Episode 26: Yan Li and Token Hu of NIU on the Journey to IPO

GGV Capital’s Hans Tung and Zara Zhang interview Yan Li and Token Hu, the co-founders of NIU, or 牛电科技 (a.k.a 小牛电动车) in Chinese. NIU designs and manufactures smart and high-performance electric scooters. It is currently the largest lithium-ion battery-powered e-scooters company in China and a leader in Europe in terms of sales volume in 2017. As of June 30, 2018, NIU had sold more than 430,000 smart e-scooters in China, Europe and other countries.

NIU’s vision is to become the number one brand for urban mobility, powered by design and technology. Before NIU, smart electric two-wheeled vehicles did not exist in China, and two-wheeled vehicles were perceived low-end. The company has changed that perception with their smart e-scooters and premium brand.

NIU just went public on the NASDAQ in mid-October. GGV led NIU’s series A back in 2015 and has backed the company in every round since then, all the way through its IPO. Our managing partner Jenny Lee is on the board. We are very excited to have Yan and Token with us on this episode, almost fresh off the plane from New York.

Yan and Token discussed how NIU became a lifestyle brand in China, the ups and downs during their amazing startup journey, and what it was like to take a Chinese company public on the NASDAQ.


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

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

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

On the show today, we are extremely excited to have Yan Li and Token, co-founders of NIU, or NiuDianKeJi (牛电科技) in Chinese, on our show. NIU designs and manufactures smart and high performance electric scooters. It is currently the largest Lithium-ion battery-powered e-scooter company in China, and a leader in Europe as well in terms of sales volume in 2017. As of June 30 this year, NIU had sold more than 430,000 smart e-scooters in China, Europe, and other countries around the world.

ZARA ZHANG: NIU’s vision is to become the number one brand for urban mobility, powered by design and technology. Before NIU, smart, electric two-wheeled vehicles didn’t exist in China, and two-wheeled vehicles were perceived as low end. The company has changed that perception with their smart e-scooters and premium brand.

HANS TUNG: NIU just went public on the Nasdaq in mid-October this year. GGV led NIU’s Series A back in 2015, and Jenny Lee, our colleague, joined the board. We have backed the company every round since then, all the way through its IPO, and we are now the largest VC shareholder in the company. We are very excited to have Yan and Token with us today, almost fresh off a plane from New York. Congrats on your IPO and welcome to the show.

YAN LI: Hi. Thanks, Hans and Zara. We are very, very honored to be on the show.

TOKEN HU: Yeah. Actually GGV is helping us a lot. Especially like yesterday, I introduced my product to my God, Tony Fadell [laughter]. It’s like a dream come true for me.

HANS TUNG: Yeah, so you’ve been a fan of Tony Fadell for a long time?


ZARA ZHANG: So how does it feel to take a company public on the Nasdaq? What was your most memorable moment for your New York trip?

YAN LI: Very exciting. Very exciting. I think the most memorable moment for me and Token was actually— well, we didn’t realize the Nasdaq Bell is actually digital now [laughter]. So we were holding hands together, pushing that bell, pushing that button. It’s on a digital screen [laughter].

HANS TUNG: That’s right.

ZARA ZHANG: You were imagining a physical bell?

YAN LI: Yeah. We imagined a physical bell. And they had a physical Gong at the end. But it is not as fun as that digital one. So that’s most memorable for us.

TOKEN HU: For me it was just too exciting. I just forgot how to talk. And Yan was holding my hand, pushing the screen. It was just like, yeah.

HANS TUNG: Yan, you have a background in private equity and you also worked at KKR before joining NIU. Can you talk about your transition from an investment professional to a startup executive?

YAN LI: I think it was very interesting. At KKR I was with KKR Capstone. It’s an operation of KKR where we’re airdropped into the portfolio companies that we invest in and then become sort of a full-time or part-time executive within the company. And I think NIU is the company that has the most technology and the most exciting work I have ever taken. At KKR, I managed more traditional companies like call farms as well as liquor companies. When I got the chance, when Jenny extended the offer to be part of the NIU family, I looked at it — this is the most high-tech company, the most cool product — and I was super excited. The transition was easy, and it’s been just as exciting for the last four years.

HANS TUNG: Right. How did you get to meet Jenny and the company?

YAN LI: Well, it was through introduction. I had heard of Jenny and GGV in the past. I had heard of Hans as well, so happy to meet you as well. And there was an introduction through other VCs who sit on the board. I still clearly remember I met Jenny at Starbucks in Shanghai. We had a two hour chat. It was very interesting and very exciting.

