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’s been 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.

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.

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.

Episode 13: Yasheng Huang of MIT on the Future of US-China Trade Relations

In the first joint live session of GGV Capital’s 996 Podcast and The Sinica Podcast, we interviewed Yasheng Huang, a renowned economist and Professor of Global Economics and Management at the MIT Sloan School of Management. GGV Capital’s Hang Tung and Zara Zhang were joined by Kaiser Kuo, host of the Sinica Podcast and producer of the 996 Podcast.

Huang founded and runs the China Lab and the India Lab, which aim to help entrepreneurs in those countries improve their management skills. He is an expert source on international business, political economy, and international management. In collaboration with other scholars, Huang is conducting research on human capital formation in China and India, entrepreneurship, and ethnic and labor-intensive foreign direct investment.

In this episode, we discussed the recent trade tensions between the US and China, how are geopolitical factors affecting the global tech industry, and how China’s growth story compares to that of India and other developing countries.

Episode 12: Yinglian Xie & Fang Yu of DataVisor: Fighting Frauds with Machine Learning

GGV Capital’s Hans Tung and Zara Zhang interview Yinglian Xie and Fang Yu, the co-founders of DataVisor, a fast-growing startup in Silicon Valley that provides big data security analytics for consumer-facing websites and apps. Its customers include some of the largest companies in the world, such as Alibaba, Dianping, Pinterest, Yelp, Bytedance (a.k.a. Toutiao), among others.

Both Yinglian and Fang have decades of experience in Internet security, specifically on fighting large-scale attacks to online services, such as fraudulent online payments, spamming, user hijacking, search-result poisoning, etc. They were both senior researchers at Microsoft for many years before starting DataVisor in 2013, and have filed over 20 patents.

Yinglian received her Ph.D. in Computer Science from CMU and a Bachelor’s degree from Peking University. Fang holds a Ph.D. in computer science from Berkeley and a Bachelor’s degree from Fudan University.

Episode 11: Bertrand Schmitt on Starting App Annie in China

GGV Capital’s Hans Tung and Zara Zhang interview Bertrand Schmitt, the CEO and co-founder of App Annie, the leading global provider of app market data. Bertrand started App Annie in Beijing in 2011 and has since then grown it into a truly global company, with 450 employees across 13 countries today. App Annie is now used by industry leaders all over the world. Customers include Google, Snapchat, The New York Times, as well as Chinese companies like Tencent, Bytedance, and Xiaomi.

In this episode, we discuss why Bertrand, a native of France, chose to move to China despite the language and cultural barriers, how a non-Chinese entrepreneur can become successful in China, and why having a multi-cultural DNA can be the best asset for startup teams today.

Episode 10: Nathan Blecharczyk on Lessons from Airbnb’s China Expansion

On the first live show of 996 Podcast, GGV Capital’s Hans Tung and Zara Zhang interviewed Nathan Blecharczyk, Airbnb’s co-founder, Chief Strategy Officer, and Chairman of Airbnb China. In front of 150 audience members gathered at Airbnb’s San Francisco headquarters, Nathan discussed Airbnb’s China strategy, how it has evolved over the years, and what lessons he has learned through working with China. He also explained how to build relationships in China, how the company thinks about local competitors, and why Chinese authorities might actually be more open-minded than those elsewhere.

GGV Capital is an investor in Airbnb, and Managing Partner Hans Tung and Glenn Solomon have been advising the company’s China strategy.