I didn’t know if it would work or not work. I didn’t even know that here was a business model with virtual gifts, but I knew exactly a business model gaming platform. I had a gaming platform and I could run gaming myself. So I got enough revenue from gaming. Actually, we got a huge revenue gaming at that time.

HANS TUNG: You just published new games and some of the games were time-based and you’d time fees for that or some of it within the games would have virtual items to supply weapons and so forth.

DAVID LI: Yes, we ran the gaming business ourselves, so we did not sell gaming advertisements to other companies. If you want to get money from our platform, you give your game to us.

HANS TUNG: To operate?

DAVID LI: We’ll operate the game. As you know, many media managers do not want to touch the real business.

HANS TUNG: The operations of the games.

DAVID LI: Yes, they think, “Oh, I’m a newspaper man. I should not do things, operations, such heavy operations,” but I wanted to do that.

HANS TUNG: You don’t care, yes.

DAVID LI: Yes, I wanted to do that, because I’ve seen the volume of traffic. If I do advertisements, I think maybe I can get $100, but if I run the gaming myself I will get 500 in revenues, five times.

HANS TUNG: Five times more.

DAVID LI: Actually, it’s five times.

HANS TUNG: So when you first start monetizing, you’re doing it from operating your own games or other people’s games. Then how did you decide that virtual goods like gifting could be monetized, too, and how big did I get?

DAVID LI: We were never thinking about that, because at that time many people would sing songs on the YY platform.

HANS TUNG: Yes, not just games anymore. They were singing songs, too.

DAVID LI: Yes, they would sing songs, too. So we thought, ‘Could we rank a singer? We do not know, because people always find the better singer.’

HANS TUNG: Right, they always hear from the other singers.

DAVID LI: We had maybe thousands of singers there. How could we rank those singers? So we provided free voting rights for every user.

HANS TUNG: To vote?

DAVID LI: Voting rights, one vote per month, so in one month you’d only get one vote, so you could just vote for a singer. It’s free, but you can only get one. After maybe two or three months, we found many people would sell those votes.

HANS TUNG: To someone else for money?

DAVID LI: No, in Taobao 淘宝.

HANS TUNG: In Taobao 淘宝? Okay.

DAVID LI: Yes, and the Taobao 淘宝price at that time was RMB 2.5.

HANS TUNG: RMB 2.5.

DAVID LI: Per vote. And it was very bad for our platform because there were many viruses or hacking attempts to try and steal the user accounts. They were trying to use many ways to get to the user accounts.

HANS TUNG: To get the votes?

DAVID LI: To get the votes, yes, and so we wanted to compete with the hackers.

HANS TUNG: So the black market.

DAVID LI: So we decided to sell the vote.

HANS TUNG: On your own platform?

DAVID LI: On our own platform, yes, and we dropped the money to RMB 1, so while they were selling for RMB 2.5, we sold for RMB 1.

HANS TUNG: And it’s safe.

DAVID LI: And it was a safe way, yes. That year we had a budget for RMB 4 million in revenue from the sale of the votes.

HANS TUNG: This was in 2009 or 2010?

DAVID LI: 2010, yes, but actually we got 40 million.

HANS TUNG: 40 million, 10 times, from just selling votes.

DAVID LI: Just selling votes.

HANS TUNG: Was there a limit to how many votes people could buy per person?

DAVID LI: No limit, because if you limited it, they would’ve stolen others’ votes.

HANS TUNG: It would tempt them to steal. That’s true. Hack the accounts. What was the most amount of votes sold that year in 2010?

DAVID LI: It was 40 million.

HANS TUNG: That was the total, but per user, per buyer?

DAVID LI: We don’t have accounts for that.

HANS TUNG: If you had to guess, what do you remember?

DAVID LI: At that time we did not have an account for that because we just wanted to make the hackers leave our platform. We did not think it’s a very big revenue.

HANS TUNG: Big business, yes.

DAVID LI: Because we working very hard on the operation of games just like Tencent does today.

HANS TUNG: Then how did you move from votes to gifting virtual goods like – what am I talking about?

ZARA ZHANG: Flowers, race cars.

HANS TUNG: Flowers, race cars.

DAVID LI: It was a natural growth, yes. Because people would say, “It’s a vote. I vote. I want to see a thing where I see I’ve already voted,” so we made an icon. If you voted, that icon would appear. If you voted twice, the icon would appear twice. That was the beginning.

HANS TUNG: But what’s the most expensive icon that that user ever bought and gifted?

DAVID LI: I forgot.

HANS TUNG: Guess.

DAVID LI: I don’t care.

HANS TUNG: It’s very interesting. I want people to know how big it is.

ZARA ZHANG: How much is the race car?

DAVID LI: I do not know.

HANS TUNG: I’ve heard a million RMB before.

DAVID LI: I do not design that business.

HANS TUNG: I’ve heard as much as a million RMB of virtual gifts bought and gifted. RMB 1 million is what I’ve heard.

DAVID LI: I don’t know. I don’t care about revenue.

ZARA ZHANG: In 2017, YY derived 92 percent of its revenue from livestreaming. Could you talk about your view on the livestreaming market both in China and in the U.S. is, and how it developed differently?

DAVID LI: I think the livestreaming business will be very huge in the future because, as you know, no TV can interact with a single person so that its audience, its viewers can get involved in a program or event. That’s very important. That’s the difference between the computer and TV.

ZARA ZHANG: Yes, engage.

DAVID LI: Still today it’s growing very fast, yes.

ZARA ZHANG: Why do you think the virtual goods model really took off in China before it did in the U.S.?

DAVID LI: I don’t know why that would take off. I just gave a free vote. I don’t know, but it’s a huge business revenue mode, yes.

ZARA ZHANG: So how did you first meet Jenny?

DAVID LI: Jun Lei 雷军 introduced Jenny to me.

ZARA ZHANG: And what did you talk about when you first met?

DAVID LI: At that time our revenue wasn’t growing fast enough. Our user base was growing very fast and we believed that if we operated the games and provide the games ourselves, we would get revenue finally, yes, very simple.

HANS TUNG: It’s a very interesting. Jenny invested in YY and UC Web; I invested in Xiaomi and Vancl 凡客, so together we have the entire portfolio of the best of Lei Jun’s companies and obviously Morningstar has all of them. It’s a very interesting time to see all businesses grow and expand.

ZARA ZHANG: As we all know, any content or media company in China has to adhere to Chinese government regulations and how much does YY spend on regulating its content?

DAVID LI: I think, in the early stage, we were very working very hard to try to manage the content, but till now I think it has been very simple, because we have technology growing very fast and we’re doing very few things manually and just leave the machine to do that for us, yes.

ZARA ZHANG: When YY went public in New York in 2012, there had been a decrease in Chinese IPOs in the U.S., so in 2010 there were 41 Chinese IPOs in the U.S. and in 2011 there were 12, and in 2012 before YY went public there has been only one, which was VIPshop. So why did you choose to go public at this particular time?

DAVID LI: I think as a good CEO you should not focus on revenue; you should not focus on the market price. I think when we built this company, we just wanted to provide information and services. We wanted to provide information and services. We did not want to make money too much. We did not focus on making big money. As you know, we did not want to make money from virtual gifts. We just wanted to provide a free vote. So I think the most important thing for me is to decide what we should be after maybe five or 10 years, and then come back to today and see what steps, the first steps I should take to get to that global target.

HANS TUNG: You’re one of the very few China that can start multiple companies and then have them be listed. You started YY and listed that. You spun off Huya 虎牙and listed that. Both of them are at about $8 billion in market cap, those two companies, and you also spun off BIGO for the Southeast Asian market. YY and then Huya 虎牙 were for China. Kind of explain your strategy of why these different business? Why not have all of them in just one company and what is your thoughts on geographic expansion beyond China?

DAVID LI: I think any good company should not spin off many businesses. It will crowd business into a very big company to get more advantage, but we spun off BIGO and Huya because we met some problems. As for Huya 虎牙, because we needed the coverage with Tencent 腾讯. As you know, YY has competed with Tencent for over 10 years, so it’s very difficult for us to cover it with Tencent, but Huya is different. So we found a way to spin off Huya and, like Huya, to have a coverage with Tencent 腾讯. It’s very important for the competition.

HANS TUNG: How is the Huya 虎牙 business different from the YY business?

DAVID LI: Huya’s business is highly dependent upon the gaming content. If the gaming company does not cover it with us, it becomes very difficult to do this with us.

HANS TUNG: For people who don’t know what Huya 虎牙 is, can you explain what Huya 虎牙 does?

DAVID LI: I think the initial idea of Huya 虎牙is gaming content of the livestreaming area, but after it grows again we found that Huya 虎牙 will be a total solution for esports, online esports. So when we founded this, we found that it’s a very huge market.

HANS TUNG: Esports are all game-related and Tencent, the largest game publisher in China, so you had to figure out all that.

DAVID LI: I had an idea that wasn’t sports-selected media. It was media-selected sports. That means if you have a newspaper, maybe you can support some kind of sports. If you have a television channel, you can maybe support sports.

HANS TUNG: Get rights to broadcast on the sports.

DAVID LI: Yes, you can support soccer. You can support basketball.

HANS TUNG: Basketball or football.

DAVID LI: But if you a newspaper, maybe you can support Go (the chess game). So the different media make a difference in popular sports.

HANS TUNG: Online gaming.

DAVID LI: I think in the internet era, online gaming or online broadcasting will make different kind of sports popular. So, after maybe five years, we will already see the live broadcasting of gaming become a part of gaming. You cannot separate the two things anymore. Gaming and gaming broadcasting will be combined together and become a huge business.

HANS TUNG: People don’t just play games themselves anymore. They want to watch other people who are very good at playing games to play games online and watch it from afar.

DAVID LI: We see this trend and Tencent 腾讯also sees this trend.

HANS TUNG: Right, so that’s the basis for guys to collaborate.

DAVID LI: If we don’t collaborate with Tencent 腾讯, we will fight with Tencent 腾讯, but we think we’ll only get the live gaming broadcasting. We don’t have the time to build up so many games. Tencent 腾讯 have games. They also need game broadcasting to combine with that business.

HANS TUNG: Yes, make it even bigger.

DAVID LI: Yes, so some people say that Tencent 腾讯 needs a gaming broadcasting company to combine with it – I don’t think so. They need all the gaming companies to combine together.

HANS TUNG: Right, so Tencent 腾讯 is an investor in Huya. It’s also an investor in Douyu as well. Douyu has a similar business model as Huya 虎牙. Both have attempted the Twitch model. Is the market big enough to have both Douyu 斗鱼 and Huya 虎牙 and others do well?

DAVID LI: No, I think the final situation is Tencent games will combine with Douyu 斗鱼and Huya 虎牙together and form one whole.

HANS TUNG: As one big company?

DAVID LI: One big company. This company will also make games and game broadcasting just like you own NBA teams and own ESPN. You make all those things together as a very powerful ecosystem.

HANS TUNG: You’ll all play across all Asia. Interesting.

DAVID LI: Yes, that’s the future.

HANS TUNG: Does Tencent know that that’s how you feel?

DAVID LI: They know that exactly.

HANS TUNG: Right, so interesting time I had.

ZARA ZHANG: And just to give some context, in Q4, 2017, Huya had 610,000 monthly active streamers, which was more than 550,000 that Twitch had, and China is, by far, the largest gaming and esports market in the world with approximately over 200 million gamers in 2017 and the market is expected to reach 537 million gamers by 2022, and the market brought in over $100 million in revenue last year. So, going forward, do you think the esports market will grow faster in China than elsewhere in the world and why?

DAVID LI: If you were to look at a single game company, it will ever exceed the skill of the gaming platform, just like a single game cannot be bigger than Steam, but I think after Steam, the gaming broadcasting platform is the exactly the next generation of Steam.

HANS TUNG: That’s Twitch and possibly even Discord.

DAVID LI: Yes, Twitch, Discord and the gaming, they will combine together, finally, to build a very compact and powerful entertainment company.

HANS TUNG: So internationalization or global expansion – what was the motivation behind spinning off BIGO?

DAVID LI: Yes, we spun off BIGO because at that time we wanted to provide a free internet call service, but this was free internet calls and we lost too much money.

HANS TUNG: Okay, I remember.

DAVID LI: I lost $50 million in 10 months.

HANS TUNG: It was a lot.

DAVID LI: It was huge, I remember. So before we began to burn money on that business, we already knew that that business is too heavily dependent upon money. So we’d spin it off and get money from an outside investor, and then try to bring money into that business.

HANS TUNG: Is it still burning a lot of money today?

DAVID LI: No, we stopped after we burned $50 million. We found maybe it’s endless burning.

HANS TUNG: So what is it doing now?

DAVID LI: We closed that business.

HANS TUNG: BIGO is closed?

DAVID LI: No. The free internet call business in BIGO is closed.

HANS TUNG: So what’s the core business in BIGO today?

DAVID LI: It’s growing very, very fast. As you know, in four months we grew from zero to 10 million users.

HANS TUNG: Okay, this is free internet call.

ZARA ZHANG: Livestreaming, right?

DAVID LI: Free internet calls.

HANS TUNG: So what is it doing today now that you don’t have free internet calls?

DAVID LI: Because we probably invite too fast. We needed two things. The first thing is we do not have too much money to spend on an item, because it’s a startup company and we do not have time to build a monetization method in that business, but we’re burning into it and accelerating, as you know, in four months from zero to 10 million daily active users.

HANS TUNG: It’s amazing.

DAVID LI: It’s a historical record.

HANS TUNG: Yes, it’s amazing. So what does BIGO do today if free internet calls is not offered anymore? What is it doing today?

DAVID LI: After that business we closed that project, yes, we began to wonder we should do, because we still have maybe 30 or 40 million in cash in hand. So we changed it into an overseas livestreaming business.

ZARA ZHANG: And it’s currently one of the top 10 apps in the social networking category on iOS, not just in Southeast Asian countries, but also Saudi Arabia, Pakistan and New Zealand.

DAVID LI: Yes, because we’re very familiar with that business, yes.

ZARA ZHANG: But were you familiar with those markets?

DAVID LI: No.

ZARA ZHANG: So, how did you go about expanding this?

DAVID LI: I think for an internet company, if you make business too much about culture, you cannot expand it to the world very fast.

HANS TUNG: That’s right, yeah.

DAVID LI: So, we do not want to touch anything related to culture. We just do things related to tools, so we’re working very hard to provide tools.

HANS TUNG: What are the most popular forms of content or categories of content on BIGO, on BIGO LIVE right now?

DAVID LI: It’s also very much like YY, singing, talking, talk shows and etc.

HANS TUNG: Will you ever have YY acquire BIGO?

DAVID LI: YY already has an option to buy, a deal with BIGO, yes.

HANS TUNG: To buy 100 percent or just controlling stake?

DAVID LI: Controlling stake, yes.

HANS TUNG: And you will let BIGO IPO on its own?

DAVID LI: A month ago we invested $255 million.

HANS TUNG: $255 million invested already.

DAVID LI: Invested already in BIGO, yes. Our management team and I invested 70 million.

HANS TUNG: Wow.

DAVID LI: Combined, we raised 320 million.

HANS TUNG: 320 million. Will BIGO eventually IPO on its own or will it be acquired by YY later do you think?

DAVID LI: I think based on the valuation maybe YY does not have the ability to acquire BIGO anymore.

HANS TUNG: I see.

DAVID LI: Maybe, because BIGO’s business is growing very fast.

HANS TUNG: And its monetization is also through virtual gifting.

DAVID LI: Yes, it’s from virtual gifts.

HANS TUNG: That’s impressive. Beyond Southeast Asia, will BIGO go to the rest of the world like Latin America, Europe and other places?

ZARA ZHANG: It’s already in the Middle East, very big in the Middle East.

DAVID LI: I think that you know that the China’s internet market invents many things. I think many Internet concepts invented in China will go overseas finally, so we were just one of them.

ZARA ZHANG: Now we’re going to move to the quick-fire round of questions. The first one is who’s the entrepreneur you admire the most and why?

DAVID LI: I don’t know the name of the entrepreneur I admire, but I know what he has done, the founder of Wikipedia, because he built a platform and this platform has in the end benefitted human beings.

ZARA ZHANG: And it’s self-sustained.

DAVID LI: Yes, he has a similar idea to mine. He also hates advertisements.

HANS TUNG: Yes, they get by on donations.

DAVID LI: Their business model is very simple. It gets donations and they open that donation link maybe for two weeks every year.

HANS TUNG: Every year, that’s right.

DAVID LI: A lot of the times the donations will close. If you want to donate to Wikipedia, you should wait.

HANS TUNG: I have to say BIGO is very well-designed. I have seen many livestreaming apps before. It has a lot more variety of things to do on BIGO. I can see why it is popular. Good job.

ZARA ZHANG: What’s something you read recently that you recommend?

DAVID LI: I read a lot of things about blockchain, books on blockchain. I think maybe blockchain will change the internet landscape. Even today blockchain has a bad reputation because of the encrypted currency, but we find that based on blockchain you can build a brand-new platform that belongs to nobody.

ZARA ZHANG: Decentralized, yes.

DAVID LI: It’s very important, just like Wikipedia. Wikipedia should belong to nobody. Yes, no one can control that. No one can own that. No one can themselves benefit. So I think blockchain gave the internet a new opportunity to build a totally different platform. We’re working very hard on it.

ZARA ZHANG: What do you do for fun?

DAVID LI: I think that everyone should have a long-term hobby, yeah, because if you can’t do nothing, you’ll have a hobby.

HANS TUNG: What’s your long-term hobby?

DAVID LI: I have many hobbies.

HANS TUNG: You love plenty of things.

DAVID LI: Yes, I love riding motorcycles.

HANS TUNG: Yes, you do.

DAVID LI: But I have broken my legs, yes, so I’ll change to another one.

ZARA ZHANG: So motorcycling. Do you like the outdoors, too?

DAVID LI: I like motorcycling and I like to drive a car to climb mountains. I like fishing.

HANS TUNG: Yeah, there’s a lot of your video and photos in that.

DAVID LI: I like ball shooting. Many things, yes.

HANS TUNG: Thank you very much for coming.

ZARA ZHANG: Thank you.

HANS TUNG: We had a lot of fun.

DAVID LI: Thank you, guys.

HANS TUNG: Thanks for listening to this episode of 996.

ZARA ZHANG: GGV Capital is a multi-stage venture capital firm based in Silicon Valley, Shanghai and Beijing. We have been partnering with leading technology entrepreneurs for the past 18 years, from seed to pre-IPO. With $6.2 billion in capital under management across 13 funds, GGV invests in globally minded entrepreneurs in consumer, new retail, social, internet, enterprise, cloud and frontier tech. GGV has invested in over 290 companies with more than 45 companies valued at over $1 billion. 29 IPOs and 22 unicorns. Portfolio companies include Airbnb, Alibaba, Ctrip, Didi Chuxing, Domo, HashiCorp, Hello-Bike, Houzz, Keep, Slack, Square, Toutiao, Wish, Xiaohongshu, YY and others. Find out more at ggvc.com.

We also highly recommend joining our listeners’ WeChat group and Slack channel where we regularly share insights, events and job opportunities related to tech in China. Join these groups at 996.ggvc.com/community.

HANS TUNG: If you have any feedback on this podcast or would like to recommend a guest, please e-mail us at 996@ggvc.com.

Episode 22: Why We Invested in Yellow

GGV Capital’s Hans Tung and Zara Zhang discuss the firm’s recent investment in Yellow, a leading micro-mobility startup based in Brazil, which recently raised $63 million in Series A led by GGV Capital.

Yellow launched Brazil’s first dockless bike-sharing service in Sao Paulo in August 2018. It has also begun piloting e-scooters and developing e-bikes to provide a comprehensive micro-mobility solution to users in Brazil and beyond. Additionally, Yellow offers digital payments through its Yellow Pay platform.

We discuss how the investment thesis came together, and what it means for emerging market countries to have founders who aspire to play on a global scale. Hans discusses the characteristics in the team and the market for Yellow that made the investment so compelling. We also discuss the similarities between Latin America and Southeast Asia, and why startups across the world are starting to take inspiration not just from Silicon Valley, but also from China.

Transcript

HANS TUNG: Welcome to the 996 podcast, brought to you by GGV Capital. On this show, we interview movers and shakers of China’s tech industry as well as tech leaders. We’ll have a U.S. China cross-border perspective. My name is Hans Tung, I’m the managing partner at GGV Capital and I’ve been working at startups and investing in them, in both the U.S. and China, for the past 20 years.

ZARA ZHANG: My name is Zara Zhang. I’m the investment analyst at GGV Capital, and a former journalist. Why is this show called 996? 9-9-6 is the work schedule that many Chinese founders have organically adopted.

That is, 9am to 9pm, six days a week.

HANS TUNG: To us, 996 captures the intensity, drive and speed of Chinese internet companies, many of which are moving faster than even their American counterparts.

ZARA ZHANG: Hi everyone. On the show today, we’ll continue with our new series, where instead of having a guest, Hans and I will talk about a particular topic that is of interest for our listeners. On today’s episode, we’re going to talk about why we invested in Yellow.

So we at GGV recently announced a major investment in Yellow, a leading micro-mobility platform based in Brazil, which has raised $63M in Series A led by GGV Capital.

Yellow launched Brazil’s first dockless bike-sharing service in São Paolo in August 2018. It has also began piloting e-scooters and e-bikes to provide a comprehensive micro-mobility solution to users in Brazil and beyond. Additionally, Yellow also offers digital payments through its Yellow Pay platform. So you might be thinking, “why are we talking about a Brazilian startup on 996, a show about tech in China?”.

Because our decision to invest in Yellow is very much informed by our experience of investing in China. So Hans, could you share more about this linkage and why you made this decision?

HANS TUNG: Sure. I think by being a global VC firm, we have data points from multiple regions around the world. Before we decide to make this investment in Yellow in Brazil, aiming at Latin American region, our partners Jixun and Jenny made a number of investments in the mobility space whether it’s DiDi in China, Hellobike in China, Grab in Southeast Asia, and lead our investment in Lime in the U.S., and there are a number of other investments that have been made in this category. We should realize that urban mobility is a global phenomenon that given urbanization and traffic congestion, and pollution, it’s more solution needed to solve those problems. And those problems that are not just in Beijing, Shanghai and Shenzhen, but also in Mumbai, Bangalore, Jakarta, Kuala Lumpur, Singapore, New York, San Francisco, L.A., as well as in São Paulo and Mexico City, etc.

When you look at São Paulo, it is the fourth most congested city in the world. It has a subway system that takes care of 8 million riders a day, comparable to Tokyo, and just under 9 million for Beijing. Yet traffic congestion is still a major problem because of urbanization. So it is a problem that we know is a global, and the solution will be global as well.

Secondly, when we look at this team, this team is very impressive. The CEO Eduardo Musa has a manufacturing background. He built up a largest bike manufacturing company in Brazil. He’s familiar with supply chain in China, and he’s sold his company successfully to a Canadian player a couple of years ago.

And his two other cofounders, Head of Product and Head of Technology, both came from 99. For those who have tracked what DiDi has done worldwide, DiDi invested in 99, which was the largest local ridesharing company in Brazil, out of São Paulo, about two years ago, and then acquired it at the beginning of this year. So there are people who decide to leave 99 to do their own thing, and thanks to Carlo from monashees, one of the top early stage venture funds in Brazil, Eduardo Musa met up with his co-founder Ariel and Renato. So all of them spent different time in China looking at how Mobike, ofo, and Hellobike has started to take over China with bike sharing.

And so it’s interesting that the VCs are having a global lenses. Founders themselves are increasingly more global, and looking for ideas and inspiration and solutions, not yet from the U.S. anymore but also from China as well. So having that duopoly of data points makes a lot easier for both the VC and the founders to decide what to tackle next.

So a lot of problems that people are facing today are global in nature and you can find solutions and inspiration globally.

Thirdly, we like Yellow not just because it is interesting from a micro-mobililty standpoint (they have bikes, scooters, e-bikes and other things), but in addition because over 80% of the population in Latin America are unbanked, meaning that they don’t have a banking relationship. They don’t have deposits, or savings or checking accounts. So a lot of people carry cash with them. And how do you get people who only have cash to participate in mobile payment, to participate in e-commerce, to pay for services? Coming up with a QR code-based solution like Yellow Pay, which has some semblance to WeChat Pay, makes a ton of sense. And if the 99 team had not worked at DiDi after the acquisition and had not seen what was happening in China, they probably would have taken a longer time to come up with a solution. So the fact that this is almost two companies into one mixed with an experience team who have a successful several exits, made it a lot easier for us to make a bet in a new region for us.

ZARA ZHANG: And why is this so significant that founder and CEO Eduardo Musa has a background in manufacturing?

HANS TUNG: Good question. I think for most of us, we grew up or worked in or invested in China, then China has a unique advantage because it is the manufacturing center or factory of the world. So it is very easy to get a hardware product prototype iterated and manufactured at mass scale extremely quickly. But to do that from the U.S. or from Europe is very difficult. This is why you see in the drone space that DJI is probably the most competitive and most aggressive at launching new products extremely quickly and being able to overcome a lot of competitors worldwide in this market.

And so for bike sharing and scooter sharing, we also thought that given the tariffs and barriers that exist in Latin America, imports will always cost more or take more time unless you airlift, which increases costs. And if you can manufacture locally, than the spare parts can be recycled and it is more environmentally friendly and also cost efficient.

So for a variety of reasons, having a more vertically integrated approach in the Americas, especially Latin America, in theory makes a lot of sense. The challenge is to find a team that has interdisciplinary knowledge, meaning that they are people who understand offline manufacturing production as well as understand internet product iteration and technology backend skill.

So this team, having had the best of both worlds, was very rare and exciting for us.

ZARA ZHANG: And it was really exciting for me as well as I’m seeing GGV becoming more and more global everyday. And actually, we just went on a trip to Southeast Asia a month ago where we went to Singapore and Jakarta and met with local entrepreneurs and VCs and really saw the energy of the entrepreneurial landscape there.

So how do you think of Latin America, as a region, going forward? Because a lot of people still have reservations about the political instability or macro factors. Are you at all worried about these issues and how do you think about the future of the region?

HANS TUNG: I lived through the Asian financial crisis in the late 90s. I was working in Singapore at that time. So I saw what was happening in the region. And even as someone who lived in the U.S. for almost 20 years, if you track what was happening in Latin America over the last 20-30 years, you see that foreign exchange rates have shown quite a range of volatility. Economic growth will also oscillate as well. But I think the key lesson that we learned from investing in China is that when you have enough of a Internet penetration, whether its through desktop or smartphone, you have a chance to have a foundation to let technology make changes in society and bring about efficiency.

As an investor in Alibaba since 2003, GGV saw firsthand how Jack Ma brought about a whole e-commerce era into China out of nothingness because he was smart to leverage internet penetration and use that to build Taobao and then Tmall.

So when we see there’s enough of a smartphone penetration adding users on the Internet, coupled with urbanization trends, you start to see a middle class forming. You see that they operate in a more efficient manner because of the benefit of technology and benefit of proven business models in mobile Internet sector.

So when that happens, we feel that a new economy will emerge and it will grow at a faster pace than the old economy. So the society will become more stable over time and more founders will be able to make impact with things to learn from both U.S. and China.

So that’s our hypothesis that we’re seeing some of that happen in Indonesia, Southeast Asia and Latin America already.

If you count the number of unicorns in Indonesia, you have Tokopedia, Bukalapak, Traveloka, as well as Go-Jek and Grab.

So there are five or six unicorns in Indonesia already in a country that has almost 300 million people and a GDP per capita roughly around $3,000 USD and that’s similar to what China was about ten years ago. And you look at Latin America, you also see a number of unicorns.

You have 99, which was sold, and Movile backed by Naspers, and Rappi and you have a publicly traded one in MercadoLibre. So you have a number of public and private unicorns forming in Latin America already, because smartphone penetration rate in Brazil is now 50 percent and in Mexico is 33 percent.

So you start to see early indicators in Latin America even though there’s a quite a bit of disparity between rich and poor. Overall GDP per capita is roughly around $10,000 USD or more in some of the major countries. So you are seeing that in both regions, whether it is Southeast Asia or Latin America, there are things that founders can learn from U.S. and China.

And that’s where in those selected areas, where we think of our existing investment roadmap could be helpful to them, we are willing to consider whether to make that investment and help them to scale.

ZARA ZHANG: And I find it really interesting that these days entrepreneurs in emerging markets are not just learning from Silicon Valley but also learning from China a lot. They call themselves like the “Meituan of Southeast Asia” or the “Toutiao of Latin America” or wherever. So Silicon Valley is no longer the only place where they can take inspiration from.

HANS TUNG: You know back when GGV was founded 18 years ago, the world had roughly less than a few hundred million Internet users, and most of them were in the U.S.

So it’s very easy for whatever works in Silicon Valley would also work everywhere else around the world. Over the last 18 years, you see China emerging and almost has just as many unicorns as the U.S. does.

And China, as a developing country, has four or five different tiers of cities, and in these four or five different tier cities, each one has different GDP per capita. So if you look at that, you can almost argue that if you discount the language barrier, China has seen any kind of issue, at least most of the issues, that an emerging market country has to go through in one of those tier of cities.

So whatever problems you’re trying to solve in your own home country that is a developing market, somebody in China has encountered something similar and has figured out some way to deal with it. So at a minimum, knowing what China has done is a higher starting point to make it easier to figure out what kind of localization (and there will be a lot of localization) that’s going to be needed in your home country.

But at a minimum, having both U.S. and China as a place to learn makes it a lot easier to skip things that that may not work and be able to zoom on stuff that potentially could work.

And that saves a lot of time and energy.

ZARA ZHANG: And one of the areas we invest in is called Chuhai (出海), or Chinese founders targeting other emerging markets around the world. I wonder how do you think Chinese entrepreneurs compare with local entrepreneurs when it comes to these new markets? Because of their experience of scaling companies in China, are they more advantageous when it comes to go into these markets? Or will the locals win the day in the end?

HANS TUNG: Right. That’s that’s the $1 billion question. I think a lot of people like to ask us because we’re both in the U.S. and China, are there more Chinese companies coming come to the U.S., or can U.S. startups ever crack China? I think that’s a common question that the media and other folks like to ask us, but what we actually are seeing over the last several years is that the U.S. startups do better in the Americas, especially in North America and parts of western and northern Europe and then potentially Australia and New Zealand. Some of the larger technology companies from the U.S. are expanding into India, leveraging the high quality of Indian executives that’s already working at Silicon Valley companies and want to do something else in the country as well.

So that’s where the U.S. companies tend to spend time and do well in. And for the Chinese companies, going after Greater China and then Southeast Asia, and maybe India maybe not, but then Middle East and Eastern Europe and even Africa are very natural. DiDi is probably one of the few exceptions that are in Brazil and Xiaomi and Huawei, are some of the new entrants that are in Mexico.

So you do see Chinese companies competing better in the developing world and leveraging what they have tested in that. So the question is will the local startups in developing countries do a good job of meeting that challenge from Chinese companies?

Can they collaborate? Or will they learn very quickly and be able to leverage their lessons from U.S. and China and therefore apply localization as needed very quickly in their local countries?

We do see that the Chinese strategics, like Alibaba, Tencent, JD, and Xiaomi, have become more open to make strategic investments in these local countries. Also Didi, Bytedance and others as well. I think that you will see a lot more strategic investment from China with the fast rising local startups so that there’s a way to work together and for the local startups to learn more from the Chinese partners.

I think that’s probably the most common collaboration going forward. You will also see that companies like Shopee, that took money from Tencent, and then are building their own businesses in Southeast Asia because many of their executives have spent a portion of their life in Southeast Asia. Now these kind of hybrid teams, there could be some, but they may not be majority. Over time, there could be more of them.

But we think that a collaboration between Chinese companies and local startups will happen more. There are companies like Alibaba that have bought Lazada in Southeast Asia. They are operating with people sent from Hangzhou. DiDi is sending people from Beijing to Latin America. It remains to be seen that the team from China without much international experience can successfully adapt to a local market, and that’s something that we’re closely monitor as well.

ZARA ZHANG: All the founders we’ve met in Latin America and Indonesia are very fluent in English.

HANS TUNG: Yeah, that’s the one thing that caught our attention when we’re in both Southeast Asia and Latin America. I think that’s why it’s very interesting for us to see these founders that are learning quickly about what’s happening in the U.S., but increasingly willing to learn from folks like ourselves about what’s happening in China, and even go to China on their own through their alumni network.

So there are more Chinese people that are studying in Southeast Asia and Latin America. It makes it easier to foster collaboration between startups in those regions with China because it makes it easier for local founders to go to China and through the alumni network and friends network, be able to learn what else is happening there. We think that the world be a much safer and better place with this and more knowledge sharing and more understanding of each other and people benefit from each other’s knowledge.

ZARA ZHANG: Yeah and 996 itself has a very global audience. We actually have a pretty sizable audience in places like Southeast Asia and Latin America. We were kind of surprised how it caught up quickly with these global markets. I think that’s because people around the world are increasingly realizing the importance of learning from China, no matter where they are.

And I also wanted to touch on the topic of payment, because part of Yellow’s product is that they not only do transportation and mobility, but they are also launching the Yellow Pay platform, which is similar to Alipay and WeChat Pay in China. It’s QR code-based, so it allows users to transform cash into digital credit for Yellow’s services. So through a network of certified points-of-sales, such as convenience stores, newsstands and bakeries, users can buy Yellow credits in cash by scanning a QR code and then apply those credits to Yellow rides.

And we’ve seen the power of QR code-based mobile payment in China, where the mobile payment market is 10x larger than that of the U.S. And just like how Alibaba incubated Alipay and Grab incubated GrabPay, we believe the Yellow Pay also presents a great opportunity in the region. So why do you think payment is such a huge opportunity and why do you think Yellow has a chance to make that happen?

HANS TUNG: In China, mobile payment became popular partially because credit card penetration is limited. A lot of merchants don’t want to spend money to have terminals to process credit card transactions. And then when the smartphone becomes quite popular in China, WeChat Pay was born and it made it a lot easier to tip the merchants or buy stuff from merchants or pay your friends for money you owe them or just give red envelopes during Chinese New Year, or encourage people to answer polls to provide information and knowledge to you.

So WeChat Pay really took off in China, and now almost everywhere you go, there are a lot of vendors who don’t even want to take cash, but only accept WeChat Pay. And so how fast it rose, amazed us.

Now looking at both Southeast Asia and Latin America where a high percentage of population is unbanked, they don’t even have a bank account, in China with WeChat Pay, at least you can link your WeChat Pay or Alipay to a debit card, in some of these emerging markets, most people don’t even have a debit card. So can they leapfrog from a cash-based society to a QR code-based payment society?

We think there’s a high chance that could happen if those countries already have high enough smartphone penetration rate. So that’s our hypothesis that we think will be very popular and we’ll see over the next five years whether that will bear fruit or not. But it’s definitely makes an exciting experiment.

ZARA ZHANG: Yeah, Ant Financial is worth more than Goldman Sachs.

HANS TUNG: (laughs) It’s hard to imagine. We have a lot of respect for Goldman Sachs and any investment bank, but it’s impressive that in the last decade or so, Ant Financial has become a powerhouse.

ZARA ZHANG: So you you took a trip to Brazil a couple of weeks ago yourself. What was your impression? What did you see?

HANS TUNG: Whether it is going to Jakarta or São Paulo, it is impressive to see the fast pace of urbanization in these developing markets. And also you see that there’s just a lot of activity, a lot of founders who are impressive and well-educated and thoughtful and want to do something for their country. Whether its founders we met in Jakarta, or folks at Yellow in São Paulo, every one of them is trying to figure out how can we leverage technology and business models that they’ve seen elsewhere to help their country to become more prosperous, safer and facilitate the growth of a new economy that will bring more efficiency to the society and bring benefits to the mass market and the unbanked population.

And I think that is extremely important values. For something to be big, like Alibaba and WeChat and Tencent to get big in China, they have to bring something that’s useful to society, to bring technology and democratize it, and bring benefits to the mass market. If you don’t do that, then the business will have more niche impact and that is just not going to be as big. So seeing more founders who are willing to do that makes our job exciting and interesting every single day. It makes our life have some meaning as well.

ZARA ZHANG: So my last question is, I think all of this is true and saying it is easy, but having the guts to bet on a brand new region and a significant amount of funding into a region that is pretty new to us takes a lot of courage. So what was the tipping point for you when you realized this is something I really wanna bet on? What was that decision process like for you?

HANS TUNG: I think talking to both Eduardo and his team Ariel and Renato was important. Also, speaking to other VCs in the company, whether it is Carlo from monashees, and TJ and Ade from Base10 and others at Class 5 and Grishin Robotics, you can tell it is a group of people, whether it is VCs or founders who want to make a huge difference in their region and they’re very willing to collaborate and share knowledge and take notes from other regions like the U.S. and especially China, which is very new for most people.

Some of the VCs we work with have even traveled to China already. If I look at the website for monashees, it’s in four languages: Portuguese, Spanish, Chinese and English. So when you see other people who share more of the 996 values, they are much more collaborative and global, it makes it a lot easier for us to feel that we’re on the right side of history.