ZARA ZHANG: So who are your customers and why do you think they’re buying your products?

TOKEN HU: According to our big data analysis of all the information we’ve got, our users are daily commuters. At NIU we’re not doing a toy for the users. They are aged between 25 and 35, the majority of our customers. And also in our database we can see that their daily trip is around 20 km. And monthly trips is between 300 and 350, which means it’s their daily commute vehicle in their life. We are trying to help them avoid all the traffic jams, all the slow city movement. We’re happy to see that we’re literally changing their lives from super rushed city traffic to freedom.

YAN LI: Just to comment on that, I think we appeal to young users. And by young, I don’t mean age. If it’s 25 to 35, I think Hans and I are already out of the picture [laughter]. Literally yesterday I was talking to some of the GGV LPs and they all love our products. And one LP said, “The people who love your products are the people who have a young mentality.” And I think everyone has a young mentality at this point. Everyone feels young inside. So we want to make sure that when people are riding our scooters, they help to remind them what freedom is, roaming free in the city. I think that’s one of the emotions we try to bring to our users.

HANS TUNG: Is that the reason why you guys have become a lifestyle product and brand in China?

YAN LI: It’s not the reason, but I think it’s what the lifestyle represents. We are the first lifestyle brand in China in this two-wheeler market, and we hope to become a lifestyle brand in all urban mobility markets. And I think we’re on on the way to doing that. Token can talk about the accessory part. I think we have some amazing accessories.

TOKEN HU: Yeah. When you’re building a brand, it’s not only about your major product. It’s building an environment for your users for their daily life. It’s not only about riding a scooter, it’s also about having your product with your brand philosophy in their daily life. And right now we have a really strong approach in accessories. We have different categories like riding gear or brand apparel. For example, the t-shirt I’m wearing today is really hot in our community. We want to have a full life circle around our users.

YAN LI: And just advertising. For the people who haven’t got a NIU scooter, they can get accessories. The t-shirt is on sale on our website, www.niu.com.

HANS TUNG: Excellent [laughter]. Good salesman.

TOKEN HU: Normally our users get NIU accessories first. For example, they have an existing e-scooter and they want to try our accessories. They’re thinking about changing in the next few years, but after they purchase our accessories, they immediately become NIU riders.

ZARA ZHANG: So in terms of geography, where are they? Are they in first-tier cities or lower-tier cities?

YAN LI: Oh, we cover a wide range. We’re in 150 cities in China and also 23 countries internationally. Because we’re really trying to solve this urban mobility issue. We see traffic congestion not only in first-tier cities, we see it in the Tier 3 cities, Tier 4 cities as well. So if our product is able to solve users’ pain points, I think that is what allows us to penetrate in more depth into China as well as internationally. And lastly, being the most stylish scooter out there adds an excitement point to our users. Riding a scooter is not just your daily commute. It’s actually a demonstration of your personality, a demonstration of your beliefs. I think, regardless of where you live, people want that.

HANS TUNG: The company’s only four or five years old. How do you guys figure out a way to enter and penetrate so many different markets?

YAN LI: I think a few things. First of all, I think the product is unique, being a Lithium-ion based battery scooter. A Lithium-ion battery is very light. It’s actually portable, very easy for people to take home to charge. So that solves a big pain point. And the design is unique. Our M Series is the first mobility product that has ever won seven international major awards in terms of product design. This is in the last 20 years. To give you an example, for the U.S. IDEA Award, the I-D-E-A, we won the silver medal and the bronze was the BMW new 5 Series.

HANS TUNG: Wow. Very impressive.

YAN LI: At first when we got the silver, we were sort of disappointed.

HANS TUNG: Until you find out who’s number three.

YAN LI: Yeah. We were like, “We didn’t get the gold.” But then we saw, “Okay. BMW 5 got the bronze.” At least we feel a little better. And then it is about services. We have more than 570 stores in China now, and globally we have like 700 sales points. We actually want the services to carry us through to penetrate the Tier 4, Tier 5 cities. Because when people buy those scooters, they need good after-sales services, and we have branded stores to provide that service. I think that makes people feel like they’re getting a holistic experience. Not only the product, but actually through the entire usage cycle of our product. That’s what we are trying to ensure here.

ZARA ZHANG: So Token, what is the design philosophy behind your scooters?

TOKEN HU: I always have this question. I talked about it with Tony yesterday and he gave me really good feedback, which is that design should have a tyrant. Right now, a lot of companies are talking about when you design a product, it should go through all the surveys, focus groups, and everything. I have been in the consulting industry for many years. Those things are your gods. But the final product should be from your life. The people in our R&D team, even our management team, are riding our scooters every day. We got this guy, the former PE guy, on a scooter. If you’re the first-hand user and you’re riding daily, you’re designing products for yourself and solving your own problems. It’s better than if you want to entrepreneur something and make some money. It’s a huge difference. This is a key secret sauce for us.