And Zara, you have done an amazing job of launching this podcast, and also organize the meetups. Every meetup we go to, we see people who have lived in five cities. It’s very common to have lived in five cities. Some have even lived in ten, like myself. And you see people who have traveled around the world, and they see more things and they are faster at connecting the dots and want to be helpful.

That just gives us a lot of hope and reminds us what we saw in China about 15-18 years ago. So VC is a business of recognizing patterns. The smarter and more successful VCs end up seeing the patterns sooner and needing fewer data points to do so. And hopefully our hypothesis based on what we have seen elsewhere will be right about Southeast Asia and Latin America. I think we are very focused on investing in the areas that we know. We’re not experts in many other things. So we’re focused on trends that we think are global in nature and want to share what we know from the U.S. and China to be helpful to other people.

ZARA ZHANG: Cool. Thanks for listening. And if you have any feedback or want to reach Hans and I directly, you can join our listeners community on WeChat or Slack at 996.ggvc.com/community.

HANS TUNG: Thank you, Zara Thanks for listening to this episode of 996.

ZARA ZHANG: GGV Capital is a multi-stage venture capital firm based in Silicon Valley, Shanghai and Beijing. We have been partnering with leading technology entrepreneurs for the past 18 years from seed to pre-IPO with $3.8 billion in capital across eight funds. GGV invests in globally minded entrepreneurs in consumer, new retail, social Internet, enterprise cloud and frontier tech.

GGV has invested in over 290 companies with more than 45 companies valued at over $1 billion.

Portfolio companies include Airbnb, Alibaba, Ctrip, Didi Chuxing, Domo, Hashicorp, Hellobike, Keep, Slack, Square, Toutiao, Wish, Xiaohongshu, YY, others. Find out more at ggvc.com.

We also highly recommend joining our listeners WeChat group and Slack channel, where we regularly share insights, events and job opportunities related to tech in China. Join these groups at 996.ggvc.com/community.

HANS TUNG: I want to tell you about our sister podcast: Founder Real Talk. It is a biweekly show that gets real with founders about the challenges that founders and startup executives face and also how they have grown from tough experience. This show is hosted by my fellow managing partner at GGV Capital, Glenn Solomon out of our Menlo Park office, produced by ouyr colleague Fischer Yan out of San Francisco office.

Past episodes of the show include Stewart Butterfield from Slack, SLOC Sarah Friar from Square and Nate Blecharczyk from Airbnb.

You can take a listen by searching “Founder Real Talk” in any podcast app.

HANS TUNG: If you have any feedback on this podcast, or would like to recommend a guest, please email us at 996@ggvc.com.

Episode 21: Toby Sun of Lime on Scooters and the Future of Transportation

GGV Capital’s Hans Tung and Zara Zhang interview Toby Sun, the co-founder of Lime, a GGV portfolio company that’s disrupting last-mile transportation in the US. A few months ago, we had Brad Bao, the other co-founder, on the show, back when the company was still called “LimeBike.” At that time, Lime’s operation was still pedal bikes only. A lot has changed since then. In a short span of a few months, LimeBike has expanded into 20 markets in four countries, changed its name to “Lime”, added other transportation modes including e-bikes and e-scooters to its services, and announced a $335 million funding round led by GV with participation from Uber, which will become Lime’s strategic partner in the electric scooter space. Lime is currently working with Uber to co-brand its scooters and make them available in the Uber app.

In the episode, we discussed why scooters have a future in the US, how Lime envisions its partnership with Uber, and whether Lime sees itself as a “super app” going forward.

Transcript

ZARA ZHANG: Hey, everyone. For those of you who are in Silicon Valley, you are invited to join our next 996 community meet-up on September 27th, which is a Thursday, at 7:00 to 9:00 p.m. on the Stanford campus. You will be able to meet Hans and me in person, and also mingle with other like-minded people who care about tech in China.

We have held these meet-ups in four cities so far, and are always impressed by how global-minded and talented our audience is. The specific location will be included in a confirmation email that you’ll receive upon registration. You can register for the event at 996.GGVC.com/Stanford.

And as a reminder, the 996 community is open to all and you can join the community via WeChat or slack at 996.GGVC.com/Community.

HANS TUNG: Hi there. Welcome to the 996 Podcast, brought to you by GGV Capital. On this show, we interview movers and shakers of China’s tech industry, as well as tech leaders who have a US-China cross-border perspective. My name’s Hans Tung. I am the managing partner at GGV Capital, and have been working at startups and investing in them in both the US and China for the past 20 years.

ZARA ZHANG: My name is Zara Zhang. I’m the investment analyst at GGV Capital and a former journalist. Why is this show called 996? 9-9-6 is the work schedule that many Chinese founders have organically adopted. That is, 9 a.m. to 9 p.m., six days a week.

HANS TUNG: To us, 996 captures the intensity, drive and speed of Chinese Internet companies, many of which are moving faster than even their American counterparts.

ZARA ZHANG: On the show today we have Toby Sun, the co-founder of Lime, a GGV portfolio company that’s disrupting last-mile transportation in the US and beyond.

A few months ago we had Brad Bao, the other co-founder on the show, back when the company was still called LimeBike. At that time, Lime’s operation was still pedal bikes only. A lot has changed since then. In a short span of a few months, LimeBike has become Lime, added other transportation modes including e-bikes and e-scooters to its services, expanded into 20 markets in four countries, and announced a $335 million funding round led by GV with participation from Uber, which will become Lime’s strategic partner in the electric scooter space. Lime is currently working with Uber to co-brand its scooters and make them available in the Uber app, so we thought we would have Lime on the show again, and this time with Toby, to discuss the company’s recent progress and the hot topic of the day, scooters.

So congrats, Toby and welcome to the show.

HANS TUNG: Welcome.

TOBY SUN: Thanks for having me. Great to meet you, Zara and Hans.

HANS TUNG: So it’s been a bit of an interesting journey since you started this process at the end of 2016.

TOBY SUN: Yeah, it’s actually technically early 2017. We incorporated the company January 3, 2017.

HANS TUNG: So thinking about it in Q4 more seriously, and then started incorporating it in early 2017. Obviously the first year throughout 2017 you were mostly in bike sharing. What prompted you guys to make the change or start the evolution and the shift or pivot into scooters?

TOBY SUN: It’s actually interesting if you look at our original plan from day one, right? We never positioned the company as a bike-sharing only company. So we started with bikes, and we named the company as LimeBike just to be more focused. Starting from day one, if you talk to some of our friends and even our investors, we had a bigger vision than just bikes.

HANS TUNG: Yeah, I remember that.

TOBY SUN: We believed Lime is, in the long run, a brand that’s empowering the urban living, starting from bikes and we’re adding new products and services along the way to fulfill different user needs. So I would rather call Lime a user-centric company rather than a bike share company or a scooter share company.

With that said, because we have a bigger vision to create a micro mobility platform to serve people, move people from A to B, so bike share is the starting point and we’re also constantly evaluating and innovating different products like e-bike, scooter, Lime is the first and only company in the world that has dockless bike share, dockless e-bike share and dockless scooter sharing. What matters to us is really finding what the users need, what the city needs and customize the program for them.

HANS TUNG: Right. So how did you go around testing and deciding that e-bike and scooter are the next product you should be offering in early 2018?

TOBY SUN: Electric products have very, very strong power and we’ve seen that from a lot of user research and user feedback that we collected from the field. So the electric product has been in our roadmap starting from day one. So we actually started our innovation on e-bike in Q2 2017 and then Q3 we started to look into scooter sharing, started deciding what was the right market for us and also what’s the right product mix to enter different markets to better serve users.

So it’s an ongoing discussion internally, but also what we are proud of is because we envisioned to create a platform that we can constantly innovate a hardware product, so it enables us to innovate and iterate the product really fast.

HANS TUNG: So from your perspective and the data you see, what is the common usage case for bike, e-bike and scooter, and what is the unit economics or payback period for these three? Are they different?

TOBY SUN: These three products have a very different kind of use case. For scooter sharing, we’ve seen very strong usage in the high-density areas and people use that to get from A to B much faster, and also the fun factor kicks in. So when you ride it, we see people smiling when they are riding scooters. And then e-bike, we’ve seen people using that for longer distance. So for example, for a scooter, the average distance is roughly a mile; for e-bikes it is actually 1.5X or sometimes 2X of the distance versus a scooter. We see people taking e-bikes not just for longer distance but also climbing the hill, right? So for example, in Seattle, people are choosing e-bikes for getting around a lot of the hilly terrains a lot more often than the other modalities. And of course the pedal bike, a lot of cities like that and also a lot of communities like that, because it’s more affordable, and some of the people who want to get a little more exercise, they still choose to use pedal bikes. So I would say, you know, the three products actually serve different needs.

HANS TUNG: The average use for the pedal bike is what, roughly half a mile, two miles?

TOBY SUN: The pedal bike is very interesting. Some people ride it for really long because they use that for exercise. Some people use that for a short distance, half a mile or 1.5 miles, so anywhere between that, I would say kind of similar to a scooter, so on average about a mile. So I would say the pedal bike really serves the equity program that we provide for a lot of the cities and also allows the users who want to do a little more exercise, it is a good fit.

Economic-wise, of course, the e-product is a lot better because people are willing to pay slightly more to have that better product experience. But the cost associated with that is also slightly higher, because we need to change the battery or charge the scooters more often than maintaining the pedal bike. So I would say slightly higher but not kind of crazily different.

ZARA ZHANG: I remember when scooters first took over San Francisco, everyone started talking about it. It became like, it was all over the news all the time and every time at the Caltrain Station, you see the scooters are gone in like one minute, especially during the transit hours. Why do you think scooters work so well in the US, and do you think it can be replicated in other markets like China?

TOBY SUN: Yeah, that’s a good question we ask ourselves all the time as well. So funny enough, we also see a lot of kind of a quick turnaround using the scooters, right? So sometimes our operational team can’t even put the scooters, touch the ground. So before it touches the ground, people are grabbing that away. So it’s amazing utilization and then the passion that we see from the users is just fantastic. We’re passionate about what we’ve seen so far, because we see the scooter could be a very interesting way to promote or excite people to embrace alternative mobility, other than just driving around. So that part I think is good.

And also back to your question, I think it is a very interesting culture-related product. A lot of people growing up in the US riding Razor scooters, push scooters, so there is actually a culture and a fun aspect of that and people are doing that as a kid, so that’s great. And also speaking about international, we’ve seen some of the European markets have a very strong and similar use case on the scooter as well. We’re not just in the US. We just launched Paris about three weeks ago, about to launch a feel more markets soon in Europe. We’ve seen equally good usage in Europe too.

ZARA ZHANG: Do you think it will ever work in China at all, given the cultural difference and just the condition?

TOBY SUN: Yup, so China is a wildcard, I would say, especially for the scooter. I’m not sure, but if I were to guess, I would say it will be utilized well, but will that be kind of a “few X better than bike”? That part I don’t know.

So I think bike is already doing a very, very good job already. So China, in general, cultural-wise it is a good fit for bike sharing. I think in order to get that marginal improvement on utilization and economics on a scooter by investing a lot more on the operational side for charging and maintenance, I’m not sure if that’s a wise kind of a go-to-market product for China. But I think it will be also utilized very well, it’s just the bike is so popular already and there’s less of a reason for people to use a different product.

ZARA ZHANG: To the extent that you can share, could you talk about the unit economics of scooters and the payback period as compared to bikes and e-bikes?

TOBY SUN: Unfortunately we can’t share too much about it, but it’s very healthy. I will say in some of the markets it is super, super good. We are profitable in many markets already and the companies are financially growing very, very well. We are expanding to many markets and we’re seeing the market become profitable with our operational efficiency very, very rapidly.

HANS TUNG: Obviously when one talks about scooter sharing in the US, another name that pops up is Bird. From your perspective, how well do you think they are doing and what differentiates the two services? Ultimately, do you think this is an Uber versus Lyft situation, or it will turn out to be something quite different? I think they raised, what, around $400 million in less than six months? And supposedly they raised about $2 billion, so it’s fast rising as well.

TOBY SUN: Yeah, Bird is a very respectful competitor. From our perspective, we welcome competition and we respect that. I think that’s something that will only get us better, push us to improve and iterate even faster.

HANS TUNG: And also help to educate the market.

TOBY SUN: Educate the market and then we can both grow. I think the ultimate goal is the same, just to bring more people off the car and then embrace the Lime green transportation. As long as we can achieve that, we think anybody who is doing this is respected.

In terms of how this market will play out eventually, I don’t have an answer. I think two companies competing could be an option, but also this is a market and space that requires a lot of different, I would say, skillsets and capabilities. For example, supply chain and hardware, there are a few things that we think really differentiate us from the competitors. One, supply chain and hardware, building the team capability, and then being able to scale the product with low cost and a high quality and then sustained that. So it’s hard. I don’t see many teams out there who can do it as well. That’s one.

And then two, the city relationships, right? So we take this part really, really seriously and starting from day one, we set the strategy to really work with the city. Now we’re in over 70 markets already across four countries, of course primarily in the US for now, but every single market that we go into and we’re operating now, we have either an agreement or SLA or MOU. So we really work closely with the city to develop something that we can localize and customize our program, not just going rogue and then rock the boat. I think it’s super important for us to establish that relationship. I think the city relationship, in the long run, will help us to win bigger.

And the third thing is really operational efficiency. We have two interesting kind of models to operate. One is the Juicer Program, which we crowd-source the people to maintain and charge the scooter for us, and also we have our own operational team. That is very important for us to maintain a higher level of quality of the operation that people see way less mis-parking, vandalism or problematic bikes or scooters in the market versus our competitors.

So I think competition is great, but the ball is in our court. We just need to focus on the most important thing and then do our thing well.

HANS TUNG: The supply chain, a lot of that is based in China, you guys are much better at operating and managing that piece than almost anyone else.

ZARA ZHANG: Has charging been a challenge? And how are you guys resolving that?

TOBY SUN: Yeah, charging is an exciting challenge for me, because this is an issue that has never been solved for a while across the space. So if you look at EV charging, if you look at some of the shared mobility which require electric kind of power, it has never been solved very well. Now we’ve seen very, very powerful tool using the Oracle platform, using our Juicer Program, allowing people like you or me to just go out, collect a few scooters every night with our personal cars to get that done.

So it’s very, very scalable and they’re very, very efficient. So I think this a very exciting and interesting challenge that as the cities and then our mobility is getting more and more electrified, we are kind of leading the way to solve that with our company-unique platform and operational effort.

ZARA ZHANG: So I also want to discuss your recently-announced partnership with Uber. The Uber CEO Dara has said on a number of occasions indicating that Uber wants to be a transportation super app. So besides the partnership with you guys, they also announced a partnership with Cargo which is a mobile convenience store, and at Fortune Brainstorm Tech, he said cars to Uber are what books are to Amazon. So they started with a premium service, UberBLACK, and then expanding into UberX, UberPOOL, and then food delivery, Uber Eats, and then partner with JUMP for bikes and now you guys for scooters. He said going forward they will have bus and metro systems show up on Uber as well. So how do you envision this partnership play out?

TOBY SUN: Yeah, we’re super excited about the partnership with Uber. We will be cobranding in the market that we have, joint branding scooters and then we will also integrate our scooters in their app. We see our service very, very complementary to Uber, especially for the short distances, it is always better to either walk or use a bike or scooter to get around and it’s more affordable. So I think we’re uniquely positioned to do something that’s serving a lot of the users we both have for that short distance. I think we look forward to pushing this through together with Uber.

And also, the other thing we’re super excited about Uber’s partnership is around international. Uber has a very strong international footprint and we look forward to expanding quickly, internationally, together with Uber.

HANS TUNG: A super app is a concept that a lot of people connect to WeChat, but what a lot of people don’t know is that people in China were inspired by Facebook with the Facebook Connect as a super website back in 2008, 2009, with a single login. And then now you can see Uber borrowing the super app concept from WeChat or Meituan, which is a super app service in China, and to a lesser degree Didi as a super transportation app. You guys know both US and China markets extremely well. In what scenario can you imagine Lime might be a super app of its own as well?

TOBY SUN: That’s a very interesting idea and we’ve seen especially the Chinese companies or Chinese apps have done a lot of things way faster and then execute really, really solidly at a very fast pace. That’s something that we are always inspired as we’re growing our Lime business. I think for the near term, we still want to make sure that we are leading and owning this micro mobility space, and moving forward I think what matters to us is really still users, right? So what the user really wants and what the user can naturally use our app for. So I think we’ll leave that for users to guide us to move to more territory.

HANS TUNG: Sounds good. I mean, we have seen time and time again users come up with ideas for additional value-added services, so your users quickly, they are very good at leading you to new things.

ZARA ZHANG: What are your thoughts on other verticals you could expand into such as delivering food or goods?

TOBY SUN: We don’t know yet. I think a lot of areas are very, very exciting and then big markets and then also highly correlated to people’s daily lives and very close to the way that people are using our service. So definitely we want to carefully analyze what’s needed out there, what’s not being solved very well and then what we can do better. By considering all this, we’ll figure it out next.

ZARA ZHANG: I’m personally very excited for food delivery on bikes because that’s how it works in China and it’s so fast, because cars get stuck in traffic all the time.

TOBY SUN: And plus, we have a big basket. So on our bikes and e-bikes it fits two grocery bags, so it could be a good fit.

HANS TUNG: What are your thoughts in terms of what will be the future for last-mile transportation? Imagine what’s it like five years, 10 years from now with a lot more autonomous driving being more prevalent in this society? What kind of a last-mile transportation solution could it be out there and how multimodal could it be?

TOBY SUN: I would say for micro mobility, short distance, it will be either bikes or scooters or something else that we have not figured, but it will be more personalized, like fit one or two people, mostly one, and then very flexible, so you can basically hop on, hop off without waiting.

HANS TUNG: Some kind of pods or something.

TOBY SUN: Yeah, and it should be very affordable, so for that short distance, you don’t want to pay more than $5 or $4 for that. Anything that fits that criteria I think could have a very, very good potential. That’s one.

And then for longer distance, I think cars will be around for a long, long time. That is the current cars driven by people or autonomous driving. So I think for the longer distance, cars will be around for a long time, but what we care about is other than cars, what we can do. What can we do in addition to that? Bikes, scooters are what we are starting now, but also if there’s other forms of transportation that’s also solving this more efficiently and more affordably, we are also open to that.

HANS TUNG: Yeah. I mean we’re definitely bullish on local space, whether it is you guys or OfferUp in local commerce, it just seems there are a lot of things that can be done. Over time, having stuff delivered to you locally, have things paid for in some kind of mobile payment solution, you almost operate as an escrow service seems to make a lot of sense. I think you guys are at the cusp of doing something quite interesting starting with the transportation space, but there’s a lot more room for imagination with additional value-added services.

TOBY SUN: Of course. Yeah, we see the value and also we’re open for partnership, right? I think having partnership, not just like integrating with Uber but other location-based services will be really, really interesting.

ZARA ZHANG: So now that you’ve been running the business for a while now, has your vision of what the company could be evolved? How has it beaten or matched your expectations when you started out and what has surprised you?

TOBY SUN: It’s a good question. I would say surprising, but also expected. When we first started, we know that this area is big. This is not just a billion-dollar industry, but also potentially trillion-dollar, right? Because we’re touching people’s most frequent, highest frequent way of getting around, which is short distance. If you think about the way that you get around every day, counting all of the walking as a trip, I mean, the territory that we are tapping into is possibly 80 percent or 70 percent of your daily trips, including walking. So that’s an exciting area. We know it’s going to be big and we know the solution that we provide is something the current alternatives are not solving very well, or providing as a more efficient way for people to get around.

So we’re pretty confident about our product and the market and also we’re proud of the team as well. So putting all this together, I would say things are expected growing relatively fast, but also it’s somewhat surprising to me that the cities are also embracing this a lot faster than some of the technology innovation in the market in the past. So when we talk to the cities, a lot of the cities are a little bit skeptical, but primarily around how is this really going to solve our problem? But I think the vision is aligned.

HANS TUNG: Do the cities react differently, bike sharing versus scooter sharing or e-bike sharing?

TOBY SUN: Yeah, it’s definitely quite different. So bike share is a familiar area for cities. They know how it’s working. We just need to educate them how dockless bike share is better than docked and then how is it working and how can we do it differently than some of the other players in this industry.

So for scooters it is brand new, so it requires a little bit more education, but I think our reputation of managing this well, it’s important. That’s why we spent a lot of time and effort working with the cities, making sure the operations are in good shape so that we can serve more and more cities. But to answer your question, I think the readiness and the attitude from cities is a lot better than we thought. I think they’re welcoming anything that is reducing congestion and then reducing the pollution. That’s surprisingly fast from our experience.

ZARA ZHANG: Here in San Francisco we’ve seen a lot of changes with regards to policies. What do you think we can expect going forward, especially with regard to scooters?

TOBY SUN: San Francisco is working on a permitting program now. We are closely working with the city. We don’t know the exact time. What we’ve heard so far is anytime in August. We are thrilled to continuously work with the city to make that happen ASAP, because San Francisco, after we launched about three to four months ago, it just very rapidly became one of the very, very big markets for Lime. We’ve seen huge adoption. People love it, and then also the behavior of parking and then vandalism is generally very, very positive. We have seen way less vandalism and that kind of parking issue in San Francisco than the other markets. In San Francisco, we’ve had almost 100,000 users within just a few weeks.

HANS TUNG: That’s amazing.

TOBY SUN: Yeah, so considering that San Francisco only has 700,000 people, so that is one-seventh of the total population, and we are really working hard to get back to San Francisco and we are patient.

HANS TUNG: Some of the other cities seem to be much more open, like Dallas, for example.

TOBY SUN: San Diego.

HANS TUNG: San Diego.

TOBY SUN: Seattle.

HANS TUNG: Is there any general pattern that exists with the cities that are much more open?

TOBY SUN: It’s hard to generalize, I would say. So it’s really city by city and sometimes it’s from time to time, right? For example, Seattle, when we talked to the city, their initial reaction was to push back from the city. They said, “Hey, we like this program. We think this possibly can be really powerful, but let’s wait a little bit, because we just had a failed dock-based program called Pronto. We want to figure out, what’s the next step?” And there, we waited for about two months and then continued to work with the city to try to convince them how we can do things differently. And all of a sudden, they opened that up. I think the cities also have the incentive to look for better options to solve the problem. So that’s one kind of extreme case. So pushback, you know, making us feel like, oh, it’s going to take forever, but eventually it turned out to be good very quickly.

And then some of the markets are generally very open, like Dallas and San Diego, they don’t have a cap and also they want to just test it out and see how it goes without setting a lot of limitations. I think if there’s one thing that we can generalize this pattern, I think they all come from the southern part of the country. It is warmer, there are a lot of tourists.

HANS TUNG: There’s a lot more traffic.

TOBY SUN: Yeah, a lot more traffic, and then they just are eager to find a way to—

HANS TUNG: To solve those problems.

TOBY SUN: To solve the problem, yeah.

ZARA ZHANG: On a personal level, what is it like to build an American company in a relatively regulated sector as a first-generation Chinese immigrant?

TOBY SUN: Interesting question. It’s definitely not easy, but also, I think to me it’s finding that sweet spot, right? So I think not many things are a good fit for me. So I think finding the proper market fit is important.

HANS TUNG: Right, the same applies to all three of us.

TOBY SUN: Yeah, but also I really like what Hans has mentioned about the past is about proper founder fit. So there are certain things I can do well, certain things I am possibly better just to stay behind the scenes as an investor and just work for that company. I think for this particular industry, I’m so proud that I can serve as a bridge between the US and China, empower the technology and product with the supply chain hardware capabilities that we have in China, and also coupled by the knowledge that I had by living in the US and working in the US in the past many years, to customize a program from an operational perspective, GR perspective 32:26, PR perspective, to make that work. So having that cross-border perspective and then capability, I think that’s something that I can offer for this business. I think that’s also one key differentiation for us to win, not just for the short term but also potentially in the long term. So that’s something as a founder and first-generation Chinese founder, I feel proud of.

HANS TUNG: We have said repeatedly on this show, on this podcast, that politics are local, but that fusion of technology, business model, idea, talent and capital is very global.

TOBY SUN: Global, yeah. I agree with that.

HANS TUNG: So your knowledge of what’s happening in China started with bike sharing, it definitely gives you a leg up in analyzing the potential in the US market. There are quite big differences between the two markets. As it turns out, it is scooter sharing that’s more popular in the US and the e-bike rather than the original pedal bike sharing. But you guys made a lot of changes in localization to make that work in the US.

As you expand to Europe and other regions beyond the US, what are the things you look out for and how do you make sure that you can continue to localize to the needs of the local consumers, in their local conditions?

TOBY SUN: Totally. There are two things that I think matters a lot when we’re thinking about international expansion. One is the market itself. Is it kind of similar to the US market in terms of the socioeconomics and then the willingness to pay? And then in general, the kind of open minded perception around bike sharing and then scooter sharing. So if there is room, I think that’s a good fit for us. That’s why we’re thinking about Europe and some of the more developed countries which we can add more value by leveraging what we’ve learned in the US. So that’s one around market.

And then the other thing is really about the team. One thing that we think that we do right, or I think we position around really well is that we set up a local team in the US and also in any markets that we go into and we trust the local team, we give them a lot of autonomy by still enabling them with our central knowledge and tools. But the autonomy is super important, so we want to replicate that and enable the local team and local hires to make the right decision for us, because we can’t understand everything single market ourselves. I think making sure that we mobilize the team remotely with the right incentive, with the right focus, is super important.

ZARA ZHANG: Do you envision our cities change as how we get around changes? So like maybe scooters and e-bikes requires its own infrastructure, and do think cities will actually build that and adapt our environment to how we’re getting around?

TOBY SUN: I do believe in that, and we are seeing that nowadays. We’ve seen cities are using our shared data to identify where people are riding more scooters and bikes and they are using that real data to make their own infrastructure decisions. So in the past, it was really an unknown area for them to decide hey, should we build a bike lane here? Should we add more bike racks here? And now they have the data. In Seattle, we know they’re working on that.

Also for bike and scooter parking, so in the past it was really just around bike racks, but dockless bike share and scooter share does not require any station, any physical location. So that provides flexibility for people to target, but also creates some challenges. So how to make sure that people can follow the rules? With our model, we actually work with the city to come up with a lot of white line boxes, just along the sidewalk where the cities are investing very limited capital to draw all this, kind of like street parking white zones for our bikes and scooters. We’ve seen that in South Bend, Indiana. We’ve seen that in Austin and then also Seattle, and we’re also spreading all these best practices around the country. So the cities are doing that already. We feel very, very happy about that.

And also the way that we’re changing people’s life now is in the past in the US, when people are going out, the way they’re thinking about transportation is can I walk, can I drive? Or maybe sometimes can I take a subway, if you live in New York or Chicago. In the future, we really want people to think bike or scooter or greener transportation first, if they feel walking is not an option for them, instead of starting with cars.

TOBY SUN: Right. You obviously have become very successful over the last two years as a founder and as a CEO, so I was very happy and glad to see that. If you look at your own background, what prepared you to do well in this opportunity, and what were some of the biggest lesson that you learned on the job over the last two years that you think would be very useful for young founders or first-time CEOs to learn from?

TOBY SUN: I would love to share more. So I started my career as a marketing guy. I was a marketing manager at PepsiCo. I was born and grew up in China. I worked in PepsiCo China for about six years. I launched Gatorade in China, I managed 7-Up, Pepsi Cola. I think that consumer product training is very helpful.

HANS TUNG: Super helpful.

TOBY SUN: I got a chance to work on operations, product innovation. I worked on the beverage formula and then package innovation, so that’s kind of similar to the way that we innovate the bike design as well, or scooter design, and also go-to-market strategy. So the CPG experience definitely helped a lot. And then after I came to the US, finishing my MBA, I spent a little bit of time in consulting which was great, it got me a lot of exposure to different industries. And also, I spent four years as a VC before starting Lime. The VC experience is definitely very rewarding and prepped me further to completely open my horizon. So I got a chance to look at so many interesting consumer-facing Internet companies which shared my vision.

So I love consumer products, I love creating and working on products that touch people’s lives multiple times, every day, and as a VC I got a chance to work with the founders and then to really continue that journey. But I’ve never thought about being a founder.

HANS TUNG: Being a founder yourself.

TOBY SUN: I think I’m open to that, but I’ve never thought about it.

HANS TUNG: Seriously thought about it.

TOBY SUN: Seriously thought about, hey by this time, I want to create my business. My biggest, I have two pieces of advice for the amazing people out there want to start their business. I would say two things. One, be patient. I mean, set a goal for yourself, but set a goal for yourself to learn instead of set a goal for yourself to really, I need to do this by what time. Which is great, right, but I think as a founder to start a business, timing and then everything you’ve accumulated in the past from a knowledge perspective will get you’re a long way, so don’t rush to start any business. That’s my biggest advice.

And then secondly, I think just keep the eye open and then always think about what excites you the most by looking broadly at what’s out there. And then you will find the product-founder fit eventually.

ZARA ZHANG: So what excites you now?

TOBY SUN: Making Lime the amazing consumer brand for the US and globally. I think it’s exciting to start Lime with mobility service first, so in the future, I really want people to consider Lime as a brand that they trust, a brand that can help them get things done, a brand that touches their life multiple times and then they feel very excited whenever they talk about Lime. So that’s something that I want to achieve, yeah.

ZARA ZHANG: Cool.

HANS TUNG: So how many employees do you have in the US now and how many do you have in China and elsewhere?

TOBY SUN: Yeah, we have a couple of dozen employees in China, and in total we have close to 300 already, employees around the globe. About one-fourth are in China, or one-fifth, but we are expanding really fast. We’re hiring. We’re looking to add another few hundred people to grow across the globe to support our international expansion, product, innovation, engineering work, government relationships, operations. Super excited, yeah.

ZARA ZHANG: A lot of our listeners are potential employees because they all know the US and China markets really well. So how can they reach out if they’re interested?

TOBY SUN: So first, download the app, Ride Lime. And then there is bikes or scooters or e-bikes, just try the product first and then form your perspective, because I mean, this thing may not be a good fit for you, right? I would love people to love the product and then love the problem that we’re solving first, and then think about if there’s any good fit. But we are open, just log onto our website on Li.me that’s the new website that we just- it’s a short domain name. And then we have plenty of openings out there for great people to join.

HANS TUNG: Right. And then as you know, our show is called 996 because we are impressed by the efficiency a team that does the 9:00 a.m. to 9:00 p.m. six days a week can achieve. What kind of work schedule do you guys keep and do you notice any differences amongst the different colleagues in different countries?

TOBY SUN: Yeah. For me, I’m 24/7. Seriously, seriously. People can reach me pretty much any given time.

HANS TUNG: Any time.

TOBY SUN: But I still sleep a little bit, but I enjoy my work so I think 24/7 definitely works for me, but it’s not the expectation for my employees or the people who work at Lime. But I think, you know, 996 is definitely something I’m super impressed by the counterparts or the founders, startups in China. I think that’s also something our team in China is doing.

HANS TUNG: Very common.

TOBY SUN: Without telling them to do so, they are voluntarily doing that now, right? And also that’s influencing and impacting the people’s perception in our org in the US. By seeing our Chinese counterparts working so hard—

HANS TUNG: And still very efficient.

TOBY SUN: Yeah, and very efficient and generating a lot of outcomes, good readouts, I mean our US colleagues are also working their asses off, right? So really, really hardworking. I think 996 is a symbolic term. But more importantly, I think people are working on something that they’re super excited every day, no matter if it’s early or late. I think the philosophy behind it is important. So it is basically work on Lime as your own business.

HANS TUNG: That’s right. It has to be some kind of mission-driven thing for people to want to spend that much time on it and enjoy it. We also notice that some of the other Chinese bike sharing companies that have come to the US early, like Mobike and ofo, seem to run into some issues. ofo has said they will pull out most of their operations in the US. From your perspective, what are the things that they have done right, and what are the areas they could have done better, with hindsight being 20/20?

TOBY SUN: Yeah, o          fo and Mobike, we know the company well. We respect them as well. I think both companies have done tremendous, great work around the globe, especially in China. They pioneered the industry, so this is something that inspired us to start the business in the US, and we learned a great deal from them. And also the speed that they’re executing is really, really fast.

A few things I think has been quite challenging for them also, we try to avoid some of the pitfalls. Number one, I think having the local focus and then the local team really focusing on the market and then provide the support for the local market to iterate fast is important. That’s the number one thing.

Number two, I think really finding the right fit for expanding globally. So I think instead of assuming everything will work similarly as it does in China, maybe do a little bit more research and then pilot, small scale. So sometimes it’s okay to start late, that’s what we’ve done. We’re not the first one to come up with bike share, we are not the first one to launch e-bike, we are not the first one to do scooter, but we took — of course, once we think that through, we execute really fast. So finding that right balance, think through everything, think through the most important things and then execute and then run as fast as possible. I think that’s important.

HANS TUNG: That’s actually a great lesson. You don’t have to be the first. As you know, we’re an investor in Hellobike as well in China and they came from behind, six months later, and now they are number one. So execution is much more important than just rush to the market.

ZARA ZHANG: It’s a marathon.

HANS TUNG: That’s right, not a sprint.

ZARA ZHANG: So we’re going to the last part of the podcast, which is a round of quick fire questions, so just say the first thing that comes to your mind. The first one is, who is the entrepreneur you admire the most and why?

TOBY SUN: Steve Jobs. Great innovator, has a very, very kind of unique—

HANS TUNG: Perspective.

TOBY SUN: Yeah, a unique perspective and extreme level of product perfection, to really drive things through.

ZARA ZHANG: What’s something you read recently that you recommend?

TOBY SUN: Unfortunately, I don’t have much time to read.

HANS TUNG: Work and sleep.

TOBY SUN: Yeah, I don’t have much time to read, but there’s a book I always liked, From Good to –

HANS TUNG: Perfect.

ZARA ZHANG: From Good to Great.

TOBY SUN: From Good to Great, yeah, sorry. I was reading the Chinese version, but that’s a good book and I always got inspired by a lot of the things from the book.

HANS TUNG: Makes sense.

ZARA ZHANG: What do you do for fun?

HANS TUNG: What did you used to do for fun?

TOBY SUN: Well professionally I talk to the founders a lot, so as a VC I really enjoyed, I mean it.

HANS TUNG: I can tell.

TOBY SUN: Whenever I talk to the startups, I just love the passion, I love talking to the founders.

HANS TUNG: The founders like you a lot.

TOBY SUN: Thank you. I used to play golf and I used to play soccer. But now, these are all time consuming, so I save that. So now I will say in my spare time I do, I watch some drama just to get myself relaxed and then, but you know—

HANS TUNG: Chinese drama, American drama, Korean drama?

TOBY SUN: Like Silicon Valley.

ZARA ZHANG: Watch your life.

TOBY SUN: And try to go running once in a while. I think it’s so important to keep a work-life balance.

HANS TUNG: Sure. Kobe Bryant has a famous saying that he gets up at 4:00 in the morning and trains 20 years in a row. A lot of people will think that that’s a lot of hard work that he is making a lot of sacrifice, but he says to him, that’s ice cream. That’s something he enjoys. How do you feel and how do you and Brad feel about what you’re doing?

TOBY SUN: I can’t speak about Brad, but I think he probably feels the same. I think it’s really about finding your passion and then finding the thing that you can add value and sometimes it’s just really one or two things in your life.

HANS TUNG: That can be huge.

TOBY SUN: Yeah, that can be huge, that can be super, super meaningful that you’re willing not to put in money, you’re willing to put in your time and even your life. Maybe that’s a little bit too extreme, but this is one of the opportunities that I feel super excited and then I feel that I can add value.

HANS TUNG: And make a huge impact.

ZARA ZHANG: Well Toby, thank you so much for your time and we can’t wait to see where Lime will go next.

TOBY SUN: Thank you so much.

HANS TUNG: Thank you. Really enjoyed it.

Thanks for listening to this episode of 996. By the way, we also produce a weekly email newsletter in English, also called 996, which has a roundup of the week’s most important happenings in tech in China. Subscribers have told us it is informative and fun to read. The newsletter also features original content and analysis from Zara and me. Subscribe at 996.ggvc.com.

ZARA ZHANG: GGV Capital is a multi-stage venture capital firm based in Silicon Valley, Shanghai and Beijing. We have been partnering with leading technology entrepreneurs for the past 18 years from seed to pre-IPO, with $3.8 billion in capital under management across eight funds. GGV invests in globally-minded entrepreneurs in consumer and new retail, social Internet, enterprise cloud, and frontier tech. GGV has invested in over 290 companies with more than 45 companies valued at over $1 billion. Portfolio companies including Airbnb, Alibaba, Ctrip, Didi, Domo, HashiCorp, Hellobike, Houzz, Keep, Slack, Square, Toutiao, Wish, Xiaohongshu, YY and others. Find out more at ggvc.com.

We also highly recommend joining our listeners WeChat group and Slack channel where we regularly share insights, events and job opportunities related to tech in China. Join these groups at 996.ggvc.com/community.

HANS TUNG: I’m going to tell you about our sister podcast, Founder Real Talk. It is a biweekly show that gets real with founders about the challenges that founders and several other executives face, and also how they have grown from tough experiences. This show is hosted by my fellow managing partner at GGV Capital, Glenn Solomon at our Menlo Park office, produced by our colleague Fischer Yang out of our San Francisco office.

ZARA ZHANG: Past episodes of this show include Stewart Butterfield from Slack, Sarah Friar from Square, and Nate Blecharczyk from Airbnb. You can take a listen by searching Founder Real Talk in any podcast app.

HANS TUNG: If you have any feedback on this podcast or would like to recommend a guest, please email us at 996@ggvc.com.

Episode 20: Jixun Foo of GGV Capital: Behind the Scenes of China’s Venture Deals

GGV Capital’s Hans Tung and Zara Zhang interview Jixun Foo (符绩勋), who is a Managing Partner at GGV Capital based in China. Jixun joined GGV in 2006 and has more than 20 years of experience in venture capital investing. He focuses on travel and transportation, social media and commerce as well as enterprise services in China. Jixun has led GGV’s investments in Qunar (去哪儿), Grab, Didi (滴滴出行), Youku-Tudou (优酷土豆), UCWeb, Mogujie-Meilishuo (美丽联合集团), MediaV, Full-Truck Alliance (formerly Yunmanman) (满帮集团), Meicai (美菜), and currently serves on the boards of XPeng (小鹏汽车), Hellobike (哈罗单车), Tujia (途家), Xiangwushuo (享物说), Zuiyou (最右) and Kujiale (酷家乐). Jixun played a critical role in many key strategic mergers and acquisitions, such as those of Youku-Tudou, Baidu/Qunar, Ctrip/Qunar, and Mogujie/Meilishuo.

Jixun has been recognized by Forbes China as one of the “Best Venture Capitalists” every year since 2006, and frequently appears on the Forbes Midas list. Before GGV, Jixun was a Director at Draper Fisher Jurvetson ePlanet Ventures, where he led the firm’s investment in Baidu. Prior to DFJ ePlanet, Jixun led the Investment Group under the Finance & Investment Division of the National Science & Technology Board of Singapore (NSTB) and has also worked in the R&D division of Hewlett Packard.

Jixun is from Singapore and graduated from the National University of Singapore with a First-Class Honors degree in Engineering, as well as a Master’s in Management of Technology from the university’s Graduate School of Business.

In this episode, Jixun discusses how he started his career in venture capital, the insider story behind the merger between Youku and Tudou (the largest merger in Chinese tech history at the time), why he invested in the bike-sharing company HelloBike (which overtook Mobike and Ofo to become the top player in the country), and what sectors excite him today.

Join our listeners’ community via WeChat/Slack at 996.ggvc.com/community.

Transcript

Zara Zhang: Hi, everyone. We’re excited to announce a new program, GGV Fellows, designed to help sea turtles, or haigui 海归, and Chinese students studying overseas, to get to know the Chinese entrepreneurial landscape better. As a sea turtle myself, I know that many of us worry that we’re not jiediqi 接地气 enough when we go back to China, lack a local network, or worry whether we can survive in a fiercely competitive market where most people work 996 if not 007. This program is designed to address those concerns. If you are a Chinese student or professional who is studying or working overseas or have done so in the past, this is a program designed for you. It is a week-long program in January 2019, in Beijing, during most U.S. colleges winter break. You will be able to learn from executives at some of China’s most valuable tech companies and visit some of their offices. You will also participate in mixers with students at top Chinese universities like Tsinghua and BeiDa to build a local network. Please visit fellows.ggvc.com for the application link and for more information.

Hans Tung: Hi there. Welcome to the 996 podcast brought to you by GGV Capital. On this show we interview movers and shakers of China’s tech industry as well as tech leaders who have a U.S. China cross-border perspective. My name’s Hans Tung. I’m a managing partner at GGV Capital and have been working at startups and investing in them in both the U.S. and China for the past 20 years.

Zara Zhang: My name is Zara Zhang. I’m an investment analyst at GGV Capital and a former journalist. Why is this show called 996? 9-9-6 is the work schedule that many Chinese founders have organically adopted. That is 9 a.m. to 9 p.m. six days a week.

Hans Tung: To us 996 captures the intensity, drive, and speed of Chinese Internet companies, many of which are moving faster than even their American counterparts.

Zara Zhang: On the show today we have Jixun Foo, managing partner at GGV Capital based in China. Jixun joined GGV in 2006 and has more than 20 years of experience in venture capital investing. He focuses on travel and transportation, social media and commerce, as well as enterprise services in China. Jixun has led GGV’s investments in Qunar 去哪儿, Grab, Didi 滴滴, Youku Tudou 优酷土豆, UCWeb, Mogujie Meilishuo 蘑菇街美丽说, MediaV, Full Truck Alliance or Yunmanman 运满满, Mei Cai 美菜, and currently serves on the boards of Xpeng Motors 小鹏汽车, Hellobike 哈罗单车, Tujia 途家, Xiangwushuo 享物说, ZuiYou 最右,and Kujiale 酷家乐. Jixun played a critical role in many key strategic merger and acquisitions in China, such as those of Youku + Tudou, Baidu + Qunar, Ctrip + Qunar, and Mogujie + Meilishuo 蘑菇街美丽说.

Ever since his early investment in Baidu–and he was on the Board at Baidu for more than eight years, Jixun has been recognized by Forbes China as one of the best venture capitalists every year since 2006, and has frequently appeared on the Forbes Midas list worldwide. Prior to DFJ e-Planet, Jixun led the investment group under the Finance and Investment Division of the National Science and Technology Board of Singapore, which is called NSTB, and has worked in the R&D Division of Hewlett-Packard. Jixun is from Singapore and graduated from the National University of Singapore with a first class honours degree in engineering, as well as masters in management technology from the university’s Graduate School of Business.

Zara Zhang: Welcome to the show, Jixun.

Jixun Foo: Thank you.

Zara Zhang: So I wanted to start with your earlier career. How did you end up in venture capital?

Jixun Foo: Well it’s a bit of a twist and turn. You know I started to have the idea of being in venture capital when I was in Hewlett-Packard. I was an R&D engineer, and I spent some time in the U.S. I spent some time in the Valley, spent some time in Corvallis, Oregon, looking at all the innovations then. That was still ’95, ’96.

Hans Tung: Corvallis, Oregon? Really? OSU, Oregon State University.

Jixun Foo: It’s where HP has its printhead division, so I kind of went back and forth a little bit.

Jixun Foo: And so it’s interesting how a lot of the technology innovation actually happens in the U.S. and even though I was a R&D engineer at Hewlett-Packard it was more of a localization effort, reformatting the printer if you will. You know, in different size and shapes to fit the different market segments.

So that was where I said, well, in Asia at some point innovation has to take off. We have to have our own product technology innovation capability. And so you know I figured out whether I wanted to be an entrepreneur or an investor. so that’s where I really had the idea. But really there wasn’t a lot of startups. There wasn’t a lot of venture capital, and I thought a good stepping stone would be to join some venture capital then. There were a few like Walden and Vertex and so on.

But when I wrote my CV, nobody really bothered to call back. So that was then. So the stepping stone for me was really NSTB, where I went in and started an incubator. I did that about four or five years. I know as part of the government initiative–.

Hans Tung: What year was this?

Jixun Foo: 1996 to 2000. That was the time where I wrote papers and I went around to world, actually. I went to Israel, I went to Ireland. I looked at all sorts of innovation initiatives, London, Cambridge, etc. I think it opened up my eyes a bit.

The opportunity really came in 2000 when DFJ started expansion. You know, Tim Draper has this vision looking at venture capital and growing venture capital beyond the 20 mile radius.

Hans Tung: Of Silicon Valley.

Jixun Foo: And so I started DFJ e-Planet. That’s where I joined DFJ e-Planet, and it was my stent into the industry.

Zara Zhang: One of the deals you did at DFJ e-Planet was Baidu. Could you talk about how you first met Robin Li 李彦宏, the founder? And why did you think it was a good idea to invest in them?

Jixun Foo: Well to me to be honest I think at that time there were just waves of returnees from U.S. back to China. And through the DFJ network, which is a pretty powerful network with a strong affiliate network, I was referred to Robin. But I remember my first contact with Robin was over a video call to the Singapore office.

Hans Tung: Was it a Skype call?

Jixun Foo: No, no, we had a Polycom. We had a video call with Robin and so that was when I first met Robin and Eric. I found it interesting and went to Beijing and visited their office at Zhongguancun 中关村at that time. And I still remember, it was this pretty rundown place called Beida Ziyuan Binguan 北大资源宾馆, just outside of BeiDa. There were very few people. They had like 13, 14 people then.

And so, why invest? You know looking at the environment, looking at these guys coming back, I mean leaving their family behind and coming back to strive and make a difference in the market that they believe is growing. It’s you know, it’s just you feel the passion. And that really kind of gave me the view that hey, you know, these guys could do it. So that’s on the people side. That’s 2000.

Hans Tung: That’s 2000.

Jixun Foo: That’s 2000, mid-2000. The other thing is that I did a bunch of research. Honestly, it was a lot more desktop at that time, and there was no Google. It was really comparing with what’s more a lot more desktop at that time and say “OK you know and it was no Google”. It was really comparing with Inktomi and Akamai. Inktomi was doing the search engine for Yahoo and was powering a number of the portals. Baidu had the same model.

Hans Tung: The B2B model back then.

Jixun Foo: Yes, B2B model is information service provider and I remember that was the thesis I wrote in the manual I gave to my partners. And so that was a thesis. But I think underlying it there was this view that as information grows and as there are more websites and there’s more content, the way portals are organized, information through a directory is not enough. So search has to be eventually a gateway.

I wouldn’t have predicted the business model at that time. I just predicted the need and predicted the guy.

Hans Tung: And then, obviously, Baidu–2002 was it? Pivoted to a B2C model.

Jixun Foo: Yeah it was really 2001.

Hans Tung: How difficult was it to get to that decision?

Jixun Foo: It was not a straightforward decision. At that time, had Sina 新浪, Sohu 搜狐, NetEase 网易–we had all the major portals as our customers.

Hans Tung: Paying customers.

Jixun Foo: Yes, paying customers. But we are not really making a lot of money, it’s like a few hundred thousand US, for the year. And so it’s a fundamental question of where are we going to capture the value. Now obviously going to see, setting up your own portal, you’re competing with your customers. And so that really puts the board on to a lot of conversations, like, are we sure we’re going to do this.

I think one, Robin was very determined, because he felt like it’s either this or you die. There’s no outcome. There’s no market. There’s no value. Yes, you can get some business. But there’s not a big business. So I think that determination he had at that time was really, really important. And so the reference that we had was really not Google. I mean Google wasn’t there yet, in 2001. So it was really Goto.com. Goto.com was a company that DFJ actually invested in, that had the model for pay for performance. They acquired the first five placements on all the search results in all the major portals and then they basically–but they do arbitrage business. They don’t really own the search. Both Robin and in some ways, Google as well, figured out, hey, that’s the model that they could monetize over time. Goto.com had actually proved that the business model worked.

Zara Zhang: So you grew up in Singapore, went to school there and worked there in the beginning of your career. When did you come across the idea that you should leave Singapore? And why specifically China?

Jixun Foo: So I grew up in Singapore. My dad and my mom both were Chinese speaking. They were both teachers, and I grew up in a very Chinese speaking family. My dad had a masters in Chinese history so I had the affiliation or affinity to China, even when I was young. I think a lot of it is the fact that I grew up in a family that you know gave me the confidence and some level of understanding you know and affinity to China. And so when the opportunity comes along it’s like okay. I should go spend some time.

My first trip to China was back in second year of university. So at that time you know I did an exchange program in Hong Kong University and then I did a trip to China. It was quite an experience. One, China was still very–that was 1990. The country was still a very closed country, it was still limited by resources.

Hans Tung: This was before Deng Xiaoping opened up in 1992 with his tours of the South. So yes it was very early.

Jixun Foo: And I took a train through Hong Kong from Shenzhen all the way up to Baotou 包头 which is north of Beijing. And I remember when I tried to cross that border, there were people who say hey you know can you… So it was still a planned economy. So there’s this coupon that if you can bring it across and get a stamp, they would actually be able to get the product across, which was a television, without the import tax. And so I tried to do that. I was thinking I could get away with it. I was a student, I could make some money, and I was caught. At immigration, I was brought into the immigration room, and I was questioned. Initially I was trying to defend.

Hans Tung: This is not a side of Jixun we know well.

Jixun Foo: And then, I gave out on the guy. It was quite an experience. And in the process of traveling to China you see the different faces of China. And the important thing is that over the years you see–I think what’s important for people to know about China is it’s not about what you see at an instant. It’s about the change that you see in the process, because that change is the one that is power.

It’s not just simple change in infrastructure, but it’s also the change in the people, the mindset. I think that was the thing that actually caught me and said, this is a country that can come up, that could be really, really powerful.

Zara Zhang: Really agree. When I’m in school here–I go back around once a year, and every time I go back I don’t recognize the country. And I think right now, if I don’t go back for more than three months, it’s completely different.

Jixun Foo: Yeah. Well, you know, just the kids that we talked to yesterday, right, in our spot of outside conversation. These kids are amazing–the power, the confidence, they know what they want. I mean if you compare this same group of kids to their parents, the generation before them, they are very different. The change that they are going through and the intellect it’s unleashing in this country is the one that’s really amazing for me.

Hans Tung: This generation Z is growing up with a lot more confidence, a lot more information than anyone else before them. And it’s empowering to see them right in front of our eyes.

Zara Zhang: So how did you first come across GGV, and what made you want to join the firm?

Jixun Foo: GGV was actually founded by four founders, Thomas Ng, Joel Kellman, and we had Hany Nada and Scott Bonham as well. I’ve known Thomas and Joel–Thomas was my colleague at NSTB. So he ran a fund at that time under NSTB called TDF, and TDF later became TDF China, and TDF China became KPCB. So anyway that’s a little bit of a history there. So Thomas and I go way back. I’ve known him since ’96.

After I joined DFJ, I had the idea to leave DFJ. We started to have conversations about what’s next. He wanted me to come and spend time at GGV and help set up GGV in China. At that time, there was also Jenny. It was 2005. I remember Thomas got his team, we spent time together. We went to this Alibaba big event in the West Lake in 2005. That’s where I spent a lot of time with Haney, with Jenny, and so the idea was kind of coming together.

I had the option of say, going to start a fund with somebody else, or join a platform. A partnership is not that easy. You want to join a group with which you have some affinity. You may not be alike, but at least you have some cultural connection. You have some common understanding. You have some common friends and common grounds and so you can go a long way. So that was a big part of my consideration when I joined GGV, was the fact that I’d known Thomas for a long time.

Hans Tung: Well. What was different about GGV versus the other U.S. firms? Because I remember, back in 2002, 2003, 2004, Baidu had a tough time raising money from Sand Hill Road. Everybody on Sand Hill Road could have seen Baidu and met Baidu, and could have invested. Everyone passed. So what was it about GGV that made you feel comfortable that it was not just another Sand Hill VC who missed China?

Jixun Foo: I think for GGV, actually Thomas, Hany, Scott and Joel, the group started out with a fundamental view of the cross border. We believed that there was a lot of intellectual leverage we could get across U.S. and China by being on both sides. I saw how the team spent time together. In fact I met them more than once.

I met the whole team in Singapore, I met the whole team in Beijing, I met the whole team in the Valley. So you can see how they were spending time together to interconnect a lot of the views, sharing of all the views and ideas. And up to today, I think that’s the approach that we continue to take GGV. Across this partnership, we spend time across both regions, having our sites whether in the U.S. or in China. And being on the ground, seeing what’s happening, is important.

So I think for many of the Silicon Valley folks, you know, where I was at DFJ. To be fair, I think Tim Draper is someone really that spent time traveling around. But most people would not. Maybe they would do it once in a long time, in one year, or two years, three years. But not frequently like ten times a year. So that’s the engagement. I think only when you touch and feel and not just reading materials in articles, you can make a better connection and therefore you can make a better-informed judgment on what you are investing.

Hans Tung: You have that many of the largest M&A’s in the history of Chinese Internet sector starting with Youku Tudou, which was the first ever multibillion dollar deal that got done in Internet in China. When I read about it, I was extremely impressed and inspired by what you did and what else is possible. I thought it was going to be a different era, starting with that deal, with more to come. How did you think about that deal? How did you think about structuring that deal, and how did that get you to do more things like that over the last five years?

Jixun Foo: So you know, as I spent time on Tudou, I spent time with Gary, and I looked at how this company had evolved. It is interesting. They were the first mover in the market of online video. It started more of a bit of a video podcast and then it evolved. And it became more mainstream content. And so as it became more mainstream content you know there’s a lot more content acquisition and costs escalated. It’s not just use acquisition cost, it’s content acquisition cost. So as you look at this vertical, the competition starts to get intense in 2011 with the cost of content escalating as much as five to ten times.

And you know it was like 100,000 to 200,000 RMB per episode, to 1 million to 2 million RMB per episode. It shot up very quickly. So that was the first thing, looking at the market. And looking at GGV, we had quite a bit of money in there. We also brought other investors into the deal, Temasek and so on. You know I feel really responsible. It’s a lot of money in there, like $20 million, at least for our fund, we had 10% of our fund. The question was really what’s next.

And you know, Tudou, with all the ups and down, it did go IPO. We IPO’d fairly well, but the market also reacted to the point that the valuation came down, you know, $400 million. And we had $200 million in cash. But guess what? That $200 million cash will last about 12 months. That’s really scary, right? Well where else can you raise capital? So in my mind. Consolidation has to happen. This market has to get consolidated.

So I went around talking to people. I spoke with Gary, I spoke with Victor at Youku . I spoke with Gong Yu龚宇 from iQiyi 爱奇艺 at Baidu. So I started talking to them, saying hey, obviously I’m coming from a position where I’m looking at Tudou. And I told Gary, “if consolidation is going to happen, you want to be the first because you capture the most value by being the king maker”. So that was a thing that I really tried to get him to think about.

Hans Tung: He’s number three, but he can make whoever a stronger number one.

Jixun Foo: Well, I mean in terms of traffic it was kind of number two. One, two, three, but in that ballpark. They’re not that far apart, but you can really be the king maker in that instance. And there’s also other players, the P2P players. PPLive PP视频, PPStream PPS影音, and so on.

Hans Tung: But iQiyi had Baidu, which got a lot more traffic, the possibility that no one else. So yeah.

Jixun Foo: So we knew something had to happen, so therefore, by playing that hand I was able to get the attention from–I think, when I talked to the CEO’s, I think everybody knew that. The biggest issue is trust. Like, how can we do this? because when you have M&A, everybody has to open up the kimono. Everybody has to say, this is what I have.

Hans Tung: Right. Give us something, open up something.

Jixun Foo: So you have to open up. You have to have trust. And that’s one. Two is, you have to figure out the management. You know that there can’t be two leaders. Somebody has to step aside, and what do we do with the management? It’s not just one person, it’s one team. That’s always the tricky part with M&A. So I think I was able to figure that out. That was in 2012. I remember it was Chinese New Year, and I had a call with Eric Li 李世默from Chengwei Venture 成为资本. And then soon after we had multiple calls after that and we brought everybody to a neutral ground. We had to bring everybody to a neutral ground which was Hong Kong. And we had a closed door session between Youku and Tudou. It was almost a full day, through the night, and we shook hands. And we took just about three weeks from that point on to iron out a merger agreement that could be announced. Obviously they are both listed companies. The whole completion of the transaction will take time. It would take about six months.

Hans Tung: I’m going to be a little naughty and ask. Obviously you’re very close to Baidu, you know, both Robin and also Gong Yu from iQiyi. How come Baidu wasn’t the one that merged with Tudou?

Jixun Foo: Well you have to ask them. I knew that at that time, when they saw the news, it was a little bit of a shock for them as well.

Hans Tung: But they were in the discussion. It’s not like they weren’t in the discussion.

Jixun Foo: They were part of the discussion. So to be fair, we’re friends, and I will lay the opportunity down for you, but if I want to get the deal done, I think speed and certainty is important. So that drive and conviction and determination to do this is important.

Hans Tung: Obviously Victor did.

Jixun Foo: Victor did.

Zara Zhang: In terms of exits, do you think entrepreneurs should start thinking about that from day one, and have a clear idea of how their companies will exit? Or do you think they can wait until later?

Jixun Foo: No, I think you have to start with idea that if you want to go and build something, you don’t build something and say I built to sell. Now the outcome is really hard to sell. I’ve been in this business for the last 18 years in China, and I think the first 10 years, most people would say IPO is the way to go. First, there weren’t many super unicorns that could make large acquisitions. But from 2010 to now, over the last eight year, we have these ginormous companies like Ali 阿里and Tencent 腾讯and Baidu and JD京东. So they have they now have the market cap, if you will, to make large acquisitions that make interesting outcomes. So I think the market has changed, so M&A, just as in the U.S., will become, or can be a very interesting exit, in some ways it can be a better exit. If you are completely looking at liquidity point of view for both entrepreneurs and investors.

I think a lot of people don’t realize that up until the Youku Tudou merger, IPO was primarily the only way for people to get exits. In the U.S. whereas it was 80% M&A, in China was all IPO until then. So after the Youku Tudou deal, you engineered a few more prominent big name M&A’s. The next one was Baidu’s investments into Qunar with a controlling stake.

Hans Tung: That was another unusual move. One had a controlling stake but also the company was able to go public. I remember the only two deals that was done at that time when it was Sohu 搜狐and their game company and then that was what you did with Baidu and Qunar. So how did that work. And once again, how do you generate trust on both sides to have both sides agree that yes, one will have a controlling stake, but two, management has control operationally, and to be able to take the company public?

Jixun Foo: Yeah well I think the story was that Qunar, back in 2011, was started off as a metasearch play. You were competing with you know Kuxun 酷讯 initially. But over time, if you wanted to take Qunar to another level, so it was more like a Kayak in the U.S. So if you want to take Qunar to a bigger company, that business model is not enough.

It has to evolve beyond a media company and become an OTA. That’s a tall order. How do you become an OTA? I mean really, that whole supply chain is being controlled by both Ctrip and Yilong 艺龙网..

So there are two outcomes. One is we sell the company. At that time we had the option of selling the company, say $600-700 million to Ctrip or the like, or we continue to grow the company but we needed some ammunition. So the idea I had at that time was if we could have Baidu invest, we could make Qunar become the de facto gateway for travel search, it would be very powerful. Then at least I control the demand end, and then I can work on the supply chain. So that was the idea.

And so I brought the Baidu team I brought CC 庄辰超and Fritz from Qunar together and have a conversation. And I was able to work out a deal with them. Obviously, it was complex because Baidu definitely wanted control. So we negotiated a control stake to 60 percent. And we wanted to maintain independence, so we had seven board seats of which Baidu had four. But there was a fourth seat that they appointed me to as the dividing vote. So that was how we structured the deal. And it went pretty well.

And so the company continued to grow their business. In 2013 we IPO’d the company, but competition becomes intense with Ctrip.

Hans Tung: And the Alibaba came into the sector, as well.

Jixun Foo: And so by 2015 we figured that, you know, James Liang 梁建章 came back to Ctrip and started a conversation of more consolidation, and so we did. We did that M&A with Qunar back in 2015, and it was a great outcome for us. It really priced Qunar at $7 to 8 billion. So it was a 10x step up.

Hans Tung: With Baidu’s investment.

Jixun Foo: It was more than a 10x step up from Baidu investment, because Baidu investment was really at a discount. But if we had sold the company that 2015 outcome would have been 10x more.

Zara Zhang: How do you negotiate a deal that’s acceptable to everyone at the table? Especially a lot of the times people may have different interests and one player might be more dominant than the others. How do you make sure everyone agrees to a set of terms and accepts the final agreement?

Jixun Foo: First of all you have to understand what everybody wants. So Baidu has this strategy at that time. If you looked at iQiyi, and iQiyi was run relatively independently. They had a strategy for certain verticals that they wanted a majority or as much of a stake as possible. But they were willing to have that management and empowerment given to the team that ran the business. So that was what Baidu wanted–okay, I’m going to own that vertical, but I’m going to let you run it.

Hans Tung: Tencent has that similar style as well.

Jixun Foo: Tencent has similar style, but Tencent doesn’t require that large ownership. Baidu is more a majority type arrangement.

So, you have to figure out what they want. And the management, what do they want? I think for the management team as well, CC who would want to step up as the CEO, because you know he will elaborate on that to be able to take this company from just a media company to an OTA company, because that’s what he really wants to do. So he’s willing to give up that ownership at that time to do that.

So I think it’s a question of just making those needs met. And you know, and building an arrangement, creating arrangement which allows both sides to get what they want.

Zara Zhang: With the recent merger of Yunmanman 运满满 and Huochebang 货车帮, which are the largest trucking companies in China, the angel investor, Wang Gang 王刚, actually became the CEO.

Jixun Foo: Yeah. So I think that on that deal, I must say that there’s a lot of investors, we’re a relatively minority shareholder of Yunmanman 运满满. I would give a lot of the credit to Wang Gang 王刚. Last year, in August, I was traveling in Europe and Wang Gang 王刚 called me and said “hey, this is the deal, I’m going to do this”. He was positioning himself as the investor but he was the one who was really negotiating the deal. He told me he was going to get it done in two weeks.

(laughter)

I said that’s not going to work. The few things I told him was like “that’s not going to work”, because they were very comparable in size. And I think there was no one management that could say fuzhong 服众 (be convincing) right? So one side is saying that “I give up, you are better than me”.

At that time, the leadership of the management team was not that clear. So, I posted to Wang Gang 王刚and said, if you want to do this, the best thing, the right thing for you to do is become the CEO of the company. And he’s ex-Alibaba. He has operator experience. He has the credentials of seed investor in Didi. So he has that clout to do this. Anyway, the whole deal took months to actually figure that out.

And I think Wang Gang 王刚 did a tremendous job of talking to the various investors on both sides, including the government that supported both sides. You know the respective governments. There’s a lot of–this is very local business. So I think he managed to weld all these things together and cut a deal. I must take my hat off to him, and he’s done a fantastic job.

Hans Tung: He’d written quite the deal for Didi and Uber. Just after the Youku Tudou merger, everyone had become more used to doing M&A’s. He also put in Meituan美团and Dianping 大众点评and then etc., etc. What do you think are external factors that made it easier and more possible to have M&A after 2011. What were the factors evolving with Alibaba and Tencent that made it easier and possible to have these kind of deals happen?

Jixun Foo: Well I think that there’s a lot more M&A, but the external factor is really market. I think China’s pace of change and innovation has accelerated. Market adoption, consumer education, everything is at an accelerated pace. You look at how evolved. You look at how payment evolved in China. a lot of that has to do with capital. There’s a lot of capital being pumped into subsidies, into the programs and subsidies and so forth, to drive adoption. So on one hand you have rapid adoption in a market which is driven a lot by capital. On the other hand, it drives competition at different levels, which also requires a lot of capital.

So you know, there’s a limit to how much capital you can raise, whether you are Didi or Kuaidi 快的. There’s a limit to how much valuation people are willing to pay. And so I think capital is a factor that actually drives those M&A’s, because you can no longer raise more capital, enough for you to burn. So you have to figure out what’s next.

That forces a lot of the consolidation. I think it started really with online video and now it evolves into the other verticals like Didi and Kuaidi, Uber China, so the ride sharing space and bike sharing. We have Meituan and Dianping, which is more the takeout business and the coupon business. So you’ll continue to see this happen, because the capital market can no longer take those financial subsidies and finance. It has to foster consolidation. I think that’s a big factor. I think the other thing is just, with the Youku Tudou case, it’s a mindset shift. People understand what that means. The guys who sold their business through the M&A if they exited, they actually made good, they got their first pot of gold.

But I think when you see that it’s also important. Right. So all the entrepreneurship effort, their hardship, it’s paid for. They don’t just walk away without anything. So I think that outcome also helps. So I think there’s a few factors.

Zara Zhang: You know you’ve led a lot of GGV’s investments in mobility and transportation companies, including ride sharing companies like Didi and Grab, bike sharing company Hellobike 哈罗单车, trucking company Yunmanman, and also connected car company Xpeng Motors or Xiaopeng Qiche 小鹏汽车. I wonder what makes you excited about mobility and in your mind in 10 years, how will people be moving around.

Jixun Foo: Yeah so I think that’s a thesis that our firm–I work with Hans, I work with Jenny, and we talk quite a bit about it. When we first started, this whole thing was a concept about shared economy, ride sharing. And so we first invested in Grab and later on we caught up with Didi, and then the whole trucking service as well.

I think one is if you look at the old business model, whether it’s on the consumer end or the business end, it’s not easy to connect demand and supply. That’s a fundamental issue which mobility you know where whether it’s on the consumer end all that business and it’s not easy to connect demand and supply. So that’s a fundamental issue which mobility actually creates because it’s location based. So that technology mobility solution actually makes that connection worth. And then along with that I think that’s the first step. And then we went on from connecting people, the guy providing the service with drivers to a person to connecting with an object which is a car or a bike, to start with.

So I think that the mobility solution will evolve as the supply end which is the vehicle, goes from the bike which is more self-drive self- ride, to a car which can be more autonomous over time. The connection will change. It will go from people to objects. So there will be a lot more technology that needs to go in there, to make the car more intelligent and autonomous over time. If you see the evolution of this sector, these things are going to converge. –the car company and the ride sharing platforms are going to converge. Yunmanman 运满满, the Full Truck Alliance has to think about how to build trucks that are autonomous, and that’s part of Wang Gang’s vision as well. So that connection will shift over time, and so I think for GGV is we have to invest in that vision. We invest ahead. So these pieces of jigsaw somehow will come together. Now they may be working independently as different companies and still collaborate with each other, or they may merge with each other at some point. We don’t know.

But I think it is a direction that the market is heading, that car, the supply end will become more intelligent, will become more amendable, if you will. On this side, it will just become more intelligent as to telling you what kind of service you need. So you can ride a bike if you are just going for a 1 to 3 kilometer or 1 to 3 miles. Or you can get a car. So in that same app you should have all the transportation services that you need, versus having like multiple apps. So I think that will be more consolidation that could happen in this category.

Zara Zhang: So one investment that was not as obvious from day one was the bike sharing company, Hellobike. So when when you met them the sector was already very heated with a lot of investors by going into Mobike 摩拜 and Ofo, and the major markets in China were pretty saturated already.

Hans Tung: The company was doing a parking app.

Zara Zhang: And they failed at their first attempt, and the founder is very young, so what made you believe that it was a good idea to invest in them? Obviously, it was a very prescient decision because they are the number one independent bike sharing player in China right now.

Hans Tung: A lot people don’t know that, that they’re number one now.

Zara Zhang: And it’s backed by Alibaba, who has raised millions of dollars.

Jixun Foo: Yeah well. So when I first looked at this bike sharing space I was trying to figure out like how do you make money.

Hans Tung: Less than 1 RMB per ride.

Jixun Foo: Less than 1 RMB, and it has competition, you can predict that you don’t even need to pay to get a ride. How do you make money from a ride sharing service? That was my first question. So we met ofo at that time, and there were different questions that we had in mind about both companies. This ofo had a very simple bike, really just a bike with a lock, a mechanical lock. and when I looked at the model, it was 200 RMB a bike. But the cost of operating that 200 RMB bike was quite high.

At that time, Dai Wei 戴维 (David Wei) the CEO of ofo, had his model. And as I was looking at the model, I said it’s hard for me to predict a model because I think the cost of operations will go up. The number of rides per day could shift as you go from summer to winter. Things like that. So so when I looked at the model it wasn’t quite making sense to me. And Mobike, similar.

So when Hellobike came to me, it was already a portfolio. they had a service for parking at that time and was not going very far. This was his second venture. And then he tried to tell me that I was going to do this, which is his third initiated, right? So why should I believe you? But through his first two ventures, he has accumulated a lot of operating know-how. He understood a lot of the issues behind bike operation, product issues and how to make his service operationally efficient. So I thought that the team of engineers was a good team of engineers.

And so the one interesting thing is, initially I wasn’t completely convinced. I said well why don’t you go and do some trials in some selected cities. And he did. He went to two cities and he did some trials. He came back with the numbers and then he started to open my mind a bit about what this can be. Number one, I think the number rides, actually this is a big market. so just from a frequency of engagement, it was far higher than the Didi and Grab. I kind of did a back of the envelope estimation at least for China, that these rides per day could get to 100 million rides per day. That’s a big number, in terms of user engagement. So that’s one thing that caught me.

The second thing is, you know he was telling me that hey you know I’m not just doing bikes. I’m going to do electric power bikes over time but there’s a lot more product and technology issues that you need to deal with, like charging the bikes, and do have wireless charging and do you have charging stations, etc. So those are issues that he hasn’t quite figured out yet but he said hey, directionally, this is what I’m going to do. I’m going to increase the frequency of engagement but also the distance for travel. So that got me interested. So I brought you in, Hans, and Jenny.

Hans Tung: How did you get over the concern that the subsidy would still be there and our pool would be kept artificially low for a while? Or did you feel that, given your past experience with all the consolidations, that won’t last forever, then we’re already a year, two years into it, so the amount of investment you had to take on was less.

Jixun Foo: So honestly, do I’d bet on this guy becoming number one right from that instant? Not really. I was like, what’s my downside?

So the other thing about bike sharing is that China has close to 400 cities with more than a million people. Even at that time, Mobike and ofo were largely in tier 1 cities. There was room for them to grow. So that’s one thought. The second thought is, because even after this, given all the experience I have with them, the worst case scenario is they get consolidated at some point. So that’s value for what they’re doing. So that’s how I thought about the initial investments, that hey, if they do this and they do this right, in a worst case they get consolidated. So that’s why I got you and Jenny, we spent some time and we put in the first $5 million and the second $3 million. And we continued to finance it until Chengwei Venture成为资本 came along later, and today they are by far the largest player. They are more than 25 million right today. You know they are the aggregate of ofo and Mobike.

Hans Tung: With ofo I can understand, because of the way his team had a bike that was not as intelligent. But what do you think is the reason that Hellobike could overtake even Mobike, which was number one for a long time?

Jixun Foo: My read on Mobike was not so much on their product. My understanding was just what was happening with the management. Not as unified. So that was an issue that I could see from afar, or I heard from afar. So that was the thing that I think eventually kind of took on itself. Li Bin 李斌, the real founder behind Mobike, the Chairman. But he’s really doing NIO 蔚来汽车, which is really his pet project, where he has hundreds of millions of dollars of his own money where he goes all in, as an EV company. So what is the company and so where does he sit, right? where does he stand? So it’s different. I think that if the entrepreneur has high conviction and you know, goes all in on one thing, the chance of success is just higher.

Hans Tung: Right. GGV was not a major investor in the automotive sector between 2000 and 2010. There were other investors who rushed into that space, because you know automotive is a huge sector that drives economy in China.

However in the last six to eight years, or last four to six years, GGV has become a major investor in this space, led by you with investments in Didi and the Hellobike and Xiaopeng Auto and Full Truck Alliance. So within a very few years we’ve become a major investor in this space. So, a lot of people say is the first mover advantage that important, or do you wait for the right signals in order to decide when to double down on a category?

Jixun Foo: I think when you invest you learn. And so I think the initial investments in Grab gives you a vantage point as to what’s happening in the ride sharing space. And then Didi and Hellobike, and now you see how people are thinking about what’s next. I think a lot of it is evolution versus me trying to say this is what I’m going to invest five years down the road.

You know it’s really a process of talking to these entrepreneurs and saying okay, this is how I see my business evolving, and you get vibes along the way. And I think Didi and Grab and Full Truck Alliance, they have a common theme. It’s more connectivity, and simplifying the connection and making the supply and demand more efficient. That’s the fundamental. Then beyond that when I invest in EV’s, it’s really a different mind. It’s really that when it goes to Hellobike, the object, the car, the vehicle, has to become more intelligent. So Hellobike gives me that sense that the object, with AI, with all sorts of sensory technology, will become more intelligent. And I believe that in the next three to five years, or five to ten years, cars will become more intelligent and hence why I started looking at that space, and talking to Xiaopeng 何小鹏and saying hey, if you want to do this, you should go all in and go full-time.

Hans Tung: He was co-founder of UC Web, and was at Alibaba for a while.

Jixun Foo: And I look at this category, just as Tesla was founded by Elon Musk, and there’s not many people that can do this. Not many entrepreneurs because you almost need people who have done it before.

You need a serial entrepreneur. Why this is so hard, it’s such a big supply chain. You have to assemble talent that believes in you, and unless you have done it before, it’s like, who are you? And you have to have the financial muscle to say this is what I want to do. And investors will want to follow you. So you know, Li Bin from NIO actually puts in hundreds of millions of his own dollars, and Elon does the same thing. They’re putting money where their mouth is. So there are not many players who can do this right. And hence, it is a big category. China sells 26 million new cars every year. It’s a huge market. So if he can capture it, it will be a huge outcome.

Hans Tung: Both of us have been in this business for a long time, and when we see young VCs trying to break into this industry, fight over every deal and get worried the deal is rejected from IC and didn’t get approval, and sometimes they worry about price, or don’t want to pay the price to get into a deal.