ZARA ZHANG: Could you also talk about your background and how you came to join NIU?

TOKEN HU: Yeah. My background is complicated. High school dropout. The first job I got was dishes in a restaurant—

HANS TUNG: Washing dishes?

YAN LI: So for the international listeners out there, it’s actually very difficult to be a high school dropout in China.

HANS TUNG: Very difficult. It’s not easy.

YAN LI: I think in the US it might be easier.

HANS TUNG: Yeah. Maybe it’s kind of cool in the US, but in China it’s not easy.

YAN LI: But Token managed it.

TOKEN HU: I’m not encouraging people to drop out early because we were lucky. We had just been through the whole internet industry, growing super fast. I started learning from the internet, and eventually in 2007, I got to Microsoft. Afterwards I jumped to the top company, it’s called Frog Design. It was founded by Hartmut Esslinger, who created Apple’s design language. I was learning there for four years, literally learning my language and all my professional skills at my work. It was quite a dynamic life for me.

HANS TUNG: Right. This is why you respect Tony Fadell so much as the founder of iPod and the co-founder of iPhone.

TOKEN HU: Yes, yes, yes.

ZARA ZHANG: How did you meet the NIU team?

TOKEN HU: Actually, I’m the guy who had the idea in the beginning. In the first year I just spent time on it myself. But it’s a huge product. It’s not only about design and R&D. You should really think about the manufacturing, the marketing, the sales, after-sales, everything. And I visualized that I’m not the right guy to hold the whole company because I truly know myself. I’m good at some things and anything else I can learn. I met a guy who introduced me to his friend Li Xiang, the founder of AutoHome. And he introduced his friend, Huang Mingming. And then—

YAN LI: And then the venture, the VC guys, the Jennys, they came and helped us to set up the team.

HANS TUNG: So how do the two of you divide up your responsibilities?

YAN LI: I mean, we draw a line here, right? Obviously, I don’t want to claim that I’m the creative guy [laughter]. That would be the wrong thing to say, right? So draw a line here. Token’s sitting next to me on my right, so on my right, this is all about creativity, all about product, technology, that’s all there. This side would be all about numbers, all about how to get the product to the users, how to make sure users are satisfied with our services, about execution and the more business side.

TOKEN HU: If you take a picture, it’s like suit guy and hoodie guy [laughter].

YAN LI: Which is exactly what we’re wearing today.

ZARA ZHANG: So there are so many things you could design in the world. What especially about scooters excites you?

TOKEN HU: I first had the idea in 2009. During that time I was living in Shanghai. From my apartment to the office it was 4 km across Huaihai Road, which meant no chance of getting a taxi and waiting for five or six buses that I couldn’t even squeeze into.

HANS TUNG: Yeah. Always full.

TOKEN HU: Yeah. And no subway. I had my motorcycle but, every day, all the gears and everything. I also tried riding a bicycle, but when I showed up sweaty in the office, my boss was pissed off. So I tried to find a way to solve my own solutions. I looked around and thought that e-scooters were a good solution. But during that time, they were all really bad quality and design. I thought I was the coolest product and technology guy. I would never use those products. So I thought, okay, I’m doing the products for all the top 500 companies, doing innovation for them. Maybe I can just do it for myself. That was the start. To truly solve my own problem. When I did the first scooters, all my friends said, “Come on, Token. I need one.” Guys like the Creative Director from a huge advertisement company, the VP of a tech company. I just thought, okay, these guys would never think about riding a scooter. But when they see really cool stuff, they will buy it. That’s the thing.

HANS TUNG: Right. Makes sense.

ZARA ZHANG: So we all know that hardware is hard. How do you deal with the whole supply chain and manage this huge operation that’s a lot of operationally heavy stuff?

YAN LI: Well, first of all, we don’t want to take the entire credit. Yesterday at GGV’s event, Tony Fadell said it perfectly. He said he actually envied Chinese entrepreneurs because here in China, there’s a very good manufacturing base and very good hardware manufacturers, whereas in the US there’s a shortage of that. Looking at the China market, annually there are about 30 million electric scooters. Most of them are lead-acid, but they’re still scooters. So upstream supply chains, there are a lot of manufacturing suppliers to provide the key components. One of those key components is the Lithium-ion battery, and that manufacturing is also abundant in China, driven by the electric vehicles rush. So we’ve been benefiting from those trends.