What advice can you give them how to be patient and move methodically or thematically, one category at a time? So you look at what GGV has done in e-commerce versus retail with initial investments, and Alibaba now has close to 20 investments in e-commerce space on your retail space and both U.S. and China. Look at auto or transportation space and include travel in there, with Qunar, and also we did Airbnb in the U.S. with auto investments and sharing investments that you made. And then look at frontier tech with Jenny. A sector overtime gets quite well covered with key strategic investments. What kind of advice can you give to young VC to think before they act, and not just always crave on the next interesting thing, like blockchain, cryptocurrency. You’re old, you don’t get it, you’re going to be useless.

Jixun Foo: Well there’s always new stuff. Well, that’s really the opportunity for young people, new ideas, innovation, providing new drivers for growth or drivers for disruption. So that’s great. Now the thing here is that with ideas, if you look back, Amazon, 2000 raised a ton of money, and at some point people thought that Amazon was crazy. and today, Amazon is a ginormous company. First you have to appreciate and take time to appreciate the fundamentals of what you believe in and get the opportunity. And I’m sure that GGV and many other firms will give you the opportunity to invest and deep dive and spend time. But you have to understand the fundamentals over time. Because a lot of the stuff that we talk about, in my view, when people talk about things it tends to be at a very high level, very superficial, momentums, what it can be, but there are a lot of things that can go wrong. And when things go wrong, is it really going wrong or is it just momentarily? So if you can understand, you could then make the best of it and capitalize on the opportunity.

So I think you know, from my early investments in Baidu, I want to say that for the first three years, I just don’t know where the light is. You don’t know if this company can be great, because whatever they do, whatever they make, it’s still tiny. It’s still small and people don’t talk about it. You don’t know.

So after the Alibaba buzz, things seemed to fall into a black hole. so you have to believe that search will become big at some point. It’s just how does it get there? We don’t know. It takes time. So likewise I think whether it’s with ride sharing, with cryptocurrency, with AR, with VR, with AI, with all the later stuff that you can imagine, it will come. That question is where is the application that will give it that power to explode, that explosive growth.

Zara Zhang: We’re going to move on to the last part of this show which is a round a quickfire questions. First is, who is the entrepreneur you admire the most, and why?

Jixun Foo: There’s always a tough question. I admire a lot of the entrepreneurs I work with, and they all have different traits. Whether it’s Robin Li from Baidu, or CC Zhuang from Qunar, or Xiaopeng becoming a serial, I respect entrepreneurs for their drive and passion. And for some of them, the passion goes beyond I want to make money. The passion goes to making things possible, making a change possible.

But you know for Xiaopeng, to be fair, he could retire on a boat or a plane or whatever. He sold UCWeb for a couple billion dollars. So one thing to have that and now drive to go start something. Now he’s having eight meetings a day, ten meetings a day, and working through weekends. It goes beyond money. It is that passion. So I respect that passion. And so many entrepreneurs that I respect. So it’s not one person.

Zara Zhang: What do you do for fun?

Jixun Foo: What do I do for fun? Actually I love sports. I broke my left Achilles tendon recently. I broke my right Achilles tendon six or seven years ago.

Hans Tung: Both from badminton.

Jixun Foo: Both from badminton. I love to play sports. I love to challenge myself. I love team sports as well, because it’s a good way to socialize. My wife is now telling me maybe you shouldn’t ski anymore; you shouldn’t play badminton any more. I don’t know if I can stop. I started skiing only–I’m not a great skier. But I love the challenge, despite all the falls. But I started skiing on the good grace year. I love the challenge of you know going through that process and you know eventually being able to ski better and better, better. So I love to challenge myself. And I love to do sports.

Zara Zhang: Well thank you for your time.

Jixun Foo: Thank you.

Hans Tung: Thank you.

Thanks for listening to this episode of 996. By the way we also produce a weekly e-mail newsletter in English also called 996 which has a roundup of the week’s most important happenings in tech in China. Subscribers have told us it is informative and fun to read. The newsletter also features original content and analysis from Zara and me. Subscribe at 996.GGVC.com.

GGVC is a multistage venture capital firm based in Silicon Valley, Shanghai and Beijing. We have been partnering with leading technology entrepreneurs for the past 18 years, from seed to pre-IPO, with $3.8 billion in capital under management across eight funds. GGV invests in globally minded entrepreneurs in consumer new retail, social Internet, enterprise cloud, and frontier tech. CGV has invested in over 290 companies, with more than 45 companies valued at over a billion dollars. Portfolio companies include Airbnb, Alibaba, Ctrip, Didi, Domo, HashiCorp, Hellobike, Houzz, Keep, Slack, Square, Toutiao, Wish, Xiaohongshu, YY and others. Find out more at GGVC.com. We also highly recommend joining our listeners WeChat group and Slack channel, where we regularly share insights, events and job opportunities related to tech in China. Join these groups at 996.GGVC.com/community.

Hans Tung: If you have any feedback on this podcast or would like to recommend a guest, please email us at 996@GGVC.com.

Episode 18: Zilin Chen of BingoBox on the Future of “New Retail” in China

GGV Capital’s Hans Tung and Zara Zhang interviewed Zilin Chen, founder and CEO of BingoBox, China’s first scalable 24-hour cashier-free convenience store and a GGV portfolio company. BingoBox features a smart counter for a staffless check-out experience, and uses RFID and computer vision to keep track of items. Users scan a QR code to enter the store, and pay via Alipay or WeChat Pay.

BingoBox is a pioneer in a phenomenon known as “new retail” in China, commonly understood as using technology to transform offline retail. BingoBox was launched to public in August 2016 and now has over 300 boxes in almost 30 cities in China. GGV led BingoBox’s series A investment in July 2017. The company raised another $80 million in series B this January, which GGV also participated in.

Zilin discussed how the idea for BingoBox came about, how BingoBox differs from Amazon Go, and the technology and unit economics behind the stores.

The episode also features a bonus interview with Eric Xu, GGV Capital’s managing partner based in China, who led our investment in BingoBox. Eric discussed the meaning of “new retail” and what made him want to invest in BingoBox.

Transcript:

ZARA ZHANG: Hi everyone. We wanted to get to know you our listeners better so that we can serve you better. Please visit 996.GGVC.com/survey to fill out a very brief questionnaire. By filling out this survey, you could be chosen to appear on the 996 podcast as a guest host, and ask your own questions to our guests, as well as Hans and me, on an episode of the show. If you’re looking to join a startup, we can also help recommend opportunities to you based on your response. I look forward to hearing from you at 996.GGVC.com/survey.

Also I wanted to tell you about one of my favorite podcasts, Acquired, a show about tech acquisitions and IPOs. On the show hosts David Rosenthal and Ben Gilbert go behind the scenes of these exits. Every episode is full of great history lessons and insights into some of the most important companies in the world. It’s my go-to show during my commutes and I highly recommend checking out if you’re into tech or business in general. On the latest episode, Acquired covered the Xiaomi IPO, and Hans and I appeared on the show as guests. You can check out the episode by visiting Acquired.fm or searching “Acquired” in any podcast app.

HANS TUNG: Hi there. Welcome to the 996 podcast brought to you by GGV Capital. On this show, we interview movers and shakers of China’s tech industry as well as tech leaders. We’ll have a U.S.-China cross-border perspective. My name is Hans Tung. I’m the Managing Partner at GGV Capital and I’ve been working on startups and investing in them in both the U.S. and China for the past 20 years.

My name is Zara Zhang. I’m an investment analyst at GGV Capital and a former journalist. Why is this show called 996? 996 is the work schedule that many Chinese founders have organically adopted. That is, 9 A.M. to 9 P.M., six days a week.

HANS TUNG: To us, “996” captures the intensity, drive and speed of Chinese Internet companies, many of which are moving faster than even their American counterparts.

ZARA ZHANG: On the show today we have Zilin Chen, founder and CEO of BingoBox, China’s first scalable, 24-hour, unmanned convenience store. It’s a small, lightweight, box-like shop where you can purchase pretty much everything that you may find in a 7-Eleven. But unlike traditional convenience stores, no human staff is required inside.

HANS TUNG: To enter a BingoBox, you must scan a QR code to register on its website. Then to check out, you place the items on a counter, scan the QR code and then pay with WeChat Pay or AliPay which is a mobile payment. As you head out, a sensor at the door can automatically detect any unpaid items. The door will only unlock once all the items have been paid.

ZARA ZHANG: BingoBox is a pioneer in a phenomenon known as “new retail” in China, commonly understood as using technology to transform offline retail. BingoBox was launched to the public in August 2016 and now has over 300 boxes in almost 30 cities in China. GGV led BingoBox’s Series A investment in July 2017. The company raised another $80 million in Series B this January, which GGV also participated in.

HANS TUNG: Hi Zilin, thank you and welcome to the show.

ZILIN CHEN: Hi Hans.

HANS TUNG: Tell us about your background before you founded BingoBox. What motivated you to decide to solve this particular problem? Why do you think online convenience stores have a future in China, and how is that different from the traditional ones we know, like FamilyMart, 7-Eleven, and so forth?

ZILIN CHEN: Well, before I founded BingoBox, I was working in Ogilvy in advertising and I helped my clients to solve marketing problems. I helped them to sell products to consumers and diagnose channel problems. At that time, I knew that channels were very important to manufacturers. Early in 2013, I began to think about developing a new channel for products where clients could bring their products to consumers in a highly efficient way, at very little cost. At the end of 2013, I started BingoFresh. It’s an e-commerce platform selling fruit through WeChat, a very popular application in China.

HANS TUNG: That’s right.

ZILIN CHEN: Yes. It took one year’s effort to build up our selling network in South China, before I started BingoFresh. It’s an online, e-commerce platform selling fruit online. We deliver our fruits to customers and we built up our own logistics teams. That business worked quite well and we raised our pre-A finance in August 2015. But after pre-A financing, I felt that the business was hard to grow quickly because we were not the leading company in China in that category.

At the same time, I was thinking about how I could lower the delivery cost for the e-commerce business. At that time, delivery cost was already low, but I wanted it to be extremely low, to make BingoFresh outstanding and competitive with other leading companies. I also wanted to raise another round of financing. So, at the time, my initial idea was to was to put a refrigerator inside the community. We could put refrigerator downstairs for our consumers. Then we would deliver our fruits to the refrigerators and they would go downstairs to pick up their fruits by themselves. This would lower my delivery costs. We did a pilot that was very successful.

At the same time, I thought “why not sell some things that were easy to stock with a long shelf life?” And we could sell some beverages like Coke, and some biscuits to get more return on investment and lower cost. Then I came up with an idea. I thought, since I want to sell products in the refrigerator, why don’t we just do it bigger and make a community store. That was the initial idea for BingoBox.

HANS TUNG: How was that community store going to be different from a FamilyMart or 7-Eleven, which are located pretty close to these communities anyway? As we all know, in China, each community may have 20 to 50 towers. Each tower has maybe 20 to 50 floors, so there may be 10,000 people in a community. You can find FamilyMart or 7-Eleven outside of those communities and still be very close to them. What makes your solution more efficient?

ZILIN CHEN: Because you know we are closer to the consumer than 7-Eleven or FamilyMart.

HANS TUNG: How so?

ZILIN CHEN: Because you don’t need to walk out of the residential area, your community–

HANS TUNG: It’s smaller? So you can put it inside the community itself?

ZILIN CHEN: Yet that’s not the most important thing. The key thing is that you only can put a machine inside a community, and not a store.

HANS TUNG: So you want to become a machine, and not have to pay any rent by being inside these communities. That’s the trick.

ZILIN CHEN: Yes, that’s the trick. But we did pay our rental. We just paid one-tenth of–

HANS TUNG: –rental cost of a retail store.

ZILIN CHEN: So you can see, we have no staff cost, also we have an extremely low rental cost, and that makes our total cost much lower. I mean it is one-fifteenth of the traditional operating cost than the outside stores. So that’s very high economic efficiency.

HANS TUNG: And the delivery costs will be cheaper than e-commerce, because you don’t deliver by order. You deliver in bunches to the machines, so you have synergy on the delivery cost as well.

ZILIN CHEN: So yes, here comes our mission. Our company’s mission is we are working to enhance society’s retail efficiency. All our efforts are to make this happen.

HANS TUNG: So I’m going ask one more question before I let Zara jump in on the next one. You were an advertising executive before. This business model, BingoBox, has a novelty angle, to build something unmanned. How did you find a partner to work with, to come up with a technological solution?

ZILIN CHEN: I have to say I have some IT background, even though I’m not a technical guy. But I am a geek. When I was in university, I did coding myself, and I know most of the technical stuff. I know how it works. I find the solution has been in my mind for years. This kind of technology is very mature and I know the basics. So I just pick up some very creative guys in my team, in my technical development team, and I tell them the direction.

And so then we just work it out. I have to say the team is really very creative and they work very hard. And they’re very smart. So they found a lot of solutions. They talked to a lot of experts in this industry. And they used our “Internet mind” to combine all the solutions. I must say, the first version of BingoBox is only innovative at the application level. I don’t think the technical point of view is very high tech.

HANS TUNG: But that’s the first version.

ZILIN CHEN: We created the–

HANS TUNG: The MVP, the minimally viable product, first.

ZILIN CHEN: Yes. I can do that because I have a good team. We have survived running BingoFresh in the e-commerce platform. The team trusts me, and they trust this direction. I have to say the team is really good. I have a good team.

ZARA ZHANG: So obviously, Amazon also has its own version of the unmanned convenience store, called Amazon Go. They opened a store in Seattle, which opened to the public this January. And many people refer to BingoBox as the “Amazon Go of China”. So, I was wondering, when you started BingoBox, did you have Amazon Go in mind at all? And how do you think about this different version of what you’re doing?

ZILIN CHEN: If you notice that the launch time, when I did BingoBox, it was 2016. I remember very clearly that the video of Amazon Go was released in December 5, 2016. And at that time, our first BingoBox had already been operating for four months. So there’s no way I had any idea of Amazon Go when we were developing BingoBox.

But actually I think, in my point of view, we are very different from Amazon Go. From the very beginning, we were aiming to solve a different problem. With BingoBox, we are creating a new channel, a higher efficiency channel. We created a new shop and a new environment for consumers, a new way for you to buy products.

And Amazon Go is all about enhancing the efficiency of their old shopping environment. There is no shopping mall. And they are not an unmanned store. To be correct, it is a cashier-free store. They also have people to do the merchandising. From my understanding, Amazon Go is trying to solve that problem that in the United States, the cashier is very highly paid.

HANS TUNG: And you have to wait a while to get through.

ZILIN CHEN: They have a pain point–that is the peak time and low time. They pay a lot of rental for that store, and when people come through at the peak time, they see a long line. And people give up because they have a lot of choices. They can drive to another store.

Offline stores are very developed in the U.S. and consumers have a lot of choices, so they can go to another store. They’re trying to solve this problem. If you can have no line for checkout, you can save a lot on rent. I think in that way, if the cashier-free model can work, and also the cost–when the cost can be low enough, or reasonable, then they’ll benefit a lot for the old, traditional channels. But we have different directions and the target is different.

ZARA ZHANG: How is a target different? Who do you target?

ZILIN CHEN: Actually, we are a convenience store and our target is all kinds of people. When you have a lease, the thing above you will give you an offer.

ZARA ZHANG: Yeah. So a seven-person team on the backend can watch 45 stores at the same time right? For BingoBox?

ZILIN CHEN: Yes, a seven-person team can maintain 40 or so stores. And the efficiency is getting higher now, and in the future, a seven-person team will maintain 50, 60, even 80 boxes. That’s our plan.

ZARA ZHANG: So could you walk us through the technology that you use to track items in your store? I think you started out with radio frequency identification, or RFID, which uses a tag that contains electronically stored information. But later on you also integrated computer vision. How did you make these particular choices and in this particular order? How much resources are you spending on R&D?

ZILIN CHEN: Well this order is not a choice (laughter). I think it’s a necessity. Because in the beginning we had no research power to do computer vision. It takes a lot of money for research. So we just felt that if we used RFID, as RFID is a cheap and mature technology to build up our unmanned community store system. I mean, in the total solution, product recognition is only the first step of the unmanned convenience store operating system.

First step, we need to recognize the product. Then we need to process the payment. And after that, in the back end we have a maintenance operational system to support this. As you can see, the result is a seven-person team that can maintain 45 BingoBoxes. So, again, the first step is product recognition, and we used RFID, a very easily-accessed technology, to do that. At a large scale, it is not cheap enough, because every tag has to be attached manually. You have to tack on the labor and tech cost to do that.

Definitely, computer vision is the future. So at the same time we use RFID to build our entire system and help us to prove our understanding of this business model. But at the same time, we invested lots of money, I mean millions of US dollars, to do the research. We had our team of over 100 research engineers to do the computer vision, and our product is called 小范FAN AI. We can use the computer vision to do the recognition of the products that we can read off our ID. So our operational cost is 30% lower. That means we are all ready for large scale recognition.

ZARA ZHANG: What is the accuracy rate of your computer vision solution?

ZILIN CHEN: Technically, the accuracy rate should be over 99%. Frankly, there’s no technology that can achieve 100% accuracy. 99% is already very reliable. Reliability is very important in the payment, it is more important than the time of a transaction. People don’t want to save one more minute, but they want the feeling of security. So when you pay all of our products from our “cashier”, 99% of the product list is correct. But out of the one percent, you need to move the product around to make the adjustment. After that, the checkout list should be correct.

HANS TUNG: If it’s not accurate for whatever reason and the customer can’t correct it by moving the item around, what can they do? Can they call someone to help?

ZILIN CHEN: Yes they can call someone to help. We have 24/7 visual service staff. You can easily push the button on the cashier station, then you can see our customer-service face to face. We have a video conference system embedded in BingoBox. But that is unlikely to happen. When you move the product that you still doesn’t work–that is unlikely.

ZARA ZHANG: Another difficult thing about an unmanned system is how do you make sure people pay? So what is the shrinkage rate for BingoBox, or the percentage of goods that are stolen?

ZILIN CHEN: Actually we don’t put any effort to track the consumers or prevent consumers from stealing. Because when you walk inside BingoBox, there are very, very few people who steal, because you are under surveillance.

HANS TUNG: It’s recorded.

ZILIN CHEN: Every movement is recorded. And also, our camera is triggered by our actions or behavior. When some unpermitted behavior happens, our alarm system goes off. The service team can immediately see what has happened inside BingoBox and they can take over.

HANS TUNG: Lock the door? (laughter)

ZILIN CHEN: Well, they can lock the door, but we don’t recommend that. When they push a button, they can immediately talk to the person inside. So you can see the person on the screen.

HANS TUNG: Oh, that’s not scary at all. (laughter)

ZILIN CHEN: These are some extreme situations, and we don’t suggest these kind of measures. But we have to be equipped for these measures. So you know, the shrinkage rate is very low.

HANS TUNG: In almost two years of operations, how many of these incidences have occurred?

ZILIN CHEN: In almost two years operation, we have encountered three times.

HANS TUNG: Only three times?

ZILIN CHEN: Only three times, and of those three times, they were theft by kids. And because they use their parents’ phones, we send an SMS to them. Most of their parents will pay online. And so it’s very clear. You know, people steal things. They initiate it because they have no money to buy all these things. I think their initial feeling is they can get away with it. But when they know it is all tracked– people generally behave themselves. People who walk in BingoBox, they use good behavior. We don’t even have to clean for a week. BingoBox is very clean.

People tend to think–especially in Tier 3 or Tier 4 cities, we have all these BingoBoxes in Tier 4 cities. In rural areas, people don’t damage our products. I remember an example of a mother took her 5-year-old boy inside our BingoBox. He kept throwing our products on the floor. And the mother, every time, would pick up all the products, put back, put back, put back, put back. After she could not bear it any more, she was trying to get out.

HANS TUNG: She was trying to get out. This would never happen in a manned store. they wouldn’t care. Somebody will take care of it.

ZILIN CHEN: Yes, they know some people will take care of it. I think that’s very interesting.

HANS TUNG: Very interesting behavior. So you guys have a seven-person team on the back end?

ZILIN CHEN: Seven people take care of 45 stores.

HANS TUNG: Why that specific ratio?

ZILIN CHEN: This ratio keeps going up. Because now, our capability is greater. It’s a team and they have different functions. You have one person in the warehouse to do the preparations for each Box to do refills. Like 外卖 (waimai), you need to prepare. So one person to do the preparation, then one person to deliver the products to the stores and to the fulfillment. And you need a team manager for every area. One manager takes over for 100 Boxes, so you need that position. You also need the back end IT side.

ZILIN CHEN: So seven people can take care of 45 stores today, but in the future, they can handle 80 Boxes.

ZARA ZHANG: Can you talk about the unit economics? How much does it cost to set up a Box? How much does it make on a typical day? What’s the payback period? If you’re open to sharing.

ZILIN CHEN: Actually, the income is different in different cities. When the box is located in some high population density area, their sales will be relatively higher. Now, in our over 300 stores, our average is around RMB 800 RMB per day. In Beijing, we have around 15,000 RMB per day. So you can see, Beijing is higher. And Tier 1 cities are higher than Tier 2 cities. And for those Boxes located in Beijing, we can expect now the average payback time is around 10 months.

ZARA ZHANG: And you chose residential communities for your entry points. A lot of BingoBoxes are in these residential communities. Why did you choose that particular setting?

ZILIN CHEN: Because, you know, in the future I think when you locate a BingoBox outside a residential area, you can very easily get a location, because the price is transparent. It’s a market behavior. The price is open to everybody. But inside the residential areas, right now we are the only choice. We are doing the pricing. That’s why our rental is so low. The property management team doesn’t have a second choice. And I think now when we come into an area, we lock this business down. We are the only choice inside this area.

HANS TUNG: Do you sign an exclusive?

ZILIN CHEN: We don’t sign exclusives. Partially we will sign exclusive, but now we don’t tend to sign them. Because it’s natural you will be the only one. Property managers don’t have the incentive to introduce new competitors inside the same area, inside the same community. When they introduce a second one, the property owners will not allow because we are doing a service for them. The property owners need one 24-hour convenience store. They don’t need many. And because we share profits with the property management, when they introduce a new one, their income will not go up.

HANS TUNG: So what’s the point?

ZILIN CHEN: In the opposite way, they need to pay more costs to manage two systems, two suppliers. So they will not do that. The last thing is, our competitors will not compete with us inside one community. They’ll go to a new one. In China, you have over 400,000 communities. That’s a lot. This market is really big, it’s extremely big. So I think in the next three to five years, the competition will not be very strong.

ZARA ZHANG: Are the prices of the goods in BingoBox comparable to those in 7-Eleven? Are they the same or a little premium?

ZILIN CHEN: Of course, we are compatible. Our pricing strategy is 5% lower than the normal convenience stores.

ZARA ZHANG: Okay, so it’s cheaper and more convenient?

ZILIN CHEN: Yes.

HANS TUNG: And you have a more efficient business model than they do. Obviously, speed is extremely important in China, you see that across the board in every internet sector. BingoBox already has around 300 stores in less than two years of operations. So how do you turn BingoBox into a fast moving company? What values do you instill in your employees, and do you see any other copycats come into this space and do something similar to you, at a fast speed, as well?

ZILIN CHEN: Well now actually I don’t think we are fast enough, even though we have 300 stores now. This year we have a more aggressive spending plan. So in the first two years, we were doing the foundation. We have developed our own technology or own AI systems and we trained the team.

I have to say that the BingoBox team is now the most experienced unmanned convenience store operators in the world. We have a lot of practice in this industry and now we are ready for a very fast expansion plan.

And then when it comes to the copycats, I don’t worry about any copycats from day one. Because I know that definitely you’ll have copycats in China when you are a good model. A good business in China will have copycats. I don’t try to stop anyone entering this field because the market is so big. There are 6.8 million mom-and-pop stores in China. The market is so big and this category is so new, and you need enough competitors competing in this field that you accelerate the market.

So, I embrace the competitors. And also, all the copycats, I notice now they don’t know the essence of this business. Some of them just want fast money. They just copy the shape of BingoBox but they don’t put any effort to build up the whole system or to do the backend job. So, I think competition is a good thing. It’s good for all the participants in this field.

HANS TUNG: As you know, the top two internet giants in China, Alibaba and Tencent, are very aggressive and expanding to new retail. Alibaba tends to do it by themselves. Tencent tends to do it through strategic investments. What is your thought on working with them or competing against them?

ZILIN CHEN: My philosophy is to cooperate with all the good resources. To me, Alibaba and Tencent are also good resources. But at this moment, I don’t want to sell BingoBox to anyone. But I will welcome all the good resources of cooperation, like if Tencent wants to invest in me, I’m open. Also, if Alibaba want to invest me, I’m open too. But it’s just a matter of market price.

HANS TUNG: So if anyone from Tencent or Alibaba investment group is listening to this podcast, you know Zilin is open for discussion. (laughter)

ZARA ZHANG: So right now for BingoBox, shoppers still need to place everything on a counter to checkout. Even though it doesn’t involve human cashiers, it still takes a bit of time, whereas for Amazon Go you just take everything and leave. So are you aiming for that day when you can realize that vision and how far are we from there?

ZILIN CHEN: So that’s an old topic about “take and go”. So back to the point of view I just mentioned before. When we’re talking about making a payment, what is more important? The reliability is more important than the time. In fact, now you use BingoBox cashier to make the payment, and it’s already very efficient. You just need 10 seconds to make a payment. I don’t think that’s a barrier. That’s acceptable to our consumers. But you “pay” 10 seconds more and you can get reliability or a feeling of security, I think that’s worth it. It’s worth it for the extra 10 seconds.

So by now, I think the consumers feel BingoBox experience is better than take-and-go experience. I think take-and-go may be more acceptable for the low price, for the light user, or one-time user with a small payment amount ($5-10). But when you’re making a bigger payment, say 100 RMB, you need to check the bill before you make the payment. But actually I know take-and-go may, in the future, will be in the mainstream. My policy is when consumers need it, I will offer it.

ZARA ZHANG: Have you seen a consumer demand for that yet?

ZILIN CHEN: Yeah, no I don’t think consumers have any demand for that. Most consumers hope to experience this, but when you provide it, they may choose not to use it. So when I launch this kind of take-and-go, I have to say, when the cost is low enough that it’s reasonable, then I will think about it. But by this time, by now, even Amazon Go, that system that cost $1 million cannot even do 100% accuracy. So, I think this technology is not mature enough now.

ZARA ZHANG: And there’s only one Amazon Go store, and BingoBox has 300.

ZILIN CHEN: So I think take-and-go technology is not realistic now.

ZARA ZHANG: So I think that also a huge difference between the China and the U.S. is the mobile payment is has such high penetration rate. So everyone has WeChat Pay or AliPay on their phones and BingoBox leverages those forms of payment. So you don’t need to do a lot of user education for them to know how to use the Box. Whereas in the U.S., there is no mass-adopted mobile payment methods. So it might take a lot more time for users to actually become used to paying with their mobile phones.

ZILIN CHEN: Actually, now I have no plan to locate BingoBox in North America. So I really don’t care. (laughter)

ZARA ZHANG: Yes, I was just commenting on the factthat this idea is probably more viable in China because of how widely adopted mobile payment is.

ZILIN CHEN: Yeah. That’s true. It’s obvious that it’s more viable in China. But you know, we are launching a new Box in Korea and also in Malaysia. Mobile payment is not as popular as China, so we also provide another way of payment like traditional credit card debt or some debit card. Also we also support this kind of payment. I have to say that’s not an essential barrier. It’s not a barrier. The payment is not the barrier, because that’s the need of consumers. It’s a very big shakeup for them to use BingoBox. When there’s a big snowstorm, you take a lift downstairs, you can buy all the things you need. That’s the big trick. It’s not about payment.

ZARA ZHANG: Also in the U.S., I notice all the newspaper articles about Amazon Go mention the loss of cashier jobs. Whereas the news in China, it is rarely mentioned. I think people in China generally have a more buoyant attitude towards AI and new technology. They focus on the positive impacts rather than negative ones. So why do you think that’s the case?

ZILIN CHEN: I think because Chinese people are now educated by Internet companies and we are now in a changing area, a changing era in China. Every day is different. But in the United States, the pace is not as fast as in China. Also, people and the society is very developed and they care about stability.

ZARA ZHANG: The status quo. They want to maintain the status quo.

ZILIN CHEN: They don’t like change.

ZARA ZHANG: Also, there are a lot of existing constituencies you need to persuade for any new changes to happen and that takes time. So you recently launched a new product called BingoBox Mini. Can you tell us more about what that is and how it works?

ZILIN CHEN: BingoBox Mini is an interesting product and I like it very much. It’s a really low cost visual recognition solution for traditional convenience stores. We just need 7,000 RMB for each BingoBox Mini. It’s plug-and-play. You put it in the store, and give us your SKU list. After three days, you can start to sell these products. The BingoBox Mini will recognize all your products in your stores. So you can save a cashier.

ZARA ZHANG: So it looks like an oven, right? The size is about the size of an oven. And you can basically re-outfit a traditional mom-and-pop store into a semi-BingoBox using that machine, and that might save a lot of labor costs. So that can be very powerful because as you mentioned, China has hundreds of thousands of these traditional mom-and-pop stores. So by doing that you extend your impact beyond your own BingoBoxes and into these more traditional existing stores.

ZILIN CHEN: Yes.

ZARA ZHANG: Yeah. So how many stores are using them?

ZILIN CHEN: We are now just doing a pilot. We just have some dozens of stores now doing pilots.

ZARA ZHANG: Ok. Cool. And then the 小范FAN AI is your initiative for enhancing the accuracy of computer vision recognition of your products in the stores. How is that going?

ZILIN CHEN: 小范FAN AI is not only computer vision. It’s a total solution including the computer vision and also the BI (business intelligence). We have empowered it as the visual capability and in the future, “she” will be equipped with communication skills like AI, so in the future, 小范FAN can talk to you. And she will know you better than yourself. Because it will be all your records. She will know your preference. In the future, I think she’ll make some recommendations for you and give you exclusive promotions. So小范FAN AI is not just a baby. We have a big plan for her.

ZARA ZHANG: Yep. So is she like Alexa, she can talk to you when you’re in the store?

ZILIN CHEN: Kind of.

ZARA ZHANG: I’m really excited for the future of BingoBox. It’s down to the final part of the interview which is a round of quick-fire questions. The first one is who is an entrepreneur that you admire the most and why?

ZILIN CHEN: I have to say it’s pretty cliché, but I like Steve Jobs. He is the entrepreneur I admired most. That’s because I think he was very real. He didn’t care about other’s judgment and he insisted on pursuing perfection. I think it’s very difficult when you run a company that you can insist on your pursuit. I think it’s very difficult.

ZARA ZHANG: Yeah. What motivates you to wake up each morning and what keeps you up at night?

ZILIN CHEN: Waking up, my motivation is the dream. One day, you can see BingoBoxes everywhere. I have a lot of imagination and when it becomes real, it makes me very happy.

ZARA ZHANG: So what is your dream and what’s her vision for retail in China? How many BingoBoxes is enough for you?

ZILIN CHEN: My dream is that–I don’t want to set a number, but I think at least that hundreds of thousands of BingoBoxes in China, and also in the world. Because I think it’s a very high efficiency channel. It’s good for society.

The dream wakes me up every morning and the work keeps me awake at night. It keeps me awake at night because there’s a lot of meetings and things.

ZARA ZHANG: So what do you do for fun?

ZILIN CHEN: I like sports and especially American billiards. Pool. And also, I like driving.

ZARA ZHANG: Driving cars?

ZILIN CHEN: I like driving. I like things that make me feel excited, especially off-road driving. I use off-road driving as a way to release pressure.

HANS TUNG: Ok. As you expand across China you have deal with the local governments and how does that work? Do you need a permit or any kind of permission from them in order to do this business?

ZILIN CHEN: Yeah, we definitely need to deal with the government. And now working with government is one of the most important things for us. Because BingoBox is a new thing, the government doesn’t know how to measure it. We are now working closely with the government to have a permit. Now our practice is to sign a cooperation agreement with the government that will officially allow us to run these kind of community stores inside these communities. So we are now also working with the government to issue the standards.

ZARA ZHANG: So you are participating in writing the rules.

ZILIN CHEN: Yes, we are now actually participating in this.

HANS TUNG: Are these rules local government, one by one? Or is it at the provincial level, or the central level?

ZILIN CHEN: Now we can only do it one by one.

HANS TUNG: City by city.

ZILIN CHEN: Yes, city by city. We have a permit for over 14 cities in China.

HANS TUNG: Yes. And then how many VCs did you meet for Series A, the round that GGV led?

ZILIN CHEN: A lot of VCs.

HANS TUNG: What made you pick Eric (Xu)?

ZILIN CHEN: Because he knows this business. And I think just chemistry. Day one, he met me and he was very excited. And when we got downstairs, he texted me on WeChat, he told me–

ZARA ZHANG: –that was the most exciting business he’d seen in a long time.

ZILIN CHEN: Yes. That’s what he said to me. So founders sometimes need affirmation from VCs and encouragement. Eric gave me a lot of it. (laughter)

ZARA ZHANG: Thank you so much for being here. And we look forward to working with BingoBox going forward.

ZILIN CHEN: Ok. Thank you. Thank you.

ZARA ZHANG: Now you will hear a short interview with Eric Xu, managing partner GGV Capital in the China office, who led our investment in BingoBox.

HANS TUNG: So Eric you have been at GGV since what, early 2017?

ERIC XU: Yes.

HANS TUNG: And you have done a lot of very interesting new retail investments. BingoBox is one of them. What’s the rationale for you to spend time on new retail? And what particularly interested you about BingoBox?

ERIC XU: Yes. So before I talk about BingoBox, I want you to know the pain points for the traditional e-commerce market and also the pain points for offline retail. So the pain point for the traditional e-commerce is that first, you have to acquire a lot of users for your e-commerce business. And user acquisition costs have surged these days.

HANS TUNG: This is online, right?

ERIC XU: Yes online. So five years ago, the cost of acquiring a user was like 10 to 20 RMB, and now it’s 200 to 300, even 2,000 to 3,000.

HANS TUNG: Wow. Was that because the smartphone penetration has gone up and is not growing as much?

ERIC XU: Yes. So actually in short, there’s no traffic dividends for today for smartphone. And the user is just bored with installing every application with the iOS store. So you may want to install one or two monthly, but you don’t have to install all of them. In other words, the consumer has already gotten used to several applications.

HANS TUNG: They have their habits already.

ERIC XU: The second pain point is that the fulfillment cost of e-commerce. So even if the user needs to purchase one bottle of water, you still have to deliver to the home, so it will cost you almost the same as the price of the goods.

HANS TUNG: This is 101. Every transaction, no matter how small, has its own cost.

ERIC XU: Under the very competitive situation in China, you have to do this regardless of the price or cost. Yes. OK so two major pain points with the traditional retail–

HANS TUNG: So, back to the new retail, if you ship the goods to the retail point, that’s consolidation so you have more economy of scale per order, because each order is sizeable?

ERIC XU: Right. You just shipped out the total number of goods for the day and the user just takes away for himself.

Yeah that’s different from the traditional. It’s also the same. So like number one pain point is that the rental cost is very high. So as we all know, if we want to open one retail store in a first tier city in China like Shanghai, Beijing and Guangzhou, the average daily breakeven point is as high as 8,000 RMB, and this 8,000 is the lowest. So normally, we see breakeven point as high as 10,000 or 13,000 RMB per day. So with the new retail, you can virtually pay very low cost. Sometimes you put the Boxes into the middle of nowhere and you are charged nothing.

So the second one for the traditional retail is the staffing costs. So even if this is the minor portion of the total cost structure, you still have to pay attention and you have to employ like three or five people, with at least two persons at a time in the store.

HANS TUNG: So there’s training costs, training time and also leakage.

ERIC XU: So there’s some catch-up costs for the staffing and you have to pay more attention to the staffing. And if they have to pay attention and stick to the general principle you set for the retail. So these are those major pain points that are true for e-commerce and true for traditional retail. But new retail solves all of that.

So for the first one, you don’t have to pay to acquire users, because the Boxes are just nearby. When the consumers just walk around, they find out if there’s a need, they just walk in and purchase it. Second one, there’s no fulfillment cost, because like I said, the consumer picks it, pays and takes it away. And maybe you can consume it immediately, like a Coca-Cola. And there is that very low rental cost, and that is the biggest part of cost inside the cost structure.

HANS TUNG: There’s no rental cost because locations inside those big communities have no rental costs involved right now?

ERIC XU: Right, that’s true, and of course there’s no staffing cost. You’ll have to check inventory regularly, once or twice a day. But you don’t have to have some staff standing there to provide immediate service to the consumer.

ZARA ZHANG: So there are a lot of companies in the new retail space. It’s been a buzzword in China in the past two years. A lot of companies in the unmanned space especially, so what about BingoBox stood out to you?

ERIC XU: Yes. First of all is the team. When we invest early, we consider the founder and the team as the most valuable asset we’re looking for. So I spent a lot of time with the founder before we made the final decision. Zilin actually is very good. He can prove everything he says to you and get it get them finalized. This is very important.

The second one is that they have a mature solution. Why I call it a “mature solution” is when we come to the business world, we have to provide a solution to be stable. So a lot of guys come to me saying “Eric, I can provide an image processing, image recognition solution to you. This is the final version for new retail.”

But where we tested them, we found the accuracy changed from maybe 50% to 97%. Even with a 97% accuracy rate, it’s still far from being stable with a normal operation in the real world. So RFID solution actually is not so advanced compared with image recognition one. But as the first generation, we want to roll out the business quickly and we want the business to be stable.

So when we talked about the future, Zilin also replied that he is doing it with the second generation, which is also the most advanced image processing solutions. So this is the difference, the major difference between BingoBox and the other players in this sector.

ZARA ZHANG: What is your definition of “new retail”? We’ve talked a lot about this term but I think different people have attached different meanings to it. I think it was first proposed by Jack Ma a few years back.

ERIC XU: Yes, I think the first important definition for new retail is it has to be smart. So a lot players or investors, they’re investing in some new deals calling it new retail, but they do not use a smart terminal. So without smart, you don’t know who are your users and what they are buying, and what are they fond of. So they are not a trend of the new retail.

Second one is that with the new retail, you have to solve the full set of pain points, while some are for the traditional and some are for the e-commerce. So when you can solve all the pain points of all the problems and the using the smart solution and know the users and have a database to be used use in the future with a better possible solution, business model, then that will be ideal.

HANS TUNG: Makes sense.

ZARA ZHANG: How has BingoBox and Zilin and the team grown since you first met them?

ERIC XU: Two levels: the team level has changed dramatically. So I think they have a lot of good people added to the team, not only on the operational level, but also like high level HR and also strategic, and most importantly is R&D. They recently recruited the head of the R&D to Intel in China to do R&D within image processing solution. The second one is business wise.

HANS TUNG: So that’s interesting. Now Chinese new retail investments can take the best talent from IT world who are not doing enough smart things or Internet things. But the technology know-how is actually there. So it’s a great marriage of resources and opportunity.

ERIC XU: Right. So this is very important. And the second way is business operations. So as you guys know, they are the first runner in this space and that they have certain dividends not only for the business but also for the government. So they have developed exclusive collaboration with more than ten city governments, hopefully to run the business gradually. And when we first invested in the company, the company only operated five Boxes over two cities. And now the company runs more than 300 Boxes over 10 major cities and possibly they will expand this to 2,000 by the end of this year.

ZARA ZHANG: Zilin told us that you texted him right after a meeting that BingoBox is the most exciting deal you’ve seen in a long time. So we look forward to seeing the company grow and our partnership.

ERIC XU: Yes thank you.

HANS TUNG: Thank you Eric. That was very informative.

ERIC XU: Thank you very much.

HANS TUNG: Thanks for listening to this episode of 996. By the way, we also produce a weekly e-mail newsletter in English, also called 996, which has a roundup of the week’s most important happenings in tech in China. Subscribers have told is informative and fun to read. The newsletter also features original content and analysis from Zara and me. Subscribe at 996.ggvc.com.

ZARA ZHANG: GGV Capital is a multi-stage venture capital firm based in Silicon Valley, Shanghai and Beijing. We have been partnering with leading technology entrepreneurs for the past 18 years, from seed to pre-IPO. With $3.8 billion in capital under management across eight funds, GGV invests in globally minded entrepreneurs in consumer new retail, social Internet, enterprise cloud and frontier tech. GGV has invested in over 290 companies with more than 45 companies valued at over $1 billion.

ZARA ZHANG: Portfolio companies include Airbnb, Alibaba, Ctrip, Didi Chuxing, DOMO, HashiCorp, Hellobike, Houzz, Keep, Slack, Square, Toutiao, Wish, Xiaohongshu, YY and others. Find out more at ggvc.com.

We also highly recommend joining our listeners WeChat group and Slack channel where we regularly share insights, events, and job opportunities related to tech in China. Join these groups at 996.ggvc.com/community.

HANS TUNG: If you have any feedback on this podcast or would like to recommend a guest, please email us at 996@ggvc.com.

 

 

Episode 17: Unpacking Xiaomi’s IPO

GGV Capital’s Hans Tung and Zara Zhang have a conversation about Xiaomi’s IPO, which took place in Hong Kong on July 9. Hans is one of the early investors in Xiaomi and a former company board member of the company.

Hans recounts the original pitch that Xiaomi’s founder Lei Jun gave him back in 2010, and what made him want to invest in a seemingly “crazy” idea.

We also touched on frequently-asked questions like: Why can Xiaomi be thought of as an “Internet company” instead of a hardware company? Why should people stop comparing Xiaomi to Apple? Was Xiaomi’s IPO valuation justified? What does the “Xiaomi ecosystem” mean?

Join our listeners’ community via WeChat/Slack at 996.ggvc.com/community. GGV Capital also produces a biweekly email newsletter in English, also called “996,” which has a roundup of the week’s most important happenings in tech in China. Subscribe at 996.ggvc.com.

Transcript

Hans: Hi, everyone. I wanted tell you about our sister podcast, Founder Real Talk. It is a bi-weekly show that gets real with founders about the challenges that founders and startup executives face and also how they have grown from tough experiences. This show is hosted by my fellow managing partner at GGV Capital, Glenn Solomon at our Menlo Park Office, produced by our colleague, Fischer Yan, at our San Francisco office.

Zara: Past episodes of the show include Stewart Butterfield from Slack, Sarah Friar from Square and Nathan Blecharczyk from Airbnb. You can take a listen by searching “Founder Real Talk” in any podcast app.

Hans: Hi there. Welcome to the 996 Podcast brought to you by GGV Capital. On this show, we interview movers and shakers of China’s tech industry as well as tech leaders who have a US-China cross-border perspective. My name is Hans Tung. I’m a managing partner at GGV Capital and have been working at startups and investing in them in both in US and China for the past 20 years.

Zara: My name is Zara Zhang. I’m the investment analyst at GGV Capital and a former journalist. Why is this show called 996? “996” is the work schedule that many Chinese founders have organically adopted, that is, 9:00 AM to 9:00 PM, 6 days a week.

Hans: To us, “996” captures the intensity, drive and speed of Chinese Internet companies, many of which are moving faster than even their American counterparts.

Zara: Hi, listeners. Starting from this episode, we’d like to try something new. Instead of having a guest, Hans and I will have a dialogue about a current event or hot topic in China’s tech scene today. On this episode, we’re going to talk about Xiaomi’s IPO which took place in Hong Kong on July 9th. Hans is one of the earliest investors in Xiaomi as well as a former board member of the company. Hans, these two weeks have been a whirlwind for you. You were in Hong Kong for Xiaomi’s IPO and appeared on TV four times in a single day. What was that day like for you?

Hans: Well, I think that’s an amazing milestone for the management team and its board members who have participated in the growth of the company from Day 1. It’s amazing that this company started eight years ago and somebody remarked back in 2010 that the only way Xiaomi will win and become big is if Motorola, Ericsson, Nokia, all of those, go away. Back in 2010, everybody in China was using Nokia or Motorola so it was pretty remarkable how the world has changed a lot in eight years, and Xiaomi was able to come through with flying colors.

Zara: Can you recount the moment when Lei Jun first told you about the idea of Xiaomi? I remember that it was a cold winter night in Beijing in 2010.

Hans: That’s right. It was in late January 2010. Lei Jun called up Richard Liu from Morningside first, had a six-hour discussion with him.

Zara: Six hours?

Hans: Six hours.

Zara: Lei Jun has really good stamina when it comes to talking.

Hans: He does. He can talk for hours. This is just amazing and incredible. I was the second person to call in the same week and I met with him in person because I was living in Beijing at the time. I remember in the first half-hour, I was just in complete shock of what he wants to do. In the history of tech startups, there was no phone company-from 2G, 2.5G and 3G–no startup has ever succeeded from scratch by being a phone company. What he was trying to do was something that has never been done before.

In the next one hour, I decided that this makes sense and they probably have the best team to do it because of two things that he said. The first thing he said was, “In 10 years by 2020, smartphone will replace laptop as the most valuable and most commonly used computing device that people carry around with them every single day,” and the second thing he said was, “To win in this market, the winner has to figure out how to build a brand online and sell online and listen to consumers’ feedback online and be able to iterate fast based on consumers’ feedback.”

He expanded on this point by saying that all the great phones from Motorola, Nokia, even Android or iPhone, HTC, phone companies don’t listen to consumers. Steve Jobs is famous for saying that the consumers don’t know what they want. They may not know what they need. It takes a genius to come up with an amazing product in this category, and Lei Jun took the opposite approach, which is that he will come up with something that’s solid, that’s decent, that’s good but he welcomes user feedback so they can iterate on. I think that’s the second revolutionary idea that he came up with that was interesting.

The third idea was the fact that to win, you have to be able to be a triathlon athlete, meaning that you have to be able to design hardware, have the best manufacturer to manufacture it, has to be able to build up some kind of Android-based OS so you have a chance to do a UI that’s tailored to the needs of the local consumers, starting with China, and the third thing you need to do is be able to monetize through Internet services and not through hardware. The hardware has to be as cheap as possible, as low-margin as possible, to get into the hands of as many users as possible to make it work.

Those are the three things he said that I thought were extremely revolutionary that no one else in China had a similar thought at that point in time. It was designed to be more customer-friendly than the existing hardware players at the time and also more integrated than Internet service companies in China were willing to do. There are people who want to do software-only solutions but not many want to do the combination of all three to make that work.

Zara: I think the second point of Xiaomi listening to its users is pretty revolutionary in that Lei Jun really wants to be friends with the users. Xiaomi always says they treat their users as friends, as equal counterparts and they’re not condescending in saying, “You don’t know what you want. I’m going to make a product and you’re going to like it.” There’s a book I really recommend called 《参与感》 which means “Sense of Participation” in Chinese, by Xiaomi co-founder, Li Wanqiang, which talks about how Xiaomi does marketing. Their philosophy is to build loyalty first before fame so they want to have a really deep relationship with their core users before going big. I think it’s really crucial to its success.

Hans: Definitely, and I think that people overlook this. Xiaomi had cofounders from Google, Microsoft and Kingsoft and, after Kingsoft, other Chinese Internet companies. A lot of the tactics that worked came from cofounders with experience operating in China, whether it’s from big companies or Chinese companies. I think in this area, Richard Lu from Morningside was very smart in pointing out that how you mesh these two or three different company cultures into one unique Xiaomai culture will be the key determinant to decide whether Xiaomi can be big or not. And I think they can see that’s the most serious thing that he did. Once he started, he made sure that people functioned well as a team and spent a lot of time listening to consumer feedback. That strategy definitely panned out after the first year of hard work.

I think what convinced me to invest in Xiaomi was that Lei Jun and his team was the only team in China that had the software experience from Kingsoft, the Internet services gaming experience from Kingsoft, had the online brand-building experience from Vancl and the online e-commerce experience from Joyo. Even though on Day one, there was nobody with strong hardware experience, Lei Jun was able to recruit and build up a team over time to overcome that issue. No one else in China had all five so I thought that Lei Jun had the best shot with four out of five attributes to win in this market.

Zara: It was definitely not an easy decision or obvious decision, I guess.

Hans: I think all the people who passed on Xiaomi early on passed for all the logical right reasons, either the price was too expensive or there wasn’t enough data points showing that this can definitely make it, and hardware is a difficult business to win for a sustainable period of time. For all those people who passed on Xiaomi, I think it’s completely reasonable and logical. This does not just apply to Xiaomi. If you look at all the unicorns coming out of China in the next few months for IPO, whether it is Meituan or a Pinduoduo or ByteDance and Didi, for every single one of them, for most of the rounds, to pass on them is extremely logical and reasonable, and I’d even argue data-driven.

To make these judgment calls and make those bets, one, you want to have belief that the founder has the right vision, the right direction, exuding capability and, two, that the market is changing to favor the new way of doing things and then, three, in many cases, existing players must not get it and not be able to adjust to give new commerce the big opportunity to make disruption happen and possible. A lot of it comes down to judgment because you know the founder well enough to determine that he or she has the right attributes to take advantage of market opportunities.

If China doesn’t take off, if Internet doesn’t make enough impact in China in the offline world, then it’s not possible that these opportunities alone can make it work. Now, we have saying that because you’re betting on China, it’s going to be different because you’re not betting on Internet is going to change China and improve China. Therefore, you should bet on founders who have the most audacity to make the biggest change possible because the few of them that can make it work will have gigantic outcomes. I think they even did a calculation on the first round of Xiaomi, the one that Richard Liu led and I participated, that the first round investment in Xiaomi at IPO last week yielded 866-x return. If you don’t take that risk with an audacious founder early on, it’s not possible to make that return. If you’re very rational and reasonable, the room for return, unfortunately, will be a lot less.

Zara: You have appeared in the press a number of times talking about Xiaomi and I’ve noticed one question that a lot of US reporters ask is, “How does Xiaomi compare to Apple?” I guess they’re always trying to find a Xiaomi equivalent in the US and the closest they think of is Apple because of the smartphone business. Why do you think people should stop comparing Xiaomi with apple and, if not Apple, then which company do you think it’s the closest to Xiaomi?

Hans:One of the questions that I have heard from an American audience–obviously, very smart investors in general, especially investing in tech over the last decades–one of the first question I heard was that Xiaomi has a propriety system so it’s compatible to Android. For those of us who have tracked Xiaomi over the last eight years, it is amazing how even smart investors take successful examples that they know and put on top of companies from emerging markets and think that one is similar to the other.

It’s very difficult for any investor to fully understand Xiaomi’s model which is uniquely Xiaomi’s. Besides that, listening to consumers and therefore not presuming they know what consumers want and quickly iterate to meet and exceed expectations of customers. A lot of people look at Xiaomi’s revenue source and think that, “Hey, 70% comes from hardware,” and another 20% comes from smart-home appliances and that percentage seems to be growing in 2018 at least in the first three months versus 2017 so it’s hardware company.

For people who haven’t tracked Xiaomi, that’s very easy conclusion to make. Unfortunately, most of the smart investors, whether it’s Hong Kong, or US, or elsewhere, have not gone through the rise of middle class or upgrade of consumption in China or Japan or even in Taiwan. When people and the large middle class rise and go through organization and want to consume, they end up buying brands they trust and they’ll grow up with them, whether it’s with Uniqlo in Japan in the ’90s or Samsung through the ’90s and 2000s in the US,  whether it is HTC in Taiwan.

People in the US in the ’80s with GAP and then, most recently, last 10-15 years, with Zara and H&M. Consumers grow up with a brand they trust and they end up buying more from that brand. Muji is another good example coming out of Japan. What Xiaomi has done is becoming a brand that consumers first like because of the phone and end up liking the experience, spend a lot of time on the Internet through the Xiaomi phone. They end up buying a Xiaomi TV and other smart home appliances from the Xiaomi ecosystem.

When you go into a Xiaomi store or its online mall, you can’t help it but, over time, many new products come out each month from the Xiaomi ecosystem companies and you end up going there often and buying all the product from Xiaomi brand and, as such, ends up spending more time on Xiaomi app. The most popular example will probably be Xiaomi videos. When that happens, you would see a lot of faster growth of hardware-first but what comes later in each cohort is that more users will end up spending time on the Xiaomi app thereafter.

Xiaomi’s very good at building aggregation apps that take the best of content from related areas and put it on its platform and build a subscription business around it. That Internet service impact will come later and it needs to have users to use multiple Xiaomi hardware products to get them to want to use those apps. What foreign investors haven’t had a chance to see is the lagging effect that will happen with more growth from Internet services. Only time will tell to prove that this is right. It’s what we see from what we looking at a cohort data, but I think, over time, smart property investors will learn that there’s a different kind of company than what they’re used to.

Zara: One of the Xiaomi cofounders once compared Xiaomi’s business model to that of a small restaurant. They sell food, which is the smartphone, but they really make the money from tips, which comes from Internet services.

Hans: Correct, and a lot of people forget that, for any pure Internet service company, people have the growth hack, meaning that you’ve got to figure out ways to grow your user base through a mechanism that you have to spend money on to calculate LTV versus CAC to figure out what is a good way to scale your user base. Instead of paying for users, Xiaomi actually gets paid at least 5% gross margin if not more through hardware to get users. Their Internet services actually have a negative CAC instead of a positive CAC to grow users by getting paid for it instead of having to pay for users. It’s a very different model than almost any other Internet service companies out there. If this is sustainable–and to make sure it is sustainable is through having a lot more hardware products out there that a middle-class consumer family can buy and then use that portfolio of hardware devices to get paid for acquiring users so that their Internet services can scale thereafter. It’s a very different model than what people are used to and I think, over time, people will see if this will work out as some of us think they should.

Zara: Would you compare Xiaomi to Muji given the feel of Xiaomi stores and how it’s more adopting the concept of “new retail” more and more?

Hans: I think there’s definitely elements of Muji and Uniqlo in a different field for Xiaomi. There’s definitely elements of the Costco model, of subscription plus very low costs, to make sure that more products are affordable by the rising consumer class. There are definitely elements of Amazon in there as a platform that sells, many products being very focused at delivering superior experience to target users. What Lei Jun and his team has come up with is a mixture of different models that, at its core, is figuring out how to be the customer’s best friend and delivering experience that exceed consumer expectations. I think in his seven words Internet strategy of being focused, delivering superior experiences, positive word-of-mouth impact, and being extremely fast (雷军的互联网七字诀:专注、极致、口碑、快). These four terms make a lot of sense.

Zara: I think the lesson here is that it’s not possible to take a shortcut and just find a US equivalent for every company in China or every emerging market. A lot of times, there is no complete equivalent and we just need to take the time to understand their business model, how they really work.

Hans: Right, and this doesn’t just Chinese company but also applies to any company with a new business model. Facebook IPO was at $38.00 a share, within the first six months after IPO, it went down to $19.00 a share and now today is over $300.00 a share. In four years, people learned that it is a very different model than what they’re used to before. I remember back in 2008-2009, a lot of people poo-pooed on Facebook, thinking that it’s a company, even though it’s web 2.0 is not as profitable as Google and never will be as profitable as Google.

Therefore, it’s very easy even for the smartest investor in the world to miss on something that’s new. The fact that Xiaomi – the primary market is in Asia makes it harder for US investors or even Hong Kong investors to truly understand it. Only time can show that it is a superior model but when you look at how Xiaomi has expanded over the last few years, now they’re among the top phone makers not only in China but also number one in India and in some other three countries. The penetration is a lot faster and deeper than we all thought was possible. If we look at number of Internet users that’s coming online, the next 1.5 billion users that are coming online between now and 2030, most of that growth will come from the 74 countries that Xiaomi is in already. A lot of people ask me about whether Xiaomi’s coming to the US or not. I think they completely miss the point that the growth is coming from the existing countries that Xiaomi is already in.

Zara: Xiaomi calls itself an “Internet company” and a lot of people are skeptical of that term. How would you convince people that Xiaomi is an Internet company, and can you elaborate on some of the Internet services that they provide to their users?

Hans: Sure. Xiaomi, in their prospectus they mentioned that it has over 18 apps, with each of them with monthly active users over 50 million. It also has about, in total, 38 apps, each of them has over 10 million in monthly active users. These are amazing numbers and, in aggregate, it did over RMB 1.5 billion in Internet services revenue in 2017, which already places them as a top 25 Internet service-only company in the world. I think the most popular one people know is probably Xiaomi Video.

Xiaomi Video has an interesting way of becoming an aggregation of services. It doesn’t license content from anyone. What it does is it aggregates content from iQiyi, from Youku Tudou, from all the top Chinese video apps, each of which have already licensed the content. Whenever a user clicks on a video in Xiaomi Video, it takes you to the content from its partners but within the app itself so that you can have a more integrated experience. It charges advertising revenue and also subscription from the users so it makes money in multiple ways from different stakeholders and they share that revenue with those partners that provide the original video content.

You can focus on providing the most comprehensive collection of content to their user. At the same time, at least so far, they don’t have to spend much money on acquiring the content themselves and figuring out a way to coexist with other content producers. It’s a good way to build an ecosystem to provide better service that other people can make their share of the money as well. It’s a very good way to grow a business, and they’re applying that philosophy in other categories as well, not just in China but also out of China.

In the process of doing so, they also become a strategic investor in these service providers that they work with. In iQiyi, Xiaomi invested early and so it was able to grow with iQiyi as well. They’re doing that not just in China but also in many of the other 73 countries that they are in. Again, some investors haven’t seen this ecosystem approach and, from our experience of investing in China since 2000, we know that if a country takes off that Internet makes an impact, many of the top in the companies in that country will have tremendous growth. Xiaomi will win multiple ways as a result of investing and building an ecosystem in each of the countries that they’re in.

Zara: I wanted to talk about the IPO itself and the valuation and the pricing. There were a lot of fluctuations on the first day. Do you think Xiaomi had a reasonable pricing? What would you expect in the coming months?

Hans: I think the last two weeks have shown that Xiaomi’s stock price has steadily risen so around HK$20-21 a share. I think whatever the short-term fluctuation was in the first day or so, over the last two weeks, it has steadily ended up being in the high end of the range. I think pricing at the lower end of the range makes it easier for investors to believe in the story and the trading volume in the last two weeks show that not only is the volume reasonable but the stock price also appreciated.

I think investors should be looking at a longer term, how Xiaomi will continue to grow based on the trends that I mentioned earlier. We always think that IPO is just a blip or milestone. At the end of the day, you’ve got to build a business for value over a larger addressable market to continue to grow. Looking at Facebook, and Google, and Apple, and Alibaba, and Tencent, all the great companies out there show that that’s the way to create value over a longer period of time.

Zara: What’s one question about Xiaomi that you wish you were asked but you were never asked?

Hans: I think a lot of people don’t understand what Xiaomi ecosystem means, both in terms of the hardware ecosystem and the Internet services ecosystem.

Zara: A lot of people don’t know they have an ecosystem.

Hans: Correct. I think those who have invested in China over the last decades who had the fortune of having a front-row seat to see ecosystems forming in China, whether it’s in the form of Tencent investing in gaming companies around the world and e-commerce players in China or Alibaba investing in companies in O2O space and acquiring some of them, or companies like Meituan that that became super app and plug many apps onto it and WeChat doing this and Sina Weibo doing the same to let a lot of content providers to be on top of their platform.

This kind of ecosystem were things that Chinese companies learned and tried through four generations of entrepreneurship in China just in the last 10-13 years, and we are very fortunate to see that happen and gain that perspective. When we started investing outside of China, in Southeast Asia, in the US or even Latin America and in Europe maybe down the road–that perspective, how to build ecosystem companies, I think, can be replicated and expanded. We’re already seeing that happening with Uber learning from Meituan and Didi wanting to be a super app for transportation services and be willing to invest in companies like Lime and others, that services its ecosystem. I think more companies should learn from that and have a better chance of becoming a bigger company not on their own but also help other companies grow with them. And over the last 10-15 years, we have seen that’s extremely profitable and value-creating for Chinese companies so those have great lessons that I hope entrepreneurs from around the world are willing to consider, and we’ll be happy to help them.

Zara: I think the best way to appreciate Xiaomi’s ecosystem is just by visiting a Xiaomi store in China. You see not just phones and laptops and TVs but also rice cookers, air purifiers, Segway, headphones, bags, umbrellas, et cetera. These are all products made by companies that Xiaomi invested in, and it helps later in use to be an angel investor.

Hans: When you see 100+ different kinds of products inside each Xiaomi store, it’s amazing that Xiaomi itself only makes three products: the phone, the TV and the laptop. Everything else is made by other companies that Xiaomi has invested and helped to scale. When you have about 80+ companies that you can work with, each month, somebody will have some interesting new products that will get the consumers want to go back to the store and just check what’s going on. The foot traffic repeatability and frequency of the foot traffic’s much higher for Xiaomi than any other phone-only company out there.

Zara: I feel that’s one of the key differences between Apple and Xiaomi, is I would never go to Apple’s store, like once a month, just to check what’s new because there’s nothing new and I know what’s there. I only go there when my phone is broken but I would go to a Xiaomi store whenever I feel like shopping and browsing because there’s always something new. There’s always a pleasant surprise waiting for me.

Hans: Right, and that’s the appeal to a rising middle class and an increasingly-urbanized environment to want to do that. Many people are starting to have their first apartment and first house for the first time in their life and starting a family. There are a lot of needs that could be fulfilled by a trusted brand with a strong and a robust ecosystem. You’re right. If Lei Jun didn’t work for three years as an angel investor prior to the start of Xiaomi, he would not have come up with this idea of building an ecosystem. I think those of us who invest with him when he was an angel investor are very fortunate to have a chance to participate in something as big as this phenomenon.

Zara: Cool. That’s all we have for today. Thanks for listening and we’d love to hear your thoughts on this new format. You can reach Hans and I directly by joining our listeners’ WeChat groups and Slack channel at 996.ggvc.com/community. The community has grown into over a thousand people within the last couple of months and I think that’s a testament to the growing interest in tech in China. Thank you.

Hans: Thank you.

Hans: Thanks for listening to this episode of 996. By the way, we also produce a biweekly email newsletter in English also called 996 with just the roundup of the week’s most important happenings in tech in China. Subscribers have told us it is informative and fun to read. The newsletter also features original content and analysis from Zara and me. Subscribe at 996.ggvc.com.

Zara: GGV Capital is a multi-stage venture capital firm based in Silicon Valley, Shanghai and Beijing. We have been partnering with leading technology entrepreneurs for the past 18 years from seed to pre-IPO. With $3.8 billion in capital and management across eight funds, GGV invests in globally-minded entrepreneurs in consumer Internet, e-commerce, frontier tech and enterprise. GGV has invested in over 280 companies with 29 IPOs and 22 unicorns. Portfolio companies include Airbnb, Alibaba, Ctrip, DiDi Chuxing, DOMO, Hashicorp, Hellobike, Houzz, Keep, Slack, Square, Toutiao, Wish, Xiaohongshu, YY, and others. Find out more at ggvc.com. We also highly recommend joining our listeners’ WeChat group and Slack channel where we regularly share insights, events, and job opportunities related to tech in China. Join these groups at 996.ggvc.com/community.

Hans: If you have any feedback on this podcast or would like to recommend a guest, please email us at 996@ggvc.com.

Episode 16: Justin Kan of Twitch and Atrium: From Builder to Entrepreneur

GGV Capital’s Hans Tung and Zara Zhang interview serial entrepreneur Justin Kan. In 2007, he co-founded Justin.TV, a website that allowed anyone to broadcast video online. In 2011, Justin.tv spinned off its gaming division as Twitch, which went on to become the leading live streaming platform for video games in the US. Twitch was acquired by Amazon in 2014 for almost a billion dollars. More recently, Justin co-founded Atrium LTS—the “LTS” stands for “Legal Technology Services” – a startup that’s building technology to revolutionize the legal industry. GGV is an investor in Atrium.

Justin is a true startup veteran—in addition to starting multiple companies of his own, he has worked with hundreds of startups as a partner at Y Combinator, and has also personally angel invested in over 65 companies. Justin grew up in Seattle as a second-generation Chinese American, and graduated from Yale in 2005 with degrees in physics and philosophy.

In this episode, Justin recounted the story of how he started to live stream his life before streaming became cool, the pitfalls he has gone through during his startup journey, whether it was the right decision to sell Twitch to Amazon in 2014, and what gets him excited about his new venture Atrium.

Join our listeners’ community via WeChat/Slack at 996.ggvc.com/community. GGV Capital also produces a biweekly email newsletter in English, also called “996,” which has a roundup of the week’s most important happenings in tech in China. Subscribe at 996.ggvc.com.

The 996 Podcast is brought to you by GGV Capital, a multi-stage venture capital firm based in Silicon Valley, Shanghai, and Beijing. We have been partnering with leading technology entrepreneurs for the past 18 years from seed to pre-IPO. With $3.8 billion in capital under management across eight funds, GGV invests in globally minded entrepreneurs in consumer internet, e-commerce, frontier tech, and enterprise. GGV has invested in over 280 companies, with 30 companies valued at over $1 billion. Portfolio companies include Airbnb, Alibaba, Bytedance (Toutiao), Ctrip, Didi Chuxing, DOMO, Hashicorp, Hellobike, Houzz, Keep, Musical.ly, Slack, Square, Wish, Xiaohongshu, YY, and others. Find out more at ggvc.com.

Transcript

ZARA ZHANG: Hey everyone. Before we begin I just wanted to remind you that we have created a WeChat group and a Slack channel for you, our listeners. This is a community of people brought together by their shared interest in tech in China. Through these groups our listeners have made friends, recruited team members, and found clients.

We also organize regular offline meet-ups for this community. We had a meet-up in Beijing last month and we’ll be having another one in San Francisco on Thursday, July 26th. Details for these meet ups will be announced in our groups. To join the groups, please go to 996.ggvc.com/community and follow the instructions there. Once again that’s 996.ggvc.com/community.

HANS TUNG: Hi there. Welcome to the 996 podcast brought to you by GGV Capital. On this show we interview movers and shakers of China’s tech industry as well as tech leaders who have a U.S.-China crossborder perspective. My name is Hans Tung. I’m a managing partner at GGV Capital and I’ve been working on startups and investing in them in both the U.S. and China for the past 20 years.

ZARA ZHANG: My name is Zara Zhang. I’m an investment analyst at GGV capital and a former journalist. Why is this show called 996? 996 is the work schedule that many Chinese founders have organically adopted. That is, 9 a.m. to 9 p.m., 6 days a week.

HANS TUNG: To us, 996 captures the intensity, drive and speed of Chinese internet companies, many of which are moving faster than even their American counterparts.

On the show today we have Justin Kan. In 2007, he cofounded Justin.tv, a website that allows anyone to broadcast video online. In 2011, Justin.tv spun off its gaming division as Twitch, which as many people know, went on to become the leading live streaming platform for video games in the U.S. and elsewhere, which was acquired by Amazon in 2014 for about $1 billion. More recently, Justin cofounded Atrium LTS. LTS stands for Legal Technology Services. It’s a startup that’s building technology to revolutionize the legal industry and GGV fortunately is an investor in Atrium as well.

ZARA ZHANG: Justin is as a true startup veteran. In addition to starting multiple companies of his own, he’s also worked with hundreds of them as a partner at Y Combinator and has also personally angel invested in many of them. Justin grew up in Seattle as a Chinese American and graduated from Yale with degrees in physics and philosophy. Welcome to the show, Justin.

JUSTIN KAN: Thanks for having me, guys. I am excited.

ZARA ZHANG: I’ll start with live streaming. I think you’re sort of the original live streamer. In 2007 you and your partners started Justin.tv, a 24/7 live video feed of your life, broadcast via webcam attached to your head. Your live casting lasted about 8 months and attracted a lot of attention. What inspired you to broadcast your life at that time when this concept didn’t even exist?

JUSTIN KAN: It was just a crazy idea. A random, pretty bad idea actually at the time. Although I think we were onto a nugget of something popular because you know Justin.tv was before Twitter, Instagram or Facebook being popular and it was before the Kardashians, before Instagram celebrities.

HANS TUNG: There were The Bachelor and that kind of show in the offline world.

JUSTIN KAN: Yeah. There’s TV reality but there was no real reality, like I’m taking you along on my life and we thought that would be interesting. Taking someone along on this journey of your life could be interesting and then the attention could make somebody a celebrity. Unfortunately, I am not very entertaining.

And so I was a very poor test case. We should have gotten someone who was more of an actor, athlete, someone more attractive than me, maybe someone who was a musician – someone with some talents. But instead when people came to Justin.tv, which was a 24/7 live show about myself and my cofounders, they saw 4 guys sitting in an apartment programming.

ZARA ZHANG: Did you just go about your lives as usual? Did you change anything?

JUSTIN KAN: At first we tried to do more entertainment stuff, but it really fell back into mostly trying to keep our website up. And programming is not interesting. It’s interesting to do it, but it’s not really interesting to watch it because watching someone program is a lot like watching someone write an essay or watching someone watch a YouTube video or play a video game like Starcraft. The video of the person itself was not that entertaining. We tried to run around the city. Unfortunately there’s a lot of downtime.

Technology wasn’t quite there yet. It was right on the border. There was no iPhone when we tried to launch it and there was no fast mobile internet connection. We ended up stringing together multiple modems from different providers onto one computer and then send the video by multiplexing it over multiple cell phone connections. That’s how we were able to create this livestream back in 2007.

HANS TUNG: What was the first thing that hit? What was the first product-market fit that you just found with Justin.tv?

JUSTIN KAN: What happened was, we launched this show and we thought we were so cool. A bunch of people came because they thought, ‘This is a real-life Truman Show or Ed TV.’ Now, of course, it wouldn’t be so weird. But back then, people were like, ‘Why do you want to put a video of your life on the internet? That is super weird.’ So it was this big media phenomenon and then we got interviewed by The Today Show and MTV and all this stuff.

People would come and they’d show up and see us on our computers and to be like, ‘This is boring. What are you doing?’ Luckily, they would come and ask us, ‘How are you making a livestream on the Internet?’ because that was not technology that existed. So we built a platform like YouTube for live video. We launched that about 6 months later after we had launched a show and then that’s when it really took off.

HANS TUNG: That’s the product I used. I didn’t understand why it was called Justin.tv back then.

JUSTIN KAN: Right. A lot of people thought it was ‘Just In TV’, like live TV, but no, it was named after a guy named Justin. I’m a very modest guy. I’m a humble guy.

ZARA ZHANG: Did you have any idea that it was going to go on and become so big and launch a whole category or did you do it just for fun?

JUSTIN KAN: For the show itself, we thought it could be a crazy idea. Maybe it would be big, who knows. We had no idea how big it would be. But for the site – YouTube for live video – we thought that could be big. YouTube had already sold for $1.6-1.7 billion by that time. So there was an idea that video online could be valuable. So it wasn’t that much of a stretch once we pivoted to be a platform. Within a couple of years, we were at 20 million MAU on that platform.

HANS TUNG: That’s a great number – that was huge.

ZARA ZHANG: Can you tell us the story of how Twitch became a spinoff of Justin.tv?

JUSTIN KAN: We launched this site in October 2007. Technically, it was a pretty big achievement for us because nothing worked back then: the flash media server didn’t work, streaming was much more difficult, people had to install plug-ins and stuff like that. So we launched the site and then it kind of took off for the next couple of years between the end of 2007 to early 2008 all the way through around 2010.

It had done really well and celebrities started live streaming. There was other all sorts of different content: sports, entertainment, talk shows. Then it just stopped growing because it turns out that actually, not all content is good live. Only very few kinds of content are good live and most content you want is VOD – a produced video.

So we needed to figure something out because anything that’s not growing on the internet is about to fall off a cliff. Because the internet is growing. So we decided to go back to the drawing board and figure out something that we think we can invest in that could potentially be bigger than what we have right now.

We looked at what we were doing and there were a couple ideas we had. One was around mobile video – kind of like Periscope actually – but 4 years earlier than Periscope. Then the other was the gaming channel. There was a small gaming section on our site. 3% of the site was people watching other people play video games. We were like, ‘Why are people doing this?’.

The interesting thing is that back when we had our own show 3.5 years earlier, my friend Steve Huffman – who’s a co-founder of Reddit – and I had been hanging out in the early days of the show and we plugged in the camera – an analog camera – into the Xbox and we were broadcasting ourselves playing Xbox. People liked that. Unfortunately we didn’t figure it out until way later.

In 2010, people started streaming gaming content and we decided to go with it and try to make this a thing. We think this can be bigger than the existing site because it seemed like engagement was high. One of my cofounders, Emmett, who’s the CEO of Twitch today, really thought this could be something. It was the type of content that he liked.

We decided to build a small team around focusing on the product here and investing in that. Long story short, after about 6 months of working on it, we said, ‘Hey this is really working.’ It was called The Justin.tv Gaming Channel at that point but then we changed the name to Twitch and launched it as its own site and that just started taking off.

HANS TUNG: How did you decide on Twitch as the name?

JUSTIN KAN: We were debating on the name. I remember I really liked some 4-letter acronym that was kind of like ESPN. It would have had X or G or TV or something like that. I don’t even remember what it was. There was absolutely no way we were going to do that. And then he had this idea of calling it Xarth. The domain was purchasable. I think we bought it for a couple thousand dollars. That was the placeholder name, the secret project name. So he was going to call it Xarth and then a few days before launch he found the site Twitch.TV. Twitch, like fast twitch muscles. It sounded like gaming. At that point, everyone had argued so much I think he was just like, ‘OK, whatever you want.’

ZARA ZHANG: How were you making money for your original live streaming product?

JUSTIN KAN: The original Justin.tv was very advertising-supported and it was all pre-roles but we also had this cool thing that were mid-roles that the broadcaster could trigger. So if you were doing a live podcast or something and you wanted to take a bathroom break, you could trigger advertisements and then go to the bathroom. We thought that was a huge innovation – which it was at the time. It’s still a thing today at Twitch, but now Twitch is more and more like the Chinese sites: it’s more direct user donations, virtual goods.

HANS TUNG: You guys have 4 cofounders. First of all, why so many, and two, how do you figure out how to make decisions?

JUSTIN KAN: That’s a great question. We made decisions incredibly poorly. Now that sounds like a joke but it’s not a joke. There’s probably a lot to talk about, in how that’s affected my subsequent companies or Atrium today, which had a lot of cofounders. Back then, we didn’t know anything. These are 4 22 year old guys who started the company as friends. We didn’t know anything about management. Nobody had ever worked at a real job before. Michael, who was the first CEO, had actually worked at a job but it was a political campaign and you can imagine that they don’t have the best management structure or training. So we have 4 guys and we got together and we made all of the important decisions by arguing among 4 people.

Emmett was the CTO. Kyle was the V.P. Engineering. Michael was the CEO. I was Chief Product Officer, but we made every important decision together. That is not a good way to do things. You need to trust. You need to delegate. You need to have division of labor. But we didn’t do that because we didn’t figure out how to do that until we pivoted to Twitch. We also incubated this other project called Social Cam. We couldn’t even decide what to pivot on. We pivoted to 2 things: Social Cam and Twitch. Social Cam eventually spun out. We sold it to Autodesk for $60 million. But that is ‘defies all odds’ type of thing.

HANS TUNG: Despite all the mistakes you made, you actually had a pretty good outcome. Two of them.

JUSTIN KAN: But this is not a good way to run things. So it took everybody going off on their own in order to have their own domain. Which is sad because we were in a lot of ways, a great team, but it’s not sad because everybody has done super well. My co-founder Kyle ended up starting a company with my brother, called Cruise Automation that is building self-driving cars.

HANS TUNG: I met him before he sold it to GM.

JUSTIN KAN: You should have invested!

HANS TUNG: Everyone thought it was a bit too early but Kyle is interesting.

JUSTIN KAN: They’ve done incredibly. They sold to GM and just raised $2 billion from Softbank. Incredible story. So truly, there was a lot of talent in this one organization but it took a little time to mature into like leadership.

ZARA ZHANG: Why did you still have so many cofounders for your current company if that didn’t work out before?

JUSTIN KAN: It did work out but now there’s a lot more delegation and ownership of specific roles. Our cofounders who’s the CTO is really in charge of the tech. I’m not micromanaging and saying ‘Let’s make this technical decision or this product decision.’ We have a co-founder who’s really in charge of the legal side. I don’t actually even know certain things about our legal, like who our clients are. I’m not managing at that level.

It’s much more about creating actual metrics of accountability and then saying ‘Go hit these metrics. I’m going to trust you. I’m going to give feedback, I’m going to be a resource to you if you need feedback on your plan. But I’m going to trust that you are handling this domain.’ We have a co-founder on the operations side and then one also on the marketing side.

HANS TUNG: We’ll talk in more detail about Atrium. Still on Twitch, Emmett is the CEO. When you guys decided to sell the company, $1 billion is an amazing outcome obviously. Did you ever look at how this sector is evolving in China and how virtual items have become such a great way to monetize. Did you ever think about how the site could have been more than what it is today?

JUSTIN KAN: I’ll tell you two things. The site obviously could be more and has become more. When we sold it, we were 55 million MAU and that’s a lot. But at the same time, at that level, it was very hard for us to raise capital because most investors at the time did not understand it. If we had talked to more probably Chinese investors, actually they would have understood it and in fact we had money from Chinese investors. But Sand Hill investors did not understand this industry. Of course one year later they all were investing in eSports or whatever.

But the point is nobody understood it so we thought $970 million was a tremendous amount for it. About 8 months ago, I tried to sell some secondary for $200 million and got a lot of declines. So we thought it was really good. Afterwards, obviously it’s become a much greater success since that.

In the year following the acquisition, all the metrics doubled. The company hasn’t released much recently in terms of metrics, but the company’s grown to almost 1,500 people. Now it’s based in San Francisco. They’re opening up their own 9-story building. It’s a tremendous success. I was just looking at Alexa for the first time in years and they’re the #12 website in America now. So obviously there was a lot of headroom but unfortunately, we weren’t able to really convince capital sources to fund it as an independent company. But you can’t be too sour about that.

One interesting conversation we were having during the process of selling in 2014 over the summer, was on a conference call among all the board members. Everybody said we should sell, this is a great deal. One of our board members, Chris Pike, formerly of Thrive and now doing his own rumored thing, was like ‘No, don’t sell.’ We were all silent on the call, like ‘Why? What do you think it could be worth?’ Because you think of this market as not that big of a market. We don’t know, but how big could it be? And he was like, ‘I don’t know. $3-4 billion? More?’ Everybody was just silent. Nobody wanted to be like, ‘You’re crazy.’ so everyone was just silent on the call. And then we just started talking about something else.

Chris was the only one who was right. It was fun though. Such an amazing adventure.

HANS TUNG: We’re an investor and my colleague Jenny Lee is on the board of YY which started as a game commenting site back in 2006. Today it is a $10 billion mobile video site for gamers and it’s just spun off something that’s live streaming for gaming. Huya, on its own, is also a $2 billion market cap company, both listed on Nasdaq. It’s hard to imagine in 2006 that as a game commenting site that’s $30 million and it’s just so hard to believe back then that it could be a mainstream thing. You can see today that you could be bigger than most of the sports activities.

JUSTIN KAN: Absolutely because everyone’s playing videogames out there.

HANS TUNG: My 10 year old daughter’s on it all the time. She spends a lot more time on gaming than I ever did on sports when I was her age. You see the time spent – it’s almost the #1 activity for kids now.

JUSTIN KAN: That’s probably not good, but…

HANS TUNG: I tell myself it’s good for her to be a good programmer or designer later.

JUSTIN KAN: I think the gaming helps with their analytical reasoning and stuff like that. I definitely think it did for me when I was a kid.

HANS TUNG: And teamwork.

ZARA ZHANG: Were you a hardcore gamer?

JUSTIN KAN: I was probably. I was playing Counterstrike and World of Warcraft and Warcraft 3 when I was in college. Probably spent a little bit too much time playing. I actually did lose a lot of time to playing games. But then once we had started Justin.tv, it actually went down a lot because business and start ups are kind of like its own game. A very stressful and horrible game to play sometimes.

ZARA ZHANG: What was it like to sell a company to Amazon? What was that process like for you?

JUSTIN KAN: I didn’t really do most of the work because by the time, Emmett’s the CEO, I’m just on the board. I think for them it was very stressful. For any acquisition process, it’s very stressful. I think Amazon Corp Dev is one of the most disciplined in Silicon Valley. I think a lot of other companies get caught up in hype, in ‘We need this for strategic reasons.’ Amazon, out of all the companies I’ve seen or through investments we’ve sold is the most disciplined.

HANS TUNG: Meaning that they won’g overpay. We have sold companies to Amazon before. All the things we learned from how Facebook acquired Instagram and WhatsApp because if it works out it’s a lot bigger than they can imagine. If it doesn’t work out, it doesn’t matter how much you pay.

JUSTIN KAN: There’s two types of companies that are good at acquisition: the ones that are really truly strategic and visionary, who are making visionary bets, and then there’s the type that are more really disciplined. That works too if you’re truly truly disciplined. I think the people who really struggle are the ones in the middle who are kind of half and half and then they lose important deals because they were too tight or they overpaid for things that don’t matter.

HANS TUNG: People forget that we’re about 3 billion internet users worldwide now. If something does work, it will be massive. If it doesn’t, it doesn’t really matter how much you pay because you wasted it already. And if it does work, you’ll make up for most of the losses.

JUSTIN KAN: Absolutely. You’re riding the world’s biggest wave right now.

ZARA ZHANG: A report last year found that there is now a bigger audience for game video than audiences of HBO, Netflix, ESPN, Hulu combined which is kind of crazy to think about. Did you imagine this would happen or were you surprised when game streaming took off?

JUSTIN KAN: We were surprised how fast it was growing, the game streaming, in the early years. It doesn’t surprise me though. Back in 2007, the gaming industry passed the movie industry. That was a big thing. All these entertainment people were like ‘What the fuck’ nobody saw that coming. OK, well when you do MTV Cribs, you see that every athlete has an Xbox. That makes sense to me.

I think it was pretty obvious that gaming video was going to be a huge thing. It was already the #2 category on YouTube by the time we started Twitch and then 1-2 years in, it was the #1 category on YouTube. So it was not a big surprise. It’s actually a surprise that it didn’t happen earlier.

HANS TUNG: In China at the same time – 2006, 2007 – gaming was already the #1 monetization method for internet. It was bigger than e-commerce, it was bigger than advertising. Shengda and NetEase were both churning out games and then Tencent got into it. Now, 10 years later you see Tencent everywhere from Riot Games to Fortnite to Supercell. It’s amazing to see how big the industry has become.

ZARA ZHANG: What was it like to have this whole startup journey as an Asian American? How aware were you of your identity and did that change things for you in any way?

JUSTIN KAN: That’s a good question. I grew up in Seattle and I didn’t speak Chinese at home. I went to a small private high school, University Preparatory Academy, with mostly white kids. I never really thought that much about identity and my ethnic identity. At Yale, I had joined the Chinese American student association – the club – and that was cool. But I think it is a little bit different from a lot of people who grew up maybe in California or the Bay Area or something where there’s a lot. In San Francisco, it’s like 33% Asian American or Chinese.

In the industry, it didn’t feel like – in my YC network or whatever – that there were not that many Asian American founders. Although I think actually if you look at it statistically, there weren’t that many – it was about 10% of YC, but it felt like it was 30% of YC or something like that. I didn’t really feel like it changed things very much.

HANS TUNG: What was your first reaction when you went to China?

JUSTIN KAN: Before the last time I went to China, it was 2002. So when I went to China in 2002, they were about to open Three Gorges Dam. I did the cruise down the thing and it was rural. I thought China was a developing world. I went back last year in December 2016 and I was like ‘Oh my god. This is crazy. This is different world altogether.’.

I feel that way a little bit because I’m not taking that many frequent trips to Asia. I’m probably going once a year but it’s a different place. I’ll go to Jakarta or Singapore or Seoul and it’s amazing how all of these places have better infrastructure than America, better taller buildings, more buildings, worse traffic unfortunately. The world has changed so much. I think it’s super interesting. I wish the climate in Asia were better – I’d consider moving.

HANS TUNG: We’ll get through it. London went through it in the 1950s. Tokyo went through it in the 1960s. It’ll get better but it takes time.

JUSTIN KAN: I was blown away. Also by the work ethic and innovation that’s happening. It’s pretty obvious now. If you came to America in 2014 – that’s when a lot of Chinese investors started investing in Silicon Valley – and people were wondering where this money is coming from, what’s going on.

And if you had told U.S. investors or founders that the innovation is actually coming in from China, they’d say ‘You’ve got to be kidding me.’ Now you see obviously the dockless transportation models coming here. A lot of AI innovation is happening in China. The balance of innovation is shifting pretty rapidly. You should be pretty scared if you are an American patriot. At the same time, we’ve taken a lot of things for granted. We take immigration of skilled labor for granted. We should be trying to get every single engineer from around the world to live here and to stay here. We should be giving incentives. Because just look at the numbers: the bell curves of the populations might look the same, but China has 1.3 billion people, American has 330 million people. It’s just not competitive.

HANS TUNG: The number of STEM grafts this year is 4.7 million for China, just under 600,000 for the U.S. Obviously quality matters, but over there, people are just as smart, work twice as hard and there are a lot more of them – you do the math.

JUSTIN KAN: You don’t have to be a math major to draw the rest of the curves and where they intersect. I just feel like people are going to be very surprised at how fast change happens, especially in the global balance of power.

HANS TUNG: On that note, a couple of things. One, we all say competition is good and when there’s real competition that’s when true colors come out. Do you really want to learn from competitors and get better? Or do you want to sit around and bitch and try to keep them down. That’s a decision that the U.S. has to make.

Secondly, if you look at the way that Chinese startups started, they try to turn everything into a math or engineering problem. What is the end goal? Where are we at? How do we go from A to B? Just work backwards: what has to happen for this to happen? So the time it takes to scale is actually faster in China because the end problem is clearly defined. How you guys started with Justin.tv and Twitch – you tried to innovate and try to get to something – is a lot more creative and anything could happen, but it takes more time.

JUSTIN KAN: Absolutely. I think there are merits of both sides and you probably want to figure out ways that you can combine both.

HANS TUNG: That’s part of the reason why I wanted to do this podcast and interview you as the first Chinese American on the show. To share more of different ways to scale, to come up with a problem to solve, how to get the right product-market-fit so that both sides can learn from each other. It’s an open platform: whoever learns faster from both sides will win. We hope there will be more of an American audience listening to this as well.

JUSTIN KAN: Absolutely. A lot of the criticism from when I started in Silicon Valley back in 2006 through 2010 or 2012, was that the Chinese were just cloning everything. Now I think people are clearly like ‘Oh that’s not the only thing.’ But even if you think that Chinese people are culturally less risk-taking, less innovative, there’s still 4x as many people. So you could be 1/4 as innovative. Only 1 in 4 people could be as innovative as an American person and you’d still be competitive. People should think about that.

ZARA ZHANG: How do you grow from someone who is very creative and cool and from a hacking culture, just trying to build things into a manager or someone who can run a team and run a company?

JUSTIN KAN: That’s a really good question. When I was young, I felt like experience was worthless. Because Silicon Valley has this myth, this legend, of: we just get a bunch of smart young people who are sleeping in a tent in their living room and they just make something amazing and then BAM – Snapchat, Twitter.

But the reality is, Twitter is a great example. Look at the scaling of Twitter. Its growth was massively stunted by the downtime for years and years. And what I realized over time, experience can be really valuable. Especially around management stuff. The thing that I didn’t realize when I was younger was in Silicon Valley, I thought you had to rethink everything or rebuild everything from first principles. But not everyone’s Elon Musk.

Mostly, you just needed to innovate on 1-2 things really well and have a 10x on 1-2 axes and then the rest of stuff, you should just do the best practice – whatever they did at Google or Facebook. You don’t have to innovate on your HR or recruiting, you just need to do the top level. That’s something that I didn’t really realize.

You can hire people who have experience and bring them in to do excellent work. We did that at Twitch actually, years later. 6 years later after we started, we brought in Jonathan Simpson-Bint as our Chief Revenue Officer. He had built gaming ad sales teams before for IGN – he was a co-founder for IGN. He knew what to do and just plug and play and boom, this guy already hires his sales team and then start ramping revenue.

So we started learning that you can hire these leaders who have experience who can execute. That’s a big thing to realize. If you’re young, you might have really fresh, innovative ideas that change the culture, but you can have other people with more experience help you execute.

HANS TUNG: How do you figure that out early?

JUSTIN KAN: I don’t know. If you figure it out early, that’s how you become super powerful. That’s how you become Evan from Snapchat. Or Zuck. Most people struggle with it and get a middle outcome.

ZARA ZHANG: You’ve seen and advised hundreds of startups. What’s the most common mistake that you see in founders and what do you tell them?

JUSTIN KAN: The most common mistake I see in founders is that they’re not focused enough. Companies always need to focus as much as possible. That’s super hard to do. I understand the temptation. I’m always tempted to go as broad as possible. I think focus is really important.

Second thing is that people give up way too easily. Now that startups are in fashion, it’s a job, like a kind of career. Lots of people try it and then they just give up after a year or whatever and go do something else. I don’t think that great companies are made that way.

HANS TUNG: They value their opportunity cost as too high. And therefore they think it’s not working out, they should do something else.

JUSTIN KAN: It kind of makes sense because in technology now, the salaries especially in the Bay Area are insane. So your opportunity cost may actually be high.

Other mistakes that people make? It depends. It depends on what kind of company you want and how much risk you’re willing to take. But a lot of people – once something is working, they go too slow. They don’t hire the best execs they can to help them scale. They’re scared to let go of things. They’re scared to overspend, which is reasonable in some ways, but it also can limit your growth.

HANS TUNG: I notice a lot of founders underestimate how important is to have their drive, their passion to be the guiding force of culture in the firm. They always worry if they hire somebody too experienced, their VCs will replace them with someone who’s more experienced. What a lot of founders don’t knows is that you can hire experienced hires. But they will never have the vision and the passion you do to continue to expand the business and pushing the envelope. So if you just focus on doing that well and pushing the executives you hire, you can build a much bigger company.

JUSTIN KAN: Absolutely. You must learn to manage and you must learn to scale. Very quickly, after your team is probably more than 5 people, the marginal effort of your work – your direct individual contributor work – like you programming, you doing sales, whatever it is is – is very low. Now it’s 20% of the company. If you have a team of 25 people, it’s 4% of the company.

If all of your effort in the entire year is 4% of the company, if you just spend your time affecting people’s work product, you only have to make people more than 4% more productive through your management in order to equal know how much individual contributor work you’d be doing. So your ability to manage people is your leverage. And I think people go into that mode too slowly. Once they have product-market-fit when something works.

ZARA ZHANG: Let’s move on to talk about Atrium, your current venture. Can you tell our audience more about what the company does?

JUSTIN KAN: Sure. Atrium came from my problems, my experiences as a founder with legal. I was an involuntary power user of corporate legal services. Every time you want to do any major business transaction in America, you pay lawyers: when you’re raising funds, if you’re doing M&A (we did big M&A obviously), litigation. For all of this, you need to hire lawyers. I loved the lawyers that I had who basically gave me expert advice based on their expert knowledge.

But there were a lot of experiences where I felt like it’s cookie cutter stuff, crank-turning work, and I wondered why they aren’t using more software to deliver services, to automate things, to streamline the flow of information. Lead law firms out there in America don’t even use project management software. They don’t use Trello or Asana. They don’t use CRM software for their clients.

I sat down with an attorney and I had been a client of their firm for 6 years with Twitch and she didn’t even know who I was. That’s weird because this is a $700 million a year business and you didn’t even know that I was a client. That’s weird because the level of professionalism compared to a normal enterprise sales organization is just not there. There’s a bunch of reasons the industry is like that.

Our goal with Atrium was to change that industry. We’re making it better for founders and we’re making it better for attorneys and paralegals as well. We want to make legal streamlined. Atrium is a top tier technology-enabled law firm that delivers legal services to founders. We make it streamlined, faster, more transparent and we make pricing much more upfront so you can know what you’re going to pay.

For our attorneys and paralegals who come from top firms, our goal is to make things easier for them and to automate all the low-level work so that they can focus on the high-level advising stuff, which is what people want to do. You didn’t go to law school to crank out signature matrixes or to put together the first version of a boilerplate doc.

HANS TUNG: And on top of that, lawyers know the cap table. Every time we do a fund raise, you can wait for shares to be issued and stuff, but the lawyers know exactly what’s going on the cap table and that’s super powerful. You can imagine other services can be rendered by having that information.

JUSTIN KAN: Absolutely. So what we’re doing is we really think about that we’re building as a platform where we take legal documents, we turn them into structured data so we can, for example, read all your financing docs, understand who are the owners of your company. And then from there, we can do things like we can produce and render a cap table. Or we can make that data accessible in other ways back to the business owner. And so I think that’s the super valuable thing that we’re doing and I’m pretty excited about it. It’s only been a year. We launched in June 2017 so it’s been exactly a year and things are going pretty good so far.

ZARA ZHANG: Last year you guys raised $2 million in your Series A from over 90 investors, GGV being one of them. Why did you decide to do such a party round with so many investors?

JUSTIN KAN: I just wanted to throw the biggest party biggest party ever. So a party round in Second Valley is kind of what happens now. I think the same is true in China. Someone will go and they’ll raise money from the dozens of investors, usually angels and maybe funds for their seed round.

We chose to do that because we wanted our investors to funnel us portfolio companies, business. It’s worked pretty well so far, so we’re pretty happy with the results. Another thing is legal is something that people don’t necessarily want to take a risk on. We didn’t want investors to say ‘Hey, don’t try this service.’ Even if they just had been familiarized with us, it helps.

ZARA ZHANG: What has been the progress so far in terms of providing the actual services?

JUSTIN KAN: We’ve done work for over 240 clients so far. We’ve helped those clients raise over $400 million in the past year.

HANS TUNG: How do you do that?

JUSTIN KAN: We do a couple of things. We obviously do the legal around their financing. We also have this bootcamp called Atrium Scale where we teach people how to fundraise. One of the things we realized through the course of operating Atrium is that a lot of founders come in and they want help with the process. You and I are very experienced because we’ve done it so many times. A lot of guys are coming in and they just don’t know what to do. You see more and more technology companies coming from outside the Bay Area now because of the cost of living is so high here, but they don’t necessary have the connections, they don’t know what to do. So we put together a program that’s a 2-day long bootcamp for free for founders to teach them how to raise money. We help them work on their deck and their narrative.

ZARA ZHANG: Are most of your clients first time founders?

JUSTIN KAN: No, many of them are multiple time founders or we have clients that are later stage companies, like 200 person companies and stuff like that. But we do have a lot of first time founder clients as well.

ZARA ZHANG: So there’s an education component too.

JUSTIN KAN: Yeah absolutely. One thing I learned from YC is, how did YC scale? They built a lot around education, around free content out there in the market, events and community. I think that one of the things that we can do here for Atrium being a platform for companies, if I think about Atrium’s mission, it’s really to help fast growing companies and provide them with services and applications that help them grow even faster. So how do we do that? Well I think education and community and teaching people how to run companies and information that they need is a way to do that.

HANS TUNG: So founders can go to YC first, once they get funded, they can come to Atrium for the next phase in their growth stage.

JUSTIN KAN: Absolutely. I would love to be able to help founders in that way.

ZARA ZHANG: It’s been 12 years since you started Justin.tv. What’s one thing that you wish you knew when you were just starting out?

HANS TUNG: Knowing what you know today.

JUSTIN KAN: Knowing what I know today, I would have just sold it to Facebook in 2006. Besides that, I think that when you have something that is a market category leader in a growing category, I think Ben Horowitz says it, don’t sell it.

HANS TUNG: Besides that.

JUSTIN KAN: Okay. Besides that, I think we could have been much more effective if we had implemented actual management in the early days of Justin.tv and going through Twitch and done a couple of basic things – maybe hired senior leaders. I know it sounds so cliche to be like, ‘Oh just hire the gray hairs.’ But having some more senior leadership, structuring the company where there’s more division of labor among the cofounders, where we were metrics driven, goals driven. We never were like on OKRs or anything like that. I think putting in some of these management tools.

HANS TUNG: So having workshops around that will be helpful for your founders then.

JUSTIN KAN: I should do that. For Atrium, we should have an OKRs workshop because I think it’s super important. Understanding that management isn’t a job right. It’s not something that’s supposed to make your life not fun as a startup. It is a tool for you to be more successful. It’s a collection of tools for you to be more successful. I always thought that management was a dirty word because we were supposed to just hack on something until it was like Facebook or whatever. We didn’t really realize how like the working world works. And I think that’s the benefit of actually having a job before you start a company, which we never had.

ZARA ZHANG: Hans, I’m curious on your perspective on what Justin said about if are a category leader you should hold onto it. Do you think that applies in China too? Or is that a different story.

HANS TUNG: I think in China, most people know that from early on, just so many sectors got disrupted so that if you have a category leader, they never, never, never sell. What has changed in China is now you see industry consolidation. So #1, #2 player fight for 3 years as hard as they can, raise as much money as they can, to figure out who’s better than figure out a way to merge so they can own more of the world. And the one who sold out ends up becoming a great angel investor. So now you have best of both worlds: you have more angel investors that are more professional, have experience going through that scaling experience and you also have a much bigger outcome in the original category. So it’s win-win.

ZARA ZHANG: We recently saw Mobike being acquired by Meituan and sometimes I guess the business is just hard to be a stand alone business depending on what you’re doing, it can be hard to be a stand alone business.

HANS TUNG: You look at the unit economics and after a while, you figure out that it is hard to be stand alone. If that’s the case, then finding the right home for it would be great. We were investing in musical.ly, helped musical.ly figure out a way to scale and then encourage them to – when they want to merge into someone else – find a great home in ByteDance so that works out very well for both sides.

ZARA ZHANG: Let’s move on to the rapid fire questions. Who is the entrepreneur you admire the most and why?

HANS TUNG: Someone who’s older and someone who’s younger.

JUSTIN KAN: Everybody probably says Elon Musk. So I won’t choose Elon Musk. I mean I do admire Elon Musk and I think I admire him because he’s always looked so stressed out and he has so much pain that to keep doing it despite the pain? That, I admire. That is a guy who is not enjoying his life. I respect that because he’s doing it for the mission, for the good of humanity even at the sacrifice of the self and that is truly incredible.

HANS TUNG: He might not view it as a sacrifice.

JUSTIN KAN: Maybe that’s right. I hope that’s the case. But the person I would say actually if I can’t choose Elon would be Brian Chesky. Brian is someone I’ve known their entire journey through Airbnb. They used to come by our office across the street in the early days because we were one step and then they rapidly eclipsed Justin.tv and then Twitch. I admire Brian because he always is learning. He’s always trying to level up from somebody who’s a couple of steps ahead and finding mentors. That has inspired me here at Atrium. I’m always like, ‘How do I level myself up?’.

The reason I started Atrium is that I want to build a company bigger than Twitch which is a very high bar. And in order to do that, I’m going to have to continue to be self-aware and level myself up and figure out what I am good at and what I’m not good at and work on improving my strengths and maybe complementing my weaknesses. Really a lot of that’s inspired by Brian. I have a lot of respect for what he’s done to build his company.

There are two younger founders I respect immensely. There’s an obvious one and a non-obvious one. I’ll just go with the obvious one. First, Patrick Collison from Stripe. He’s such a genuine, good person. Who can’t respect that? He’s also very curious. I think his curiosity drives him to really build a company that embodies that. I think with Stripe, there’s so much on the technical excellence side and really investigating the technology side that you can kind of just tell that that’s in the spirit of the company and obviously that has driven massive success.

Maybe the not obvious side, someone I really admire is Daniel Gross the co-founder of a company called Cue which sold to Apple 4-5 years ago. He was very young when I met him. He was maybe 18 years old or something like that. I was just like, ‘This guy is one of the smartest people I’ve ever met.’ He’s just so smart and not just smart on the side of intelligence and technology but he’s also very connected in Silicon Valley, has high emotional intelligence, has been able to like build an amazing network here in Silicon Valley. Now he’s a partner at Y Combinator, is running this AI grant program as well. I always feel like when I talk to Daniel, I’ll learn something.

It’s funny because I would go to him and I’ll go to him and I do for Atrium and I ask him for feedback and advice on my business ideas and plan. And there’s not that many people in Silicon Valley including many of investors who I’m like, ‘Actually that’s the guy I want to talk to.’ And he how much younger than me? He’s probably 8 years younger than me. So that’s amazing to me.

ZARA ZHANG: What’s something you read recently that taught you a lot?

JUSTIN KAN: Something I’ve read recently that I think was really great was this book called The Elephant in the Brain by this guy Robyn Hansen who’s an economist and another guy from Silicon Valley, a programmer. This book is all about the hidden motivations in human behavior that we don’t actually want to talk about.

One of the things that I remember from the book was that brand advertising works not just because it’s brand advertising and you see it so you get that exposure, but it’s also because when you know other people have seen it. So BMW advertising as a luxury brand works not just because you see BMW and you see this cool ad and you think “BMW is cool”, but because you know other people have seen that.

So you know that BMW has a luxury place in their minds. And so that means that basically if you buy BMW then you get that value of knowing that all these other people think it’s a luxury. So I thought that was an interesting observation and it was something that I haven’t thought about. The book is filled with examples of that. And so that was pretty fascinating.

ZARA ZHANG: What do you do for fun?

JUSTIN KAN: Great question. I have a place up in Sea Ranch, California on the California coast and go up there and I ride my ATVs around and throw axes and go on hikes outdoors.

ZARA ZHANG: All right thank you so much for your time. This was fun.

JUSTIN KAN: All right thanks for having me.

HANS TUNG: Thanks for listening to this episode of 996. By the way, we also produce a weekly e-mail newsletter in English also called 996 which has a roundup of the week’s most important happenings in tech in China. Subscribers have told us it is informative and fun to read. The newsletter also features original content and analysis from Zara and me. Subscribe at 996.ggvc.com.

ZARA ZHANG: GGV Capital is a multi-stage venture capital firm based in Silicon Valley, Shanghai and Beijing. We have been partnering with leading technology entrepreneurs for the past 18 years from Seed to pre-IPO. With $3.8 billion dollars in capital under management across 8 funds, GGV invests in globally minded entrepreneurs in consumer internet, e-commerce, frontier tech and enterprise.

GGV has invested in over 280 companies with 29 IPOs in 22 unicorns. Portfolio companies include Airbnb, Alibaba, Ctrip, Didi Chuxing, DOMO, HashiCorp, Hellobike, Houzz, Keep, Slack, Square, Toutiao, Wish, Xiaohongshu, YY and others. Find out more at ggvc.com.

We also highly recommend joining our listeners’ WeChat group and Slack channel where we regularly share insights, events and job opportunities related to tech in China.

Join these groups at 996.GGVC.com/community.

HANS TUNG: If you have any feedback on this podcast or would like to recommend a guest, please email us at 996@ggvc.com.

Episode 15: Eric Yuan of Zoom: From Immigrant to Top CEO


GGV Capital’s Hans Tung and Zara Zhang interview Eric Yuan, founder and CEO of Zoom, the leading video conferencing solution for enterprise. Zoom is used by a third of Fortune 500 companies and 90% of the top 200 universities in the US. Eric was recently named the Top CEO on Glassdoor, with an approval rating of 99%, and was the first person of color to win the award.

Eric grew up and went to college in China, arrived in Silicon Valley in 1997 and joined WebEx when it was still a small company. In 2007 WebEx was acquired by Cisco and Eric became Cisco’s Corporate VP of engineering in charge of collaboration software. Eric spent 14 years in total at WebEx and grew its engineering team from 10 to 800, and increased its revenue from zero to over $800 million. Eric holds 11 patents, plus 20 pending patents in the pipeline.

In this episode, Eric shared his story of being rejected a US visa for 8 times while in China, how to overcome the “bamboo ceiling” as a Chinese engineer in Silicon Valley, and what makes Zoom different from its competitors.

Join our listeners’ community via WeChat/Slack at 996.ggvc.com/community. GGV Capital also produces a biweekly email newsletter in English, also called “996,” which has a roundup of the week’s most important happenings in tech in China. Subscribe at 996.ggvc.com.

Transcript

ZARA ZHANG: Hey, everyone. Before we begin, I just wanted to remind you that we have created a WeChat group and a Slack channel for you, our listeners. This is a community of people brought together by their shared interest in tech in China. Through these groups, our listeners have made friends, recruited team members and found clients.

We also organize regular offline meet-ups for this community. We had a meet-up in Beijing last month, and we’ll be having another on in San Francisco on Thursday, July 26th. Details for these meet ups will be announced in the groups. To join the groups, please go to 996.GGVC.com/community and follow the instructions there. Once again, that’s 996.GGVC.com/community.

HANS TUNG: Hi there. Welcome to the 996 podcast, brought to you by GGV Capital. On this show, we interview movers and shakers of China’s tech industry, as well as tech leaders who have a U.S.-China cross-border perspective.

My name is Hans Tung. I’m a managing partner at GGV Capital and I have been working at startups, and investing in them, in both the U.S. and China for the past 20 years.

ZARA ZHANG: My name is Zara Zhang. I’m an investment analyst at GGV Capital and a former journalist. Why is this show called 996? 996 is the work schedule that many Chinese founders have organically adopted. That is 9:00 a.m. to 9:00 p.m., six days a week.

HANS TUNG: To us, 996 captures the intensity, drive and speed of Chinese Internet companies, many of which are moving faster than even their American counterparts.

On the show today, we have Eric Yuan, the founder and CEO of Zoom, the leading videoconference solution for enterprise. Zoom is used by one-third of Fortune 500 companies and 90 percent of the top 200 universities in the U.S.. It is based in San Jose.

Eric grew up and went to college in China, but arrived in Silicon Valley in 1997 and joined WebEx when it was still a very small company. In 2007, WebEx was acquired by Cisco, and then Eric became Cisco’s corporate VP of engineering. He was in charge of collaboration software.

Eric spent 14 years in total at WebEx and grew his engineering team from only 10 to over 800 and increased his revenue from zero to over $800 million. Eric holds 11 patents, plus 20 pending patents in the pipeline.

ZARA ZHANG: We at GGV are also happy Zoom customers. There’s hardly a day when we are not using Zoom for some sort of investment meeting, because we’re such a global team and we invest in global entrepreneurs, so we literally cannot do our job without Zoom, so thanks Eric.

ERIC YUAN: Thank you for having me.

ZARA ZHANG: So you were recently named the top CEO on Glassdoor, with an approval rating of 99 percent. The average approval rate on Glassdoor is 69 percent. You were also the first person of color to lead that list.

I wonder, how do you think you did that, and how did you feel when this was announced? What tips do you have for other CEOs?

ERIC YUAN: I would say first of all, that’s not my award, actually. That is our team’s achievement, because it truly represents the culture that our team has built. A culture of reflecting our core principles of happiness and caring.

So essentially for me as a CEO, my number one priority is to make sure I have a good culture, really focus on employee happiness and really care about our employees. Ultimately, if our employees, if we are happy, our customers will be happy.

I think that if you want to say what kind of tips, I would say just one thing. On day one, focus on the culture and make sure that your employees are very happy. I think that’s pretty much what we are doing here.

HANS TUNG: A lot of people are trying to do that, but may not be as successful as you have been or your team have been in doing it. What are some concrete things you have done that you think is different or unique, that other companies could learn from?

ERIC YUAN: I think on day one, I think just for myself for the labs at Cisco, when I showed up in my small office back then, I already understood the importance of culture and values. That is why we already define it even on day one. I mean just to myself, our company culture is delivering happiness and our company’s value is care. It’s very easy, very catchy.

Care means you care about a community, you care about a customer, you care about a product, you care about teammates as well as care about yourself. So we have a very well-defined culture and values. So on day one, already have that.

And also, some other things along the way when we further grew the business, we really focused on hiring those employees who can fit very well into our culture. Normally we don’t only look at those employees with great experience, great education and background; we really focus on self-motivation and a self-learning mentality.

I think that’s really important. Quite often you want to hire maybe a head of a department, you want to hire some VP level from other companies, that is not our style. We want to hire those people who can grow themselves along with our company’s growth.

I think those two things are really helping us. And for sure, there are a lot of other things. Work hard, open communication, keep everything transparent, always share with the team.

Ultimately, number one, go here as a team. I mean, our executive team needs to build a trust between our employees and our executive team. If trust exists, I think everything else is sort of easier.

HANS TUNG: I see. So it sounds like when you first started, you had a group of cofounders?

ERIC YUAN: No just myself, I am a sole founder.

HANS TUNG: Then your initial team, were they all young people? Were they people who were ex-colleagues who shared your same cultural values, to start this with you?

ERIC YUAN: I would say that more of the young graduates. After I left Cisco, and one-and-a-half months later, all the engineers, they all worked with me for many years before.

HANS TUNG: Right, that is what I meant by cofounders.

ERIC YUAN: You are right. Founding engineer team.

HANS TUNG: Founding team is a better term.

ZARA ZHANG: Forty engineers from Cisco followed you.

ERIC YUAN: That’s right, yeah.

ZARA ZHANG: So you decided to come to the U.S. in the mid-1990s because of the Internet, which you knew was the future but hasn’t really taken off in China. Why were you so sure that you had to leave China and come to America to capture that wave?

ERIC YUAN: Actually, the first time I saw, I listened to Bill Gates’ speech in 1994, in Japan actually. I was traveling to Japan. The company I worked for, they sent me to Japan for four months. I lived there and it happened to be that Bill Gates also was there to give a speech.

HANS TUNG: It was around the information highway?

ERIC YUAN: Yes exactly, 1994 I think. And at that time, I really was, how do you say —

HANS TUNG: Inspired.

ERIC YUAN: I was inspired by this speech.

HANS TUNG: I remember that.

ERIC YUAN: And put it on the Netscape browser and said wow. Just with an app, an application browser, I can do so many things.

HANS TUNG: Yeah, a very different world.

ERIC YUAN: A very different world, that is so right. I imagined so many things could happen; especially I think wow, you can buy a book online. I have some background.

HANS TUNG: Yeah, Amazon started in 1994.

ERIC YUAN: Exactly. But how to do that? I have no idea how to charge the customers, how to deliver. There were a lot of questions. Back then in China in 1994, 1995 if you talk about the Internet, most people were “What are you talking about?” You show them your email address, they don’t understand that either.

However, Yahoo, Netscape, is so powerful and so popular here. Back then, I thought about coming here to take a look and then go back.

However, for whatever reason I did not get a visa in 1995 and I got rejected. However, back then, sort of looking back is to practice my perseverance, I think okay. If I did not get a visa, I will try again, try again.

HANS TUNG: How many times were you denied?

ERIC YUAN: I tried eight times.

HANS TUNG: Eight times.

ERIC YUAN: Failed, and the last attempt I was successful, but it took me more than one-and-a-half years. It is already 1997. When I came here and I realized, wow, this is the first wave of the Internet revolution. I don’t think I want to miss that. So that’s why I settled down here and I joined WebEx to start writing code. Because when I came here, I could not do anything else. WebEx was small, and I even did not speak the language, what should I do? I went back to writing code for several years.

ZARA ZHANG: I think a lot of people back then in China heard about the Internet revolution, but not everyone has to pack up and leave and join it. So it takes a lot of grit to do that.

ERIC YUAN: Actually, even if I came here, to be honest, at that time I thought about just to come here —

HANS TUNG: For a few years and then go back.

ERIC YUAN: For a few years and then go back. That is exactly my thought. However, when you start building up something from very small and a lot of emotional connection with the product, with WebEx, it was a great team, and along the way sort of the thought to go back is faded away, I think.

HANS TUNG: And I mean, there are many engineers from China that came here and have done pretty well in the Silicon Valley, but many of them don’t have the management experience or develop their leadership style. How did you do that while working as an engineer or engineering head at WebEx?

ERIC YUAN: I think one thing I like in Silicon Valley is the pretty open culture here and a lot of very successful people, they would like to help you. So in my career, I have so many mentors. Even many, many years ago I really wanted to learn. That’s why I also promoted self-learning here at Zoom as well, because I wanted to learn. Also that is why I have so many mentors. When I learn from each of them, I think they give me a lot of advice. What’s your career aspiration? What you should do next. I think I learned a lot from those very successful other entrepreneurs or leaders.

That’s why not only do I focus on the coding to become an engineer, but also I tried to practice some management skills. That’s why when I joined WebEx, I was one of the first of several founding engineers but I got promoted to engineer manager, senior engineer manager, director, senior director, all the way up to VP. After I joined Cisco, I also got promoted to corporate VP as well.

I think the number one reason was just self-motivation. I knew actually I wanted to do something, and that’s pretty much. The self-motivation I would say probably does play a big role here.

ZARA ZHANG: We sometimes hear of the term “bamboo ceiling” here in Silicon Valley, where it is hard for engineers from mainland China to move up the ranks at the tech companies, especially because of culture and language barriers. How did you overcome those?

ERIC YUAN: I do think the language barrier is a factor, seriously. I was born in Shandong province in China, and when I came here I even did not speak the language. I have a very heavy accent, as you know, right? So even if I speak in Mandarin I also have an accent. But actually, I really do not think that’s a reason.

The reason, a little bit the culture, you have got to learn a little bit. I will give one example. Quite often for many Chinese engineers, given their background and education, quite often you have a new project. They do not share with others, communicate with others.

They are driven by the mission, I just have this idea. I just started, I even did not finish. Why should I let my manager and let other people know that? This is sort of their understanding.

But here it is very different. You have got to make sure we have open, transparent communication. Even before you finish, you have got to communicate. I think you need to learn that. Those skills you can learn. But quite often they say. “Oh, there is a language barrier” so mainly I would say this is a bad excuse. I think you really need to think about why, figure out a root cause. I think Silicon Valley is a pretty open culture. If you work hard, you achieve a lot of things and then you communicate with others, you will be promoted.

HANS TUNG: Some people ask why, for example, the Indian engineers have risen faster in Silicon Valley, and many of the tech CEOs in Silicon Valley today are of India decent. They also speak with a heavy accent. But how come there are not as many Chinese engineers who have risen to that level the way you have?

ERIC YUAN: I think a commonality between Chinese-background engineers and engineers from India, they all work hard and also they all are very smart.

HANS TUNG: Yes.

ERIC YUAN: The biggest difference is those engineers from India, they have good communication skills. They keep everything transparent. Before I do anything, I have a great say like a PowerPoint to share with you, why I wanted to do that. And you know, it is very open communication skills, and I think that plays a very big role.

ZARA ZHANG: So the idea for Zoom first came to you when you were a freshman in college in China, right? Could you tell us that story?

ERIC YUAN: Yeah, that is a long story, but anyways. I was a freshman, my girlfriend was a sophomore. That was 1987, I think. She lives in another city. I was born in Mount Tai in the Shangdong Province. Between the city where she lived and the city where I lived was very far away. Every time I wanted to visit her, it would take more than 10 hours.

HANS TUNG: More than 10 hours?

ERIC YUAN: More than 10 hours.

HANS TUNG: One is the eastern side, one is the western side of Shangdong.

ERIC YUAN: No direct train either. I forgot, so probably at that time, you took the train and then probably in the middle of the night, you needed to change to another train. It was a very long journey. And also, I can only see her maybe twice a year, on the winter break or summer vacation.

Someday, I remember that actually. Someday if I can have a smart device and with just one click I can talk with you, can see you, that was my daydream, right? And every day I thought about that. But when I started Zoom, I started to connect the dots. It’s like wow, I thought about that before but the technology was not ready, but the idea was there.

HANS TUNG: Makes sense.

ZARA ZHANG: So you were on the founding team of Cisco WebEx, and you were there for 14 years. What made you realize that it was the right time to leave and start your own company?

ERIC YUAN: Actually, I thought about leaving WebEx, or Cisco WebEx, several times, because I would say Silicon Valley is a startup valley, and you better join a startup company or do something. So many great leaders really inspired me.

However, every time when I thought about leaving WebEx, there were a lot of emotional connections because you have to grow that piece. You work together with so many other teammates, it is really hard to leave. Quite often I am just, “okay, let’s stay for another year, another two years.”

And only until 2010, and back then I thought about leaving, however, I was still not fully ready. But one thing I realized back then, every day, every morning when I woke up, I was not happy, because when I visited a WebEx customer, every time I personally felt very embarrassed, because I did not see a single happy WebEx customer.

HANS TUNG: Why is that?

ERIC YUAN: Because when we built WebEx, we only focused on one use case. That use case was to have you share the PowerPoint or share the desktop, but it can’t be you and I in an audio conference. But 13 or 14 years later, there are some brand-new problems. Like every business, they have got to use multiple solutions. They want to enable conference room. They want to have video conferencing and have one unified solution. They wanted to have a cloud-based conference room solution. You wanted to make sure no matter where that team is coming from, we also can guarantee good voice over IP quality and video quality. WebEx was not designed for that.

HANS TUNG: For Internet?

ERIC YUAN: Yeah, exactly. This is a collaboration architecture. You’ve got to rewrite that. At Cisco, Cisco wasn’t ready to change its collaboration strategy. I had no choice but to leave to fix all those WebEx problems. That is when finally, I decided I’m going to leave. I cannot suffer from that anymore. So that’s the number one reason.

HANS TUNG: And when the 40 engineers followed you, how does Cisco react?

ERIC YUAN: First of all, I managed more than 800 people, so those 40 people is just a very small fraction, not any impact whatsoever. However, Cisco probably also saw, I have no choice, meaning I have no way to build a better solution.

HANS TUNG: It’s already Cisco.

ERIC YUAN: Yeah, exactly. So even if he’s a leader here, I think this market is not, they do not think there is a future. Otherwise, they all probably would have allowed me —

HANS TUNG: Allowed you to do what you wanted to do.

ERIC YUAN: Exactly. For the first several years, nobody paid attention to what we were doing.

ZARA ZHANG: So when you started Zoom, the videoconferencing market was already pretty crowded. There were a lot of other solutions like Skype, Google Hangouts, WebEx, FaceTime, et cetera. What made you think that you could still carve out a market? I think you’ve said before that the biggest differentiation for Zoom from the other solutions is that it just works, which I agree. So why does it work?

ERIC YUAN: You’re right. We’ve got to look at it from a customer, from an end user perspective, because I talk with many customers. Literally, I did not see a single happy customer who would tell me, “Hey, we really enjoying your solution.” So meaning all the solutions back then, I would say were terrible, no matter which solution. Because most of them were built for other purposes. None of them were built to embrace cloud-based video collaboration. So that’s where I saw the opportunity.

Our philosophy was that if we can build something to let a customer enjoy using that, I would say there’s a chance. That’s the reason. Because quite often, if you think the market is too crowded, if you don’t really understand the customer experience, you think that game is over, you don’t jump on that, I will say you are going to miss a big opportunity.

HANS TUNG: I just find it so easy to use, that you don’t have to download the software and remember a login and you just click the link and it just works. That makes it so much easier on multiple levels, to start using your product.

ERIC YUAN: Usability is really important. I think I’ve got to make it easier, and also the quality is very important.

HANS TUNG: Yes, of course.

ERIC YUAN: You are essentially right. It has got to work.

ZARA ZHANG: It works even when the service is not great with the Internet.

ERIC YUAN: You are right, that is why we have a very big team, focusing on optimizing our technology in a very low and unreliable network.

ZARA ZHANG: And it works in China.

ERIC YUAN: Yes, it has got to work.

HANS TUNG: We also notice that FaceTime audio works quite well, but obviously FaceTime video does not. How do you balance making sure that both audio and video can work well?

ERIC YUAN: So first of all, between video and audio, audio is still more important than video. Even if I can see you, but if your audio is choppy, nobody is going to use that. So essentially, we prioritize audio traffic over video traffic. Even in a very, very unreliable, very low bandwidth environment, and we focus on the audio.

Essentially we have an average, even at a data loss rate of like a 45 or 55 percent, we still can recover, we still can make sure your audio stream works. So a lot of what I would say is the very hard work is there.

ZARA ZHANG: Who were your first few customers, and how do you go about onboarding them?

ERIC YUAN: Oh, we were very lucky. Our first paid customer was Stanford, the Continuing Studies Group. Our solution was not ready yet and at that time I remember, that was November or December 2012. They were looking for a solution for their online learning, online teaching platform and were still in the alpha phase, and they tested all the solutions, and they still found Zoom quality was better. And before our solution was fully ready, they already became our paid customer and really boosted our confidence. That was our first customer.

ZARA ZHANG: I remember you also did a program at Stanford?

ERIC YUAN: Yeah, that is more like, I would like to take a break because I worked very hard in 2006 for my EMBA program and lived at Stanford, the campus for the whole summer. Yeah, just a break. I did learn a lot of things.

HANS TUNG: 2012 was an important year, because that was when the MOOCs the massive online education programs are starting to get rolled out, so it seems like you captured the right segment, a new segment.

ERIC YUAN: You’re very right. Actually back then, we were lucky to get the first several customers, all of them were from the education sector, some colleges. For now, if you look at the top 200 nationwide universities, 94 percent or maybe 96 percent now already became our customer. There is another benefit by focusing on higher ed, guess what? Four years later they all join our workforce, and it had a huge influence.

HANS TUNG: That was a very strategic move, yeah.

ERIC YUAN: It was a very strategic move.

ZARA ZHANG: Why did you decide to focus on the enterprise market instead of consumers?

ERIC YUAN: The consumer market, that has very definitely been small. Quite often, you have to have a free product, your monetization strategy is probably based on ads. Real-time communication and collaboration is really hard, so for you and I have very important business meetings, I do not think it makes sense to put ads.

However, there is a real demand from knowledge workers from those business customers that are looking for new solutions. That’s why I think from a business model perspective, I think the business sector is much better.

HANS TUNG: Will you ever have a consumer version, so the younger version of you can talk to his girlfriend?

ERIC YUAN: Seriously I think yeah, we are thinking about that now. Because when I was young, I suffered from that. I do not want anyone else to suffer from that anymore. Yes, in the future we might. But for now, that’s not our top priority. We have so many SMB customers, big enterprise customers, huge market opportunity ahead of us, so we better focus on the business customers first.

HANS TUNG: Right. How do you balance the needs of SMBs versus the bigger enterprise? Because big enterprise, as you know, always ask for more security, more customization, and so forth. So how do you balance that?

ERIC YUAN: That’s a good question, because we know down the road we needed a balance between SMB and enterprise. That is why on day one, we undertook a different strategy. So meaning if first of all, SMB customers on day one, we did add a lot of enterprise features already.

I would say for now, there’s no need to balance because the solution is all ready. All the security features, all the enterprise elements, all of those features are already added in. Otherwise, after you got the SMB customers, you sort of transition from SMB folks into enterprise, you need to do it —

HANS TUNG: It was hard?

ERIC YUAN: Very hard, but we knew that. That’s why I say, you know –.

HANS TUNG: From day one you were gearing towards the more enterprise solution.

ERIC YUAN: Exactly, very true, yes.

ZARA ZHANG: From where you sit, how do you see the future of work will evolve? Do you think teams will become more and more distributed, and do you think people who are actually using videoconferencing will increasingly replace in-person interactions?

ERIC YUAN: Absolutely. If you look at the trend, so first of all I think almost every company, they have more and more workers working remotely, you essentially become a virtual workplace. This is the number one thing.

If you have a virtual team, you still need to collaborate to get the work done, so you have got to have good communication tools. When it comes to communication tools, I would say only four. One is email, another one is chat, a third one is a voice call, the fourth one is video.

The email and the chat, I would say email, I do not think I use that. It is not for real time. Chat is okay for the very short conversation. It is very hard to imagine like five people to talk about something for one hour via chat, it would not work. And then voice is real time, however with voice the problem is the participants are always multitasking, and it also doesn’t work. The communication tool is really important.

Another thing, another change is if you look at today’s workforce in the United States, over one-third of our workforce are millennials. They’ve grown up along with video, along with their phone. if you give a phone number that lets them dial into an audio conference, they do not like that. Nobody wants to use that. They all turn on the video. Video communication, I think it’s going to become more mainstream.

Another trend is, looking at today’s workplace, they will have more and more conf rooms, less offices. If you visit Facebook, a great company, even the CEO Mark Zuckerberg, he does not have an office. It is very open space, and you need more and more the conf rooms.

That’s why, when you have more and more conf rooms, you’ve got to have a solution. You got to have a cloud-enabled video collaboration solution. That’s why I think video is going to play a very role to enable the modern workplace.

HANS TUNG: In addition to video, as you know, messaging has also become quite popular in the workplace with Slack in the U.S. or with DingTalk from Alibaba in China or WeChat, you see more people using that. How do you see your solution work with the various messaging platforms over time?

ERIC YUAN: Yes, the messaging platform is also very important. I would call that async collaboration, and quite often the customer already probably sees Slack or maybe Microsoft Teams with interoperability is very well. However, those are more like for the group conversations, meaning you don’t need a real-time response.

You still need to have video collaboration, because you want to call a meeting, you want to make a decision and especially if you want to talk with customers and partners or demonstrate your software, you still need to have video collaboration tools like Zoom.

Obviously, the combination between those two tools can really make a huge difference for the modern workplace.

ZARA ZHANG: So how often do you go to China these days? And do you pay attention to the tech developments there?

ERIC YUAN: First of all, I only travel, I mean the business travel, I only travel at most twice a year, and I did that for four years already. If I travel very often, so that means our product doesn’t work. And yeah, I did not travel back to China for three years now. By August it will be three years.

I wanted to travel there, but however —

HANS TUNG: A lot has changed in the last three years.

ERIC YUAN: Yeah, because there are so many customers here and we visit, talking to the customers, a lot of projects here. However, we are using video conferencing in Zoom and I did not see a huge problem because every day we open up our video call and I still can talk with them.

HANS TUNG: What’s the rough percentage of revenues for you outside of the US?

ERIC YUAN: North America, probably around 90 percent. The rest of the 10 percent, most are from —

HANS TUNG: Europe?

ERIC YUAN: Yeah, from the UK and Australia.

HANS TUNG: UK and Australia, English-speaking countries.

ERIC YUAN: Engish-speaking countries, but this year we are going to double down on —

HANS TUNG: French or German?

ERIC YUAN: Yes, France, Germany and Japan as well.

HANS TUNG: Japanese makes sense.

ERIC YUAN: Yeah, those three markets are growing very well, and we see that there is huge growth.

HANS TUNG: Any growth coming from Southeast Asia much? Are they developing markets?

ERIC YUAN: No market at all, because Southeast Asia, I would say it is still like a consumer-driven economy and B2B, I do not think they are taking off yet, but we will. We just do not know when, so that is why we focus on North America and the English-speaking countries, and Europe and the Japanese market.

HANS TUNG: How about India, especially with all the cross-border?

ERIC YUAN: India, we have many, many users from India because we have so many customers here, almost every company, they have a product office or a something.

HANS TUNG: In India or Philippines.

ERIC YUAN: Yeah, exactly. We have so many users from India.

HANS TUNG: Got it, makes sense.

ZARA ZHANG: Your LinkedIn profile says delivering happiness to our users. Your happiness is my happiness. I think not all CEOs see delivering happiness as their mission, and a lot of people would associate Zoom with efficiency or convenience, not necessarily happiness. What made you realize that happiness is the key to your company’s success?

ERIC YUAN: That is a great question. It just sort of boils down to my personal story, because when I started the company, I was already 41 years old, not very young anymore, already very late.

But however, also I learned a hard lesson, because I really wanted to understand, what’s the purpose of life? When I was young, whenever I had that question, I just don’t have an answer. Seriously, I do not quite understand. But along the way, I really understand that the purpose of life is to pursue happiness. It is about happiness. That’s really the very important thing.

I also learned how to pursue happiness, especially how to pursue a sustainable happiness. I learned in the former is, you’ve got to make others happy. If you make others happy, your happiness will be sustainable. So for me to build the company, also to apply that philosophy to the company world, the business world, if we can make a customer happy, our company will be happy. That happiness is also sustainable. That’s why this is our company philosophy. We do all we can, always communicating with our employees, do all we can to make sure our customers are happy, and then we’ll be fine.

HANS TUNG: Obviously you have been extremely successful in the U.S. with WebEx and then Cisco and Zoom is amazing. Do you ever wonder, given how fast China is growing, that you would do even greater things, had you chosen to go back to China? Because a lot of our listeners are young, promising, mainland Chinese Americans or mainland Chinese in the U.S. for a while, and they often ponder: should they stay? Or should they go back, given China’s growing so fast?

ERIC YUAN: Yeah, this is great question. Also, it is a tough question, very tough. The reason why is again, nothing is perfect and everybody has a dream. If you stay here, this is a great startup ecosystem, great culture. So many great leaders, entrepreneurs and you can learn so many things here, very diversified backgrounds and I would say lots of great innovations are coming from Silicon Valley. There are so many good things here.

Also back to China, you know the consumer-driven economy, over the past 20 years obviously it is a once in a life opportunity. You look at Alibaba or Tencent, even 15, 20 years ago.

HANS TUNG: Very small.

ERIC YUAN: Very, very small.

HANS TUNG: Very small.

ERIC YUAN: Today, $500 billion companies, huge influence to people’s lives. I think from that perspective, I think everybody would say yes, you have got to embrace that. It’s more like a 1995, 1996 if you want to look at it, the first wave of the Internet revolution, I was there. I got to embrace it here.

But that’s why it’s harder to see, and for the very young, I would say that right away, I would say if you really want to have a huge influence, especially if you focus on the consumer probably it makes sense. But however, if you just say hey, you want to just focus on technology, focus on true innovation, I would say here is okay.

But I also think down the road, more and more, the company, they are probably focused on both sides.

HANS TUNG: Yes absolutely.

ERIC YUAN: I would say, if you start a company here, you can have business there and vice versa. I do not think you have got to say, I have to —

HANS TUNG: You don’t have to choose anymore.

ERIC YUAN: Exactly. I really think that is the case.

HANS TUNG: That’s our thesis as well. I think increasingly it will be cross-border companies, almost from day one.

ERIC YUAN: Very true.

ZARA ZHANG: So we are going to move on to the last part of the interview which is a set of standard questions, rapid fire. The first one is who is the entrepreneur you admire the most and why?

ERIC YUAN: Entrepreneurs or leaders? So it is different. I think entrepreneur, I would say I really admire Mark Zuckerberg, and given he is very young and built a great business in Facebook and huge influence. Very positive, good influence to the world; and look at what he achieved, what he did.

HANS TUNG: And what more could be coming.

ERIC YUAN: Yeah, I think I really admire him.

HANS TUNG: How about leader?

ERIC YUAN: Leader I think, I really admire and I learn a lot from his leadership advice is the former CEO of Wal-Mart, H. Lee Scott Jr. I think his wisdom and advice truly shaped what I think about leadership, a lot of things.

I could give one example, like “whatever you said the first time will be misunderstood or ignored”. You know, a lot of things like that.

HANS TUNG: Words of wisdom.

ERIC YUAN: Ability to give constructive, honest feedback is a rare talent. So many leadership wisdom, I think that really shaped my leadership style. I think I really admire him.

ZARA ZHANG: What is something you read recently that touched you a lot or you recommend?

ERIC YUAN: I do like reading a book. We also have a book club here, by the way. Any employees, whenever they buy a book for myself or for their family member we always reimburse, because when you promote self-learning you’ve got to promote that as well. The book I’m reading recently and I have several books I read at the same time. One book, it took me for a while, I am still not finished.

Almost done, almost done, is Principles from Bridgewater Associates, the number one global asset management company. A wonderful leader, great entrepreneur. That book is also, but it took me a while. Almost done. The last several pages.

ZARA ZHANG: I think China is obsessed with that book now.

ERIC YUAN: It is a wonderful book. I highly recommend that.

HANS TUNG: What do you do for fun?

ERIC YUAN: I just enjoy spending all the time with the kids, and sometimes watching my son playing basketball, send my daughter to dance school. Every time when I spend time with the kids, I just enjoy it.

HANS TUNG: In the Valley, obviously work-life balance is very, very important but in China increasingly you see a lot of work-life integration. People try to simplify their whole life to fit into their work. Can someone truly be happy working like that, in your opinion?

ERIC YUAN: First of all, don’t think about or don’t try to pursue a formula to balance work life. As long as you go in that direction, you never can have an answer. Just think about, because if you have a passion, take Zoom for example. Every day, I just want to come to the office. I just wanted to work on something, because I think this is my life. I never think about, that is work. I enjoy doing that. If you always think of the balance between work and life, that means you still did not figure out a passion yet.

Answer to that question first. If you find the answer, I think that you never will go back to ask how to balance between work and life.

HANS TUNG: So it sounds like you like a work-life integration as well.

ERIC YUAN: Yes, as a true integration.

ZARA ZHANG: Thank you so much for your time.

ERIC YUAN: My pleasure. Thank you for having me.

HANS TUNG: Thank you, it was fun.

ERIC YUAN: I appreciate it.

HANS TUNG: Thanks for listening to this episode of 996. By the way, we also produce a weekly email newsletter in English also called 996 which has a roundup of the week’s most important happenings in tech in China. Subscribers have told us it is informative and fun to read. The newsletter also features original content and analysis from Zara and me. Subscribe at 996.GGVC.com.

ZARA ZHANG: GGV Capital is a multi-stage venture capital firm based in Silicon Valley, Shanghai and Beijing. We have been partnering with leading technology entrepreneurs for the past 18 years, from seed to pre-IPO, with $3.8 billion in capital under management across eight funds. GGV invests in globally-minded entrepreneurs in consumer Internet, ecommerce, frontier tech and enterprise.

GGV has invested in over 280 companies with 29 IPOs and 22 unicorns. Portfolio companies include Airbnb, Alibaba, Ctrip, Didi Chuxing, DOMO, HashiCorp, Hellobike, Houzz, Keep, Slack, Square, Toutiao, Wish, Xiaohongshu, YY and others. Find out more at GGVC.com.

We also highly recommend joining our listeners’ WeChat group and Slack channel, where we regularly share insights, events and job opportunities related to tech in China. Join these groups at 996.GGVC.com/community.

HANS TUNG: If you have any feedback on this podcast, or would like to recommend a guest, please email us at 996@GGVC.com.

Espisode 14: Jenny Lee of GGV Capital on Being a VC in China

Hans Tung and Zara Zhang interview Jenny Lee, a managing partner at GGV Capital based in Shanghai. Jenny joined GGV in 2005 and was instrumental in setting up GGV’s presence in China. Forbes recently ranked Jenny as the world’s 16th most powerful women in tech.

A self-professed geek who loves new technologies and products, Jenny has been involved with consumer Internet, SaaS, and frontier technology companies at GGV, and has helped many go public. Since 2011, Jenny has been recognized by the Forbes Global 100 VC Midas List of top venture capitalists, ranking as the #1 woman and #10 overall in 2015.

Jenny grew up in Singapore and was educated in the US, where she attended Cornell and Northwestern University. In this episode, we discussed how Jenny rose from a newcomer to one of the most respected VCs in China, how she set up the China presence of a US venture capital firm, how venture deals are done in China, and how US companies can better align themselves with Chinese government’s interests.

Transcript

ZARA ZHANG: Hi listeners. This is Zara from GGV Capital. I wanted to tell you about our newly-created GGV 996 Community. By popular demand, we’ve created a WeChat group and a Slack channel for followers of 996 Podcast and newsletter. This is a community brought together by a shared interest in tech in China.

In these groups, we will regularly share China-related news, insights, as well as events and job opportunities. You will get to talk directly with Hans and me, and connect with other like-minded people who care about tech in China.

Last week, Hans did a live AMA or Ask Me Anything, in the WeChat group on the topic of Meituan-Dianping and super apps. We are also in the process of planning offline meetups for our community members in multiple cities, including the Bay Area and Beijing. Details for these meetups, as well as future AMA sessions will be announced in the groups.

To join the groups, please go to 996.GGVC.com/community and follow the instructions there. Now onto today’s episode.

HANS TUNG: Hi there. Welcome to the 996 Podcast, brought to you by GGV Capital and co-produced by the Sinica Podcast. On this show, we interview movers and shakers of China’s tech industry, as well as tech leaders who have a U.S.-China cross-border perspective. My name’s Hans Tung. I am the managing partner at GGV Capital, and have been working at startups and investing in them in both the U.S. and China for the past 20 years.

ZARA ZHANG: My name is Zara Zhang. I’m the investment analyst at GGV Capital and a former journalist. Why is this show called 996? 9-9-6 is the work schedule that many Chinese founders have organically adopted. That is, 9 a.m. to 9 p.m., six days a week.

HANS TUNG: To us, 996 captures the intensity, drive and speed of Chinese Internet companies, many of which are moving faster than even their American counterparts.

ZARA ZHANG: On the show today we have Jenny Lee, one of the managing partners at GGV Capital. Jenny is usually based in China, but she comes to the U.S. once in a while as well. Jenny joined GGV Capital in 2005 as managing partner, and was instrumental in setting up GGV’s presence in China.

As a self-professed geek, Jenny has an infectious love for new technologies and new products. Jenny was recently ranked by Forbes as the world’s 16th most powerful woman in tech. Her name has also appeared on Forbes Midas List of the world’s top venture capitalists since 2011, ranking as the number one woman and Number 10 overall in 2015.

At GGV, Jenny has invested in companies in consumer Internet, SaaS and frontier technologies. She has helped several companies go public, including hiSoft, 21Vianet, SinoSun and YY. She is on the board of Liulishuo, also known as Lingo Champ, CashShield, eHang184, Keep, Kingsoft, Niu.com, Phononic, Zuoyebang 作业帮Xiaozhan Jiaoyu 小站, 51zhangdan, and UCWeb until it was acquired by Alibaba. She has also invested in Drive.ai, Momenta and Globotics.

Jenny grew up in Singapore, then came to the U.S. for school where she obtained a bachelor’s and master’s degree in electrical engineering from Cornell, as well as an MBA from the Kellogg School at Northwestern.

So Jenny, my first question to you is, would you describe to us your journey from Singapore to the U.S. and then to China? Now you are a very renowned investor in China, but when you first started out there, it was actually your first time in China.

JENNY LEE: Thank you, Zara. So it’s an interesting background I have. I think if I recall back to when I was 18 years old, that was the time where I realized that being one of 3 million to 4 million population in Singapore, that’s really small when you think about the world population at 7 billion, and I’m in a little country with such a small market. You know, I found that I needed something bigger. I needed the opportunity to go out and discover what’s out there.

And so naturally, in Singapore as a student, as a kid, you are told that you can only grow up to be in four different professions. You’re either a doctor, a lawyer, an engineer, or an accountant. And so those are the four choices. I wanted to see what other choices there were. But following the engineering route of the four choices, it just makes more sense to be in the U.S. where education in the U.S. on the technology side at least ranks ahead of other countries. So that’s how I got to the U.S.

HANS TUNG: It was Cornell in Ithaca? You picked it for the weather, of course.

JENNY LEE: That’s right. I picked it for the weather, what Hans says is right, Singapore doesn’t snow, it rains all the time. I never had a chance to go through four seasons, and so I figured, well, the U.S. is big, let’s start on the East Coast and let’s go to a place where it’s nice and conducive and hopefully safe.

When I went to Cornell, it was my first trip to the U.S. as well. I had no idea how the colleges worked.

HANS TUNG: This is after you got accepted by Cornell?

JENNY LEE: That’s right, so I decided, oh let’s go check it out. Took my suitcase, flew by myself, went there and spent the next four years there, without coming back to Singapore.

HANS TUNG: While you were still in college.

JENNY LEE: That’s right. So that’s how I got to the U.S. and so I think the story is very similar. Back in 2001 I was graduating from Kellogg. As you can see, I was going east to west. Kellogg, Chicago. Still a cold city. I did my MBA, but back then in 2001 the market, the world was crashing. We had 9/11 in the U.S., the whole Internet bubble had crashed, and so when I looked around as well —

HANS TUNG: But in between Cornell and Kellogg you were an engineer? You were flying drones.

JENNY LEE: That’s right. So before my MBA when I graduated in 2001, between Cornell and my MBA, I spent about four-and-a-half years really working the field. I was an electrical engineer in what we call the electronic warfare division of Singapore Technologies Aerospace. I was really a jet engineer for four-and-a-half years. Everyday I was out in the sun, hanging out with the technicians and the fighter jet pilots. It’s kind of fun, actually.

But that’s really where I learned about technology, not just technology on the books, but how things were built, how things were designed, where systems are being developed and where all the cutting-edge technology is.

If you think about today’s Internet startups, a lot of the core technology came from the defense industry, so that was how I started my career. But I realized that having to work on a project for three years to ensure that the drawing gets developed, three years is really short actually. In the lifetime of a commercial product –.

HANS TUNG: It takes too long.

JENNY LEE: Way too long. And so that’s how I got to do my MBA, deciding to do a career change. And so in 2001, looking around the world, the next-largest market at that time, the China market, was really up and coming. We saw CNet’s IPO in the U.S. in 1999, and then AsiaInfo was the second IT services IPO in the U.S. And so it felt like China was coming up. And if you believe in tech, if you believe in Silicon Valley, you see the growth that’s happened there, you have to believe that there will be a similar trend in China.

So I packed up my bag, broke my bond, paid off my scholarship loans and then went to China. Again, first time in China. No relationships, no friends, started from ground zero.

HANS TUNG: And didn’t speak much Mandarin.

JENNY LEE: Yeah, at the time Mandarin was really just based off my two or three years fundamental education in Singapore, where we all have to go through some level of education. But really, I hadn’t been using the language for over 10 years. And so we learn; learn to read business plans in Chinese, learn to understand technical jargon in Chinese.

A lot of entrepreneurs helped. Many of the CEOs today who are now multibillion-dollar CEOs, they were there when I was there. They were the ones who taught me how to speak, how to use the right phrases in Chinese, and of course, I helped them with their English.

ZARA ZHANG: And now you are completely fluent.

JENNY LEE: Now I get by pretty well.

HANS TUNG: So when you first went to China, you started off in banking, right? It was Morgan Stanley, and that was in Hong Kong.

JENNY LEE: Yeah, that’s right. So in 2001 when I knew I wanted to go to China, I had no idea how to start because I knew nobody there. On top of that, as I mentioned earlier, I actually had to pay off my initial undergrad, master’s, MBA scholarships, so that was a lot of money. I grew up in a very average family, maybe lower class.

HANS TUNG: Very nice parents. I met them, they are very nice.

JENNY LEE: But you know, we are kind of average. That’s why I needed a scholarship for my education. And so to really pay off, the best way to do it is to be a banker, real quick. So I was at Morgan Stanley in Hong Kong for a year, both in the IBD division and the ECM division. Very lucky as well, because it was a tough time to be in banking.

But the one year was extremely helpful, because it got me to understand the whole capital markets, how companies or startups can ultimately get to be a public company. But I left quickly because I realized, when you are a fighter jet upgrade engineer, you don’t last very well and you don’t last very long in the banking environment.

HANS TUNG: It’s a very different culture.

JENNY LEE: Instead of building products, I was pushing papers and presentations and doing translations. And so I left and joined JAFCO in 2002, in the June timeframe. JAFCO is a late-stage venture capital firm, supported by the Japanese Institution, and so I really had a chance to then start to look at the China VC market from 2002, and that’s what I did from 2002 to 2005 at JAFCO.

HANS TUNG: When I met you in early 2005, you were still at JAFCO. That’s when we overlapped. And then two months later, you joined GGV.

JENNY LEE: That’s right. So I still remember it. Hans at that time came to China, you were in Shanghai.

HANS TUNG: That’s right, with Bessemer.

JENNY LEE: With Bessemer. This was an early time in the China VC market, where a lot of the capital was still coming from U.S. VCs. So for us to really start off our VC career in China, it’s not just about the Chinese language. You have to be extremely good with staying up late at night, because you have to do late phone calls with your U.S. counterparts, partners, you have to be doing a lot of translation.

And so when I met Hans, Hans wowed me because this is a huge guy; a nice, big boy.

HANS TUNG: I always had a smile.

JENNY LEE: Always with a smile, but always working; always working. Whether it’s 10:00 a.m., 11:00 a.m., 2:00 a.m., he gets out term sheets before 1:00 a.m. And so it was an amazing encounter. We also got to work together on our first deal.

HANS TUNG: On my first deal in China, yes, you were the co-investor and we were both on the board together. That was a very interesting journey, dealing with a very interesting management team.

JENNY LEE: Yeah that was, if I recall, I think this was like 2006, early 2006.

HANS TUNG: Summer 2005.

JENNY LEE: And at that time, the Internet 2.0 was the rage.

HANS TUNG: Yeah, blogs were very popular.

JENNY LEE: That’s right. But it was an extremely good experience. I always like to say that that was the time when I really got to know Hans.

HANS TUNG: Likewise.

JENNY LEE: There were a lot of investors around the table, and when companies do well, that table gets smaller. The people around the table multiplies, you get more people around the table, everyone wanting to raise their hand to be the key person.

HANS TUNG: To take credit for things, yes.

JENNY LEE: I still recall we had, this is an interesting story. We had another VC who wanted to be chairman of the board, because he thinks this is going to be a great company and he just wants credit. But again, with our business, we have more downs than ups, to be fair. And so as the sector got really hot, more competitors came in. The company didn’t deliver. And the only thing that I really remember, it was at the end of the heydays, it was just Hans and me and the CEO in his room, on a couch, trying to figure out what to do with the business.

HANS TUNG: How to help the company.

JENNY LEE: And I think that’s what real VC is about. It’s about being there with entrepreneurs, not just in uptimes, but when they need us. When they need us to be there not just as cheerleaders, but to –.

HANS TUNG: To figure things out.

JENNY LEE: Figure things out, and then work with them to figure it out. And if in the end it means that we have to wind down the company, then that’s what we do. And through that process, I always said, Hans is my comrade in war. If you fought a war together, you know who’s going to be in the trenches with you, who is going to be there to watch your back. VC, it’s not always a lonely business. If you have a great partner around the table, I think the effect and the upside is just an enormous multiplier effect.

HANS TUNG: Yeah. It is important not only for the founder to pick the right VC, but also for the VC to pick the right fellow investors to be around the table.

ZARA ZHANG: So I find it remarkable that both Hans and Jenny, you guys didn’t grow up in Mainland China. Hans grew up in Taiwan and then the U.S., Jenny grew up in Singapore. So what challenges did you face when you first went to China as investors? How long did it take you to acclimate to the local environment and how business is done there?

JENNY LEE: I think that not being born in China, not having grown up in China, really gave me a healthy respect for the country, for the people, from day one. You go in fighting, you go in scared, knowing that you are starting at ground zero, at the base.

I think what that does is allows me to be very open to the people that I am meeting, to constantly be learning about what’s new, what’s normal, what’s local. To always have respect for the people around me, because any one of them can be a teacher, whether it’s in a certain trend, whether it is in a specific area as simple as hiring. How do you hire in China? How do you set up a company in China? How do you talk to entrepreneurs while he is smoking in your face?

Those are all the different local situations that we have to deal with. But having an open mind, going in knowing that there is only upside, because that’s what you’re learning. Knowing that you don’t have guanxi (关系) and so there’s really nothing that you can rely on your back end means that you have to work harder. You have to work a longer time. You just have to make yourself better compared to everybody else.

HANS TUNG: I think my experience with Jenny’s is similar. I was fortunate in that when I went to China, my Chinese was quite fluent, but my way of thinking was more Americanized. Because I’ve been a student of Chinese history, and history in general for a long period of time, for me it wasn’t as difficult to adjust to China.

I think that the people, like Jenny said, were remarkably more open than I thought. It is very much a meritocracy. If you are willing to work hard, bring value, genuinely try to help a company and not try to screw them, screw the entrepreneurs on terms, not try to take every cent, everything you can make off the table, people appreciate your genuineness and willingness to help.

So I actually think my eight years of investing on the ground in China are probably amongst the eight most interesting, most rewarding years of my life. And this is why when I came back to the U.S. in 2013, having people view me as a Mainland Chinese VC, it cracks me up, because I actually think that the U.S. market is a lot easier to make investments in, than it is in China.

I think China is just super competitive. Talking about our podcast called 996, 9 a.m. to 9 p.m. six days a week, but as a VC, it pretty much is 007, 12 a.m. to 12 a.m., seven days a week, always thinking about work, always thinking about how to win and if needed, go to an entrepreneur’s office, don’t leave until he or she signs on the term sheet or the dotted line. Some people will wire money before the term sheet is signed, just to make sure they lock up the deal. That kind of crazy stuff would never work in the U.S., but in China it’s what it takes to get stuff done.

Having been thrown into the fire and be able to survive, together with Jenny and then also with Jixun, is a very rewarding feeling that you can have a lot of confidence in your teammates that when push comes to shove, you can get stuff done.

ZARA ZHANG: So I want to dig deeper into that point where you said it’s almost more difficult to invest in China than in the U.S. It’s that’s because there’s a lot more competition there? A lot more deals and a lot more VCs?

JENNY LEE: Yeah, definitely. I think today the market has changed. The China market has evolved substantially. The entrepreneurs are even more educated, they know what’s out there, they know how to compare. There’s a lot more information on the web, and so they don’t come from a point where they are just learning. They actually come from a point where they are doing due diligence on the VCs.

As Hans mentioned earlier, the VCs in China are extremely, extremely competitive. Meetings take place at midnight. VCs do sit in the office until term sheets are signed, and so the level of competition is a lot higher.

In China, we always say if this is a great deal, you have to do whatever it takes. Whatever it takes. Really it’s not just about putting one person in front of the entrepreneur, it is putting the entire firm; the company’s values, the company’s experience. You know, we put our portfolio services team out there as well to help our portfolio companies. Sometimes we call on our CEOs to call other CEOs as well.

So in China, you do have to be a lot more creative. You have to figure out how to break the court, how to get in front of the entrepreneurs. And so we, even after 17 years in China, we don’t sit back and just figure, we’ll just wait for the entrepreneurs to come knock on my office or come visit us.

We are actually out there constantly looking at what’s new, meeting with young entrepreneurs, trying to figure out the trends, and when we like the deal, we are there in terms of hands on, getting into the deal. So it’s a battle, it’s a fight.

And even when you’re in, an investor into a company, you also have to have a very good perspective of the whole macro landscape, because the space is highly competitive. Today there may be two players and one investor is number one. Tomorrow, the space may be 2,000 players, especially when the big guys, the Alibabas of the world come in and decide that this is the space they want to be in.

And so again, it’s not just micro around the company. It’s also having that perspective on the macro level, and then that helps us to help to navigate, help the company or the CEO navigate the path as well.

HANS TUNG: You should share the story of how you opened up the GGV office in Shanghai, as a demonstration of what it takes to get stuff going and how much regulation, red tape you have to jump through in order to get stuff done.

JENNY LEE: Yeah, so this is in 2005. China was still very nascent. Back then you have no WeChat, you have no Alipay, payment was not great. Credit cards, you know, most shops and facilities don’t accept credit cards, so it was basically a very cash-supported industry.

In 2005 when I went to China, we had to set up the company, figure out the name for the company, hire our employees. It was a really weird system, because to hire employees you need to first set up the entity. It takes six months to set up an entity called WOFE, which is a wholly-owned foreign entity.

HANS TUNG: Back then.

JENNY LEE: Back then. And so in theory, you cannot hire anyone within that six months timeframe. And then after the entity is set up, that’s when you’re allowed to have a bank account. And so that’s when money can go in. So for the first six months, it was a very interesting time period because I literally went to China with a suitcase of cash, RMB cash.

HANS TUNG: Every month.

JENNY LEE: And when I hired our employees, I have to tell them that they are not officially hired, because the company doesn’t have the right yet.

HANS TUNG: It’s not registered yet.

JENNY LEE: And so they have to agree they are part-time, so-called freelance, for that six months, and every month I will be back in the office to pay them their salary in cash.

HANS TUNG: With cash.

JENNY LEE: And so, that’s part of the process of starting up the operations back then. Today it’s a lot easier.

HANS TUNG: It’s faster now.

JENNY LEE: In 2005, so it takes a lot. It’s not just us studying the operation. For our GGV employees who took that leap of faith to join GGV, no one knows GGV. I didn’t have a Chinese name. We had to figure out a Chinese name for our entity back then as well.

And so it’s been a very amazing journey, really getting our hands dirty, understanding what it means to set up our own GGV there. In a way, I understand what startups have to go through to really go from zero to just 0.1 to set up.

HANS TUNG: I think the point you make is very unique about China, is that the entrepreneur, if you want to, you can roll up your sleeves and work with the company because there’s just so many hurdles to jump through, so much regulation and red tape back then. And so over the last 10 years, it has improved a lot, but it just makes it even tougher to compete and differentiate, because you need to figure out where to make a bigger impact than you normally could before, just by getting through some of the red tape.

It’s also tougher in China because the companies scale and can scale so quickly. One, it’s a huge market of 1.3 billion people and 900 million smartphone Internet users. So if something works, you can scale extremely quickly. So people are willing to overpay early on, because they know that if it works, the payoff will be tremendous.

And then like Jenny said, every category, every two or three years, actually one or two years, something new happens, and in that process, a lot of copycats get funded as well, so they have to compete fiercely until one, two, maybe three companies emerge as the winner of that category. We see that movie play every year since 2005 and you get used to it, getting a sense of rhythm and pattern.

When I came back in 2013 to Silicon Valley, surprisingly Silicon Valley felt slow compared to China, because the market is already more mature, there’s a lot of stuff offline that’s already in decent shape so whatever online option there is has to be dramatically better to differentiate. And even then, it’s a smaller market so it takes more time to scale, whereas China, the leapfrogging effect of the offline makes it a lot easier to try something new. But when something new happens and it works well, the companies become extremely fierce very, very quickly.

ZARA ZHANG: Do you guys have any anecdotes or crazy stories to share that illustrate how things work differently in China?

JENNY LEE: So I think that here when we think about VCs doing due diligence, it’s financial due diligence, business due diligence, maybe some technical diligence, and of course legal due diligence. You will have other third-party consultants and advisors to come in and give it a second look.

In China though, we’ve had very interesting due diligence techniques that we may have to develop. So back in the early days between 2002 and 2005, most of the entrepreneurs we meet, they are first-time entrepreneurs. There’s really no one to ask how they did in their previous job, there are no references that you can get.

And so early days, I actually hired private investigators for some of our portfolio companies. And it’s interesting, because you don’t really do that here in the U.S. anymore. And so we actually worked with third-party investigators to look through the records of entrepreneurs, to see if they have violated any laws, and in the process some of the reports we found out, we actually found out interesting things like he has a second wife or third wife, multiple properties.

And it’s another way to try and understand.

HANS TUNG: Usually these are non-Internet entrepreneurs, non-Internet sector, more offline businesses, you see more of that.

JENNY LEE: Yeah, this was actually the encryption category.

HANS TUNG: Yeah, IT, yes.

JENNY LEE: Mostly early on, because in early 2005 there just wasn’t enough third-party service providers who had sufficient resources and information to help us understand what it means to do due diligence on the management. We can spend 20, 30 hours with the entrepreneurs a week to understand him, but that’s not enough.

Another example of different types of due diligence is on the gaming investments that we made. So this company actually does communication tools for gamers. When we first met with the CEO —

HANS TUNG: Of YY.

JENNY LEE: Of YY, he was adamant that he was the number one market share leader in China. And when I asked him for data to support, he has no data. He said I believe I’m number one, I am number one.

HANS TUNG: Go, David.

JENNY LEE: Because this is a new category, there is really no third-party research firms that can help us as well. And so this is a very interesting time, 2008, 2009 and so I actually designed a survey, an internal survey of a bunch of questions and then I got my entire GGV staff. At that time we had like six of us, essentially our receptionist, assistants, associates. Actually, I don’t think we had associates.

So really, just the early team in China, and we went to Beijing, Shanghai and Guangzhou to the Internet cafes 网吧 from midnight. Back then Internet cafes were the key for the gamers who don’t have PCs at their home, they were just playing games right? And so we actually surveyed. Our guys, non-investment team members actually went in to survey.

It was a 200-person survey, so it’s not trivial. We had to ask a lot of people in three different cities, and the net result actually showed that among all the competing products, YY was number one. I think close to 75, 76 percent of market share.

So again, what it taught us is that in a market that’s emerging, in a market that was really new back then, you just have to have more creative ways to understand, to verify the numbers, less reliant on the third party but more dependent on how creative we can be to triangulate the different data that we have.

Today it’s great. I think today in China you can conduct 5,000-person surveys, you can have online surveys. But back then, it was really hard.

HANS TUNG: Less than 10 years ago.

JENNY LEE: That’s right. This was like 2008, 2009.

HANS TUNG: A lot has happened in such a short period of time. For me, I remember one of my first investments in China was a company called eHi Car Services, now they are listed on the New York Stock Exchange. I invested in them when we had 20 cars. Now I think they have 50,000. After we gave them their first check, the CEO opened up 20 stores in a period of like five months.

But to make sure that there are 20 stores there, I literally went to, in less than a week, went to four cities and visited 13 stores and interviewed the store manager myself and counted the cars in the parking lot of each of the stores to make sure it was there.

So that’s how I knew that he actually — I trusted him, I liked him, but I just wanted to verify that he did what he said he would do. You wouldn’t have to do as much of that in the U.S.

ZARA ZHANG: So doing whatever it takes to verify things.

JENNY LEE: That’s right. So always trust first, because otherwise the company or the CEO should not be the one that we are betting on. But after that, do verify.

HANS TUNG: Do verify, that’s right.

ZARA ZHANG: And both of you mentioned, I think everyone agrees that relationships are very important in China. So I wonder, when you went to China you had no relationships, how did you go about building that network?

JENNY LEE: So when you know you have no relationship it’s good, because you have nothing else to lose if you start at zero. And so the way I’ve done it is really just to spend more time, take more meetings. For example, when I first started looking at the gaming space, while I do play games and I do understand simulator from my aircraft days, it’s a very different market in China.

And so what that means is really going to the Internet cafes, hanging out with gamers, hanging out with developers. I actually spent a lot of time in Guangzhou, Shenzhen in the early days, just having coffee talks with developers. These are like game developers. They are not the most presentable folks, they just want to play games.

HANS TUNG: No, wear sandals and t-shirts.

JENNY LEE: And they want to develop games.

ZARA ZHANG: Where did you find them?

JENNY LEE: And so you go, when you meet one you ask the first guy that you meet after you have an hour coffee or tea with him, whether he will recommend other people that I should talk to. And so within a certain geographic area, back then NetEase was in Guangzhou, Tencent in Shenzhen, and so the number of software and game developers there, like they aggregate. They kind of hang out. They have their own ecosystem.

And so getting to know the first one allows you to find out who the second, third, then fourth person.

ZARA ZHANG: it snowballs.

JENNY LEE: But it doesn’t mean that there will be a deal that will come out of it. But through the process, we get to hear a lot more about what’s cool. What are the trends? Which CEO has gotten funding? What’s new there. So it’s a lot of hard work, but I think once you start to show face and show that you are learning —

HANS TUNG: And you care.

JENNY LEE: Yeah, you care and you have a good attitude, people do open up to you. And those relationships actually last a long time. Today I may not hang out with them as much, but they are there. They know who I am, they know how to look for me and when there’s a cool deal that’s out in that space, they will come back and say, “Hey, I think you should take a look.” So this is just one example.

In the IT services space, where I first invested in HiSoft, I went to all the high-tech parks in China. Every single one from Dalian to Beijing, Guangzhou, Wuxi, Shanghai, every single one, and talked to the high-tech parks officer, because back then it was highly supported by the government.

HANS TUNG: Yes, local governments.

JENNY LEE: And so then meeting with the top three to five companies in the high-tech park, every one. In Dalian I had to drink Baijiu (白酒), that was the worst because they had a lot of seafood and I am not a seafood person. They also had a lot of Japanese influence, so the alcohol culture is strong.

They also play a lot of golf. I still remember, there was one deal where I actually signed the term sheet on the golf course. So it’s not a cliche, it actually happened. But it does take the extra effort to go deep, to spend the time to understand the sector.

ZARA ZHANG: I think as long as you show respect and are willing to listen to people, you’ll be surprised how many people are actually willing to talk to you.

HANS TUNG: Yeah, that’s exactly right. I remember I used to have eight meetings a day, six days a week. When you’re willing to do so much —

JENNY LEE: And still do, right?

HANS TUNG: Not as much, now that I’m older. But when you are willing to do that and you are very willing to help people, even if you are not an investor, you’re willing to share your knowledge and your contacts and your insights on the industry you are studying to people, and people think you’re a nice guy, you work hard and smart, they are very, very open.

So when a lot of people in the U.S. or elsewhere complain about China, it is harder for me to fully appreciate, because if I can go there as a foreigner and make it work, if you’re really willing to try, it can be done. So if you go to China without bias and can really understand how it works locally and not feel superior but feel like this is a country that can actually teach you something, then I think the chance of success is a lot higher.

ZARA ZHANG: I think that’s a great message for people who didn’t grow up in China, who maybe are from the US or other parts of the country and are interested in getting involved in China’s tech ecosystem, but don’t know where to start. I think just having an open mind, spend time there getting to know people can be very powerful.

HANS TUNG: It helps if you can smoke, a lot of Chinese people smoke at night.

ZARA ZHANG: You don’t have to.

HANS TUNG: Just smoke with them socially, drink if you need to. But actually for me, in my eight years in China, I didn’t have to drink more than 10 times, because I invested exclusively in the Internet space. It usually is very much, you don’t need to do any weird stuff. You can just focus on business, but show your worth through intelligent discussions. It can be done.

JENNY LEE: China is actually more open to entrepreneurs than people think. A lot of times our U.S. entrepreneurs, they are afraid, and so just before even setting foot in China, they come away, they go in there with a boatload of fear.

But I think I echo Hans’ comments earlier. If he and I both, we haven’t grown up in China. We did not go to school there. We did work there, and we can make it by just paying attention to entrepreneurs, by listening versus speaking all the time.

HANS TUNG: Right. Be willing to help.

JENNY LEE: Be willing to help. Be willing to learn. Be very open-minded. There’s always a way to crack that market, but you cannot do it sitting in the U.S. To understand China, you have to be in China. And one day in a year is not enough. If you are the CEO of a company wanting to break into China, you have to make the commitment not just to send someone there, but for you yourself to be willing to spend that time to live.

HANS TUNG: To live in China.

JENNY LEE: That’s right.

ZARA ZHANG: I think Jenny, you’ve said before that what motivates you to be an investor is really your love for technology. I wonder where this came from? Why are you so passionate about the new technologies?

JENNY LEE: I don’t know. I think I was born with it. But I always have this belief that a single person can change the world. Somehow I believe that, and I’ve seen again and again in the last 17 years that individuals have the ability to move markets, to change perceptions, and to create companies that today are amazing companies.

Look at Jack Ma with Alibaba. If you had known him 20 years ago, he was a teacher from Hangzhou. He can make it. Even he can make it. So I always felt like the individual, believing that the individual can make changes is very important. And then too, in today’s age, the monumental change, disruptive change versus evolutionary change, my belief is that it has to leverage on something. That leverage is likely to be technology.

Because if you can have a robot that can achieve the task of 1,000 workers versus one, that can remove the repetitive tasks that 1,000 workers have to do, that’s efficiency and therefore with new ways of thinking, new ways of competition, new ways of technology you can create brand-new products.

And so I think that’s where you get the leverage, not by having 1,000 people do the same thing. Even smarter is not enough. If you leverage a chip to do better, a robot to do better, then I think that is how the world is being changed.

So that’s what drives me. Everyday I want to see new, interesting products and services that can really go out and create something that maybe we haven’t thought of today. Just like when we got our first iPod or our first phone, we thought that was like a gaming device. Today it is not a gaming device.

HANS TUNG: You can’t live without it.

JENNY LEE: Absolutely. It’s our uniform communication and service information platform. Even the three-year-old cannot do without their iPhone or iPad.

ZARA ZHANG: Hans, do you want to elaborate on that?

HANS TUNG: I was lucky that I went to Stanford for my undergrad. I think that helped me see what Silicon Valley is like upfront, and see how it changed. Stanford back then in the 90s and the Stanford campus now is very, very different. In fact, it’s all that Internet money that the Stanford alumni donated.

So when you see a place that can change a lot in a very short period of time, it makes you appreciate what technology advances can do. The first time I went to China actually was in 1995. The second time I went to China was in 1999. I remember when I first went to Shenzhen in 1995 I thought, “Oh my God. This is going to take a while to become modernized.” In 1995, when I first got into banking, I saw that Chinese state-owned enterprises were trying to go public on the New York Stock Exchange, and these are very old-school companies.

But in 1999, you can see that wow, China has become different, because now there’s a thing called Internet that is catching people’s attention. Once you go there again in 2003, 2004, 2005 you just start seeing the country change very, very quickly.

And so when you see what technology has done to a communist country, where now the most valuable companies in China are VC-backed, listed in New York and Hong Kong — that’s Alibaba and Tencent, and they are much bigger than any other single enterprise in China — and that happened in literally less than 20 years. it makes you look back and see wow, I was part of that. We were a part of that change. It makes you very proud that your life has some kind of meaning.

ZARA ZHANG: Tech probably has had more impact in China than anywhere else in the world.

HANS TUNG: In the last 50 years probably, yes.

ZARA ZHANG: I think also in China, people consider tech to be a force for good mostly, whereas people here are more likely to talk about elimination of jobs or how new technology can have negative impact on various stakeholders. But in China, we don’t see much of that discussion.

JENNY LEE: I think a key component is because of government support. So the Chinese government, by and large, this is one of the benefits of being in a controlled economy.

Before I went to China, I never quite appreciated the communism as demonstrated by China. Now that I have been in China for 17 years, I think that a planned economy is not always bad. And by planned, the Chinese government do plan.

As I mentioned, in 2002 to 2005, they said, “Okay, China is going to now upgrade our students and our workforce from manufacturing to IT services.” And so that’s how high-tech parks were supported in every city. That’s why grants and scholarships were given to encourage these students to actually choose to learn software programming.

And so then that created a huge talent pool for the IT services industries. So when HP Services, IBM Services, Microsoft, the local enterprise like HiSoft… Neusoft, for example, wants to go into this category. They now have a talent pool and it’s because the government supported it.

Similarly, fast-forward to today where AI is huge and is a hot topic, the government has committed to really investing in core R&D for AI talent to develop AI-type IP, AI-type talent, to attract international talents from different schools, Ph.D. programs, to also come back.

So it’s not just local policies but it’s also international policies to bring back. And so I think having great government support does help the whole industry to think about the possibilities.

I was talking to another company that was manufacturing, using robotics to automate some of the process. My question was, are you worried that your workers are going to get really angry?

HANS TUNG: Their job could be replaced.

JENNY LEE: They are cutting their jobs from three shifts to one shift and then to zero, because some of the workstations are being replaced by the robots.

His comment is that number one, there are certain jobs that I want to hire and I cannot find that skillset. Something as simple as picking mushrooms. There’s actually a skillset that that you cannot now retrain, because most of the youngsters don’t want to be trained as a mushroom picker. That’s number one; you can’t find the talent anyways, and you cannot do enough to train them.

Number two, the government is actually supporting by subsidizing automation. So over 20, 30 percent of factory lines, if you automate, they are paid by the government. You could almost try this for free, to start to automate one station and then the next station.

So again, I think the government support isn’t just verbal or just in policies, they are actually doing it in real subsidy support. And you see it not just in factories; we see it in the whole EV sector, the electrification of cars where infrastructure is being built to support. So across all the different verticals. So that’s one.

And then number two, there’s also great role models. We talked about Tencent, we talked about Alibaba. We have seen in China, the Chinese entrepreneurs now have seen that you can be special. Through technology, you can be an average guy and yet be able to be the next Pony Ma or the next Jack Ma. So enough precedents to show that it is possible.

And I think lastly, the mindset of parents have changed. You know 10, 15 years ago we were interviewing our associates, most of the associates, once they are in great schools and when they graduate they want to —

HANS TUNG: Work with government.

JENNY LEE: That’s right, they want to be friendly it was the government and then it was the waiqi (外企), like the Microsoft multinationals.

HANS TUNG: Multinational corporations.

JENNY LEE: And then it was the startup, and now when you talk to them, they want to do startups themselves, and so I think the whole mindset has changed. So net-net I think the ecosystem is pretty healthy.

HANS TUNG: The number of STEM graduates in China over the last 10 years has increased dramatically. Now it’s 5.6 million back in 2016. That’s almost ten times the size of STEM graduates in the science, technology, engineering and math in the U.S., even compared to India. So there’s a lot more people willing to learn tech, try tech and do tech.

As China continues to grow, the size of the service industry continues to grow, so you may lose jobs in one sector, but as the economy is growing at almost 7 percent year on year, there are new jobs happening. So China’s pretty smart to upgrade itself while the economy, although slowing down compared to historical numbers, are still growing almost faster than most countries around the world.

So it can afford the population to accept that technological changes will make things even better and make the country grow to sustain this growth rate. So I think that China is at a very different point in its economic development cycle versus U.S. and Western Europe, and that makes it easier for AI and other technology innovations to happen in China.

ZARA ZHANG: Yeah, I will actually argue that the Chinese government is very forward-looking in this regard. When it wants to get something done, it gets done.

HANS TUNG: Very efficiently, very quickly.

JENNY LEE: So I wonder what advice do you have for U.S. companies trying to navigate the political landscape there? How do you predict what the government is going to do in a certain sector? How do you align your interests with the government’s interests?

HANS TUNG: While I will try to start it off first. If you look at the example of Uber, and you talk with the Uber team in China, I think most of them feel that they were not extra discriminated by the Chinese government. Everything they have to go through and get approval for, Didi in China had to do the same thing.

ZARA ZHANG: That’s something Travis said himself.

HANS TUNG: That’s correct. So there was more or less a similar playing field for the most part. And I think the Uber team, of all U.S. companies in China, they are probably the most aggressive team and worked the hardest and were willing to do things the more Chinese way.

So if you’re willing to adapt locally and work long hours, work smartly and work very hard, the chance of success is a lot higher.

I think there are certain sectors for sure that the Chinese government do regulate and make it tough for foreign players, especially in the field of media and social networking and so forth. So Google and Facebook do face some challenges. But when it comes to e-commerce brands or a lot of other things, U.S. companies still have a great advantage.

I mean, look at all the fear that the U.S. Congress has on Chinese Internet companies buying assets in the U.S., but Apple is amongst the most successful phone companies in China. Apple generates more revenue from its iTunes App Store in China than almost anywhere else. And one could argue, the U.S. government, through Apple, can have access to some data and the Chinese government still allowed it to happen.

So yes, there are some government regulations issues, but they apply to both Chinese companies and U.S. companies, so it’s not anything different. It’s a matter of how willing you are willing to adapt locally to compete.

JENNY LEE: Right, and I will add that really watching the regulatory changes and what the government sees in their Congress is actually very important as well. As I mentioned earlier, in 2000 to 2005 when the Chinese government was saying, “I want to boost the IT services workforce, I want to be the next Bangalore in terms of IT outsourcing.” You have companies like Microsoft, HP, actually establishing R&D centers in China to support this growth, to actually train engineers here as well.

And so understanding where the Chinese government is putting effort to grow, to develop. Like for example in the AI sector, to bring talent back, it makes sense that Google has an R&D center in China. So understanding the trend, reading the trend, don’t go against the grain. Once you understand where the big trend is going, then you can help to support that growth.

Then, whether you’re a local company or an international company, you’re going to have a way to play in the market. And getting in ahead of everybody else is probably even better. If all your competitors are still thinking about how to read the regulation and you are a year ahead of them by working with local governments to make sure that you’re on the right track, whether it is as I mentioned some of this EV trend, AI trend, then I think you have a way to play.

We are now seeing a lot of automotive OEMs, international ones, trying to tap into the China automotive market. China is the world’s largest automotive market, 120 million in the stock base of passenger car, every 20 to 25 million new cars are being sold in China alone.

And so if you are Ford or GM sitting here in the U.S., or Daimler in Europe or in Japan, you have to want to figure out how to play this. And so understanding this trend, understanding who you should talk to, understanding who you should do a JV with. Once you understand the trend, then be very flexible in terms of the approach.

It may mean that you have to do a JV first with a local partner. It may mean that you have to set up some high-tech development centers to encourage talent. It may mean you taking a strategic investment stake in some of the startups in China. And so then being open to others’ different tactics will also help companies to understand the local nuances better as well. That is a better formula for success.

HANS TUNG: Right. When you look at Apple, they are pretty smart, right? They invested in Didi when they could have invested in Uber. It is shown into China as a willingness to help support the local entrepreneurs, startup community ecosystem. Apple is helping a lot of Chinese apps to expand through its App Store to overseas markets.

You see Tim Cook going to our portfolio company like Keep, where Jenny and Jixun sit on the board, to see another innovative Chinese company that is doing well, and recognize them through his influence, on a global basis. So Apple’s smart and understanding that China’s government wants to see Chinese companies go global and is playing a role to help them to do that, but not based on guanxi (关系) or subsidies or favoring, but these actually are great companies that users like them and most people are just not aware of them outside of China.

For us, we don’t have a lot of special insights to what the government is going to do next. Almost no one does. So how do you figure out what regulation will not be as much of a problem going forward? You have to take the sharing market as an example.

Beijing has 20 percent car ownership, yet it has a bigger traffic problem than Silicon Valley. Silicon Valley has 70 percent car ownership, even given the rise of Uber and Lyft. So if in Beijing, as many people buy cars as there are car owners in Silicon Valley, can you imagine the streets of Beijing having 3X, 4X more cars than it does today?

So you know, no matter who is running the government, ridesharing and bike sharing has to be part of the solution to help us solve that traffic congestion problem, as urbanization continues to increase in China.

So you figure out where China is going and try to anticipate what are the problems that need to be solved, there are plenty of things where technology can play a positive role in making that happen.

ZARA ZHANG: So forget what China has to do to make this country work.

HANS TUNG: Yes so the economy continues to grow, and for amortization to continue to happen.

ZARA ZHANG: So Jenny, you focus a lot on the frontier tech sector at GGV. I wonder, where do you think China stands in the world and how it compares to the U.S. in various fields of frontier technology?

JENNY LEE: For frontier technology, our definition actually covers three different sectors. The first is around transportation disruption. So from really autonomous driving, all the way down to EVs, that’s the first sector for us.

The second sector is really in the robotics area, and I mentioned about how the factories in China are really automating different workflows, different work processes. That’s happening not just at the larger factories, but really more importantly down to the small and medium-sized enterprise.

And then the third one is really around the whole AI area, which is a little bit more software versus tied to hardware cars, or to a robot.

If you look at this area of frontier tech, it is generally viewed as a new area both in the U.S. and China. So I will classify both to be at the first inning. What does that mean? I think that number one, I think when you think about the talent pool, this is really still a very hotly contested space right now. So whether it’s AI talent in the U.S. or AI talent in China, they’re almost at the same level, where there’s a severe shortage of the right type of AI talent that has engineering or systems experience, versus just a Ph.D. who has done algorithms or research in this area.

So I would say on the talent side, pretty similar, same footing. In terms of what the startups are focusing on, there is a bit of a difference. So in the U.S., we have seen startups when they call themselves AI companies, they tend to be more software based, whether it’s leveraging machine learning in different verticals, whether it’s in banking applications or in the computational area, you tend to be a lot more software.

Even in the automotive area, we’ve seen more alpha, autonomous driving startups in the U.S., trying to attack this issue than in China. In China, we see a more wide-based spectrum of startups trying to attack different pieces of the ecosystem. So they are not restricted to just software solutions. They are putting their software solutions into hardware.

And so generally, Chinese entrepreneurs are not as afraid of the hardware piece. Sometimes we think about hardware and software, it feels like there are two different DNAs, two different verticals, and a startup shouldn’t do both.

When they focus, they should be either focused on software or they are focused on doing a chip. But the new world, in the whole AI-enabled world, whether it is in the autonomous car or the robot, it’s an integrated product. It’s a system where the hardware and software has to work together. And so in that respect, we actually see more innovation around complete systems in China versus in the U.S. So still early on, early days.

From a market perspective, I think it’s similar. The problems and pain points that are being addressed, they are very similar, whether it’s cybersecurity in the U.S. say around mobile cybersecurity, it’s the same pain point that the Chinese are facing, especially in China with that many transactions going through mobile platforms as well, a very similar problem set.

I actually predict that in the next five to 10 years as the whole AI market gets more and more mature, as all these applications starts to find its vertical application, the chance of companies that has more cross-border interaction will go up. It could be talent, U.S. companies trying to leverage not just the talent pool they can find in the U.S. but the reverse.

Can you attract more Chinese entrepreneurs to stay in the U.S.? For that, we have to rely on the goodness of the U.S. government. But I think you’ll see that, or the reverse. Chinese startups actually hiring U.S. talent and then allowing them to move to China to work on this. On the talent pool, more exchange and then ultimately products as well.

Can you build better robots? Can you build better autonomous cars and have that have an impact on the global stage? That may happen as well.

ZARA ZHANG: I read recently that the number of papers in machine learning and AI has just been a lot higher in China than in the U.S., because a lot more studies are being done, a lot more researchers working in the field.

JENNY LEE: Absolutely. That’s actually in line with the government’s support as well. So in the past, I think it’s not just papers being written or citations, IP that’s been filed as well has gone up tremendously. It’s an interesting trend. Like 10, 15 years ago when we asked a start up in China if they have filed their IP they would say, “No, it’s too expensive.”.

So it’s not because they haven’t done it or they don’t have IP, it’s because they feel that it’s just too expensive to file on an international basis, because the awareness that one day they will go international is pretty low at that time.

Today, if you ask any AI startup in China, they will show you their list of IP. So the awareness has gone up, the awareness that they have to protect what they have early on, and that potentially they could go international as well. It’s becoming more of a higher possibility versus 10 years ago. I think that helps to bring up the awareness.

I think it’s always been there, it is just that 10, 15 years ago that awareness wasn’t there with entrepreneurs and they just don’t file.

HANS TUNG: I think a lot people outside of China are amazed by China’s size. As China becomes the number one market in a lot of things, what people don’t realize is that Chinese speed, the delta, the change in a short period of time is also amongst the fastest in the world.

You also have a large pool of talent that’s very tech friendly, and a lot of users willing to try new products and services. That’s tech driven. So when you have these three combined — size, speed and willingness to experiment and to start something new and try something new — it becomes a very powerful formula to allow Chinese startups and the ecosystem to compete better on a global basis later.

ZARA ZHANG: For the last part of the podcast, we’ll have a set of standard questions that we ask every guest. The first one is, who is the entrepreneur that you admire the most and why? I know you’ve seen a lot, but if there is one that impressed you the most?

JENNY LEE: I think the one that impressed me is actually Jeff Bezos, Amazon.

ZARA ZHANG: You’re not the only one who has said that on this show.

JENNY LEE: Right.

ZARA ZHANG: Any reason why?

JENNY LEE: Well, I think he’s an entrepreneur who has never stuck to just doing one thing. His ability to go from selling books online to general e-commerce, obviously that’s one type of expansion. And then to take that and leverage that scale of operations to deliver cloud computing, to go from B2C to selling services for businesses, B2B, that is something that most VCs tell their startup not to do.

Don’t de-focus, focus on your core, focus on your DNA and this is as far different as anything you can find. And then, to have the guts to go offline, to veer away from not just online but to say, “Let’s go buy Whole Foods.” and to start to think about offline.

On top of that, Amazon is on top of the leadership in terms of innovation. They’re also one of the earliest to say, “Can we experiment with having drones to do deliveries?” And so we may not see the drones on an everyday basis, but I have to believe that the R&D work is still going on quietly and hopefully we’ll see something soon.

So the level of innovation, the level of guts that this CEO has exemplified, I think it’s amazing.

HANS TUNG: That’s why it’s interesting, right? In China, I think Jeff Bezos is highly admired, but in the U.S., increasingly there’s talk of antitrust, making sure that Amazon doesn’t get too powerful, break up Amazon. So the same set of achievement and facts could be interpreted very differently in the two societies.

ZARA ZHANG: What do you do for fun?

JENNY LEE: I love travel. As I said before, I believe the world, the earth, well it’s been getting smaller as I grow older, but it’s still pretty big and there are a bunch of continents out there that I haven’t been. So I do like to travel, I do like to go away from just work.

ZARA ZHANG: Humanity.

JENNY LEE: Yes, away from meeting with entrepreneurs. I love to spend time with animals, I love to spend time with nature.

HANS TUNG: Jenny is amazingly travelled, you should mention some of the places you have gone, in Africa or Tibet.

JENNY LEE: That’s right. So I’ve been to Pantagonia hiking. I’ve been to Peru, I’ve been to Russia, Kamchatka spending time with the bears, literally just —

ZARA ZHANG: Bear watching.

JENNY LEE: I saw salmon. So really, it’s been pretty good. Nepal hiking and the likes. Generally I like to be out there not in a luxury vacation, but really roughing it out, spending time to understand in different parts of the world what the different people there are doing. The different cultures there are doing.

I think that helps to give me a very good and healthy appreciation of my role, my little role in this world. And as I said, it is still possible within my role to make changes to people around me.

HANS TUNG: Right, since you travel so much, what is your system? What’s inside your backpack when you travel?

Actually, if you ask me what I have in my backpack on a daily basis, I am on the survival track. Even in my work bag I carry my passport. I always have my passport so I’m ready to fly anytime, it doesn’t matter which city. I have different wallets with different currencies, because as you know, credit cards don’t work, as I found out very early on in China, it doesn’t work in a lot of countries, and so making sure that you have ways to have cash, that you have ways to survive. I think if you have cash and you have your passport, you can basically survive anywhere.

So for roughing it out in the wild, then obviously your cash and your passport doesn’t really help, and your phone doesn’t really help either. So I think here is a pair of good shoes, a nice warm jacket, make sure you have your water bottle so you can always get water. I think with the three, you can always survive somewhere.

HANS TUNG: Right. And how many credit cards do you carry?

JENNY LEE: One.

HANS TUNG: Only one. How many bank accounts do you have?

JENNY LEE: I do have a few, because I work in the U.S., in China, mostly in China and I grew up in Singapore, so three bank accounts.

HANS TUNG: So you keep a very small number of things that you need to take care of.

JENNY LEE: Yes, so one of the guiding principles I have is always keep my life simple, because things are so complicated on a daily basis and you can be bogged down by so many details that I think that it helps not to add to those complications everyday. So keep it simple.

Amazingly the one credit card has helped me to go global in the last 20 years, and it is possible.

HANS TUNG: That’s HSBC?

JENNY LEE: That’s right. It’s the first card I had when I was in Hong Kong, yes. It is still with me.

ZARA ZHANG: What is something you read recently that touched you a lot or you would recommend? It could be a book or an article or anything.

JENNY LEE: I read like three or five books simultaneously. I think some of the recent books I’m reading may not be good for a recommendation.

HANS TUNG: What does that mean?

JENNY LEE: So recently, and Hans know this, I have a new area that I am exploring and I’m very interested in.

HANS TUNG: Healthcare.

JENNY LEE: And that’s really in healthcare, in nutritional supplements, in genetic engineering. And so I’ve been reading textbooks, I know it’s really strange. So I’ve been reading textbooks to get myself up in terms of the fundamental understanding, the basic areas. I have been reading books about diseases. Again, not the best way to recommend books, but a good way to appreciate where life can be trending in the next 10 to 20 years.

ZARA ZHANG: Thank you, Jenny. This was really fun.

JENNY LEE: Thank you. It’s good to be here.

HANS TUNG: Thanks a lot Jenny. Always a pleasure.

HANS TUNG: Thanks for listening to this episode of 996. By the way, we also produce a weekly email newsletter in English, also called 996, which has a roundup of the week’s most important happenings in tech in China. Subscribers have told us it is informative and fun to read. The newsletter also features original content and analysis from Zara and me. Subscribe at 996.GGVC.com.

ZARA ZHANG: GGV Capital is a multi-stage venture capital firm based in Silicon Valley, Shanghai and Beijing. We have been partnering with leading technology entrepreneurs for the past 18 years from seed to pre-IPO, with $3.8 billion in capital under management across eight funds. GGV invests in globally-minded entrepreneurs in consumer Internet, e-commerce, frontier tech and enterprise. GGV has invested in over 280 companies with 29 IPOs and 22 unicorns.

Portfolio companies including Airbnb, Alibaba, Ctrip, Didi Chuxing, Domo, HashiCorp, Hellobike, Houzz, Keep, Slack, Square, Toutiao, Wish, Xiaohongshu, YY and others. Find out more at GGVC.com.

HANS TUNG: If you have any feedback on this podcast or would like to recommend a guest, please email us at 996@GGVC.com. This podcast is co-produced by our friend and business partner Kaiser Kuo, the host of the wonderful Sinica Podcast. It covers China’s economic, political and cultural issues.