Having said that, we had to spend a lot of effort in terms of upgrading the quality of our suppliers because those suppliers used to provide parts to traditional lead-acid scooters, most of which don’t have very high quality requirements. So we have to have a very strong quality management team to actually sit on our supplier’s manufacturing line and inspect their quality to help them to improve. And that was literally the effort we put in. So it wasn’t about shortage of manpower, shortage of materials. It was shortage of high quality stuff.

HANS TUNG: Right. Raising awareness.

YAN LI: The team we hired to manage our supply chains, we hired them from Huawei, some from automobile companies.

TOKEN HU: Honda, Suzuki.

YAN LI: Right. And some from consumer electronic companies. There’s a guy that manages our quality that used to be a quality guy for a high-precision meter equipment company. So let’s think about that. He’s taking that quality standard and adapting that to the scooter industry. So that was basically how we got our quality improvement here.

HANS TUNG: It’s smart to take a B2B standard and put it into the B2C market.

YAN LI: Thanks. I think that’s a great way to summarize it. Next time I’ll use that sentence [laughter].

TOKEN HU: Also the thing is, in China, we always have really good manufacturing in all the different industries. We have a really diversified supply chain. Some of them from the motorcycle industry, the car industry, even the mobile phone industry. We’re using all the chips. We’ve got the benefit from the smart watch business because they have a huge quantity of all those chips. They have super mature manufacturing. In NIU, we are not designing the chips, but we always say that technology is really cold. Our job, our innovation is to integrate every cold technology to deliver a warm experience to our users. That’s the key point.

HANS TUNG: Got it. So on the sales and distribution side, originally you were selling e-scooters online as an e-commerce company. And then you evolved and added offline stores as well. What was the thinking in terms of doing that, and how did you quickly have stores in so many different countries and cities?

YAN LI: It’s a great question. It wasn’t driven by sales, it was actually driven by services. Because when we initially sold online, we were a big hit. In 2015, when we first did the JD crowdfunding, we broke the JD crowdfunding record in China.

HANS TUNG: I remember that.

YAN LI: Yeah. We did about RMB 72 million of sales in 15 days. I think, world record we were ranked number six. It was very hot. But what happened when our user got a scooter? Because it is, as Token mentioned, it’s a commuting device. It’s not a toy. So they use it on a daily basis. When you use those things on daily basis, you will need to have it serviced. You know, you may get a flat tire or something. And at that time, our service network was through a third party, not through our own service network. So the user felt like they had a high-end product, but when they received a service, it was a really cheap, knock-off service [laughter]. And there were complaints, because Chinese users—

HANS TUNG: They’re vocal.

YAN LI: They’re very vocal. I mean, it’s not a reserved culture anymore. People are very vocal. Then we realized, we said, “Man, we need to build our own services.” And as usual, those branded services naturally evolved to become sales as well. So that’s how the decision was made. And how it spread in China and globally was, we didn’t look at our distributors as distributors. We don’t even call them distributors. We call them city partners. We even made NIU name cards for them. It would be like, NIU Technology, Hangzhou City Partner. We carefully select those city partners. Basically the people who really believe in our cause, and really believe that when they join this path, they can change the way people travel in their city. So yes, we’ve got some really zealous people who really love us. That’s how in each city like Beijing, Nanjing, Hangzhou, all those big cities, we got city partners to come in and start building up stores. Yes, at the end of the day, they enjoy the economic benefit. But when they signed up, the economic benefit was not the first intention. Because if you think about that time, we were a startup. We convinced people, “Hey. Let’s open up a store like an Apple store with that quality of furniture and everything.” Obviously there’s a higher capex involved. But then provide service to our users. On day one you cannot say, “Hey. You will make money.” But they loved it. They thought it was a great idea to carry this unique product to the users in their city. I think they just loved that concept. That helped us to expand.

TOKEN HU: Also the really interesting thing is that a lot of our store owners were not in this business before. They became NIU users first, they enjoyed being in the community, and they became store owners. The service is for their friends. It’s not only for their customers. It’s a huge difference.

YAN LI: I mean, the benefit is they got a free tester vehicle [laughter].

ZARA ZHANG: Maybe you could touch on the NIU name. A lot of our listeners don’t speak Chinese, so NIU is spelled N-I-U, which means bull in Chinese but also has other meanings.

TOKEN HU: Yeah. When we started this company, we wanted to do it internationally. And we selected a lot of words that were pronounced differently. The niu in China is a small bull, but you can also pronounce niu as N-E-W. We’ve got something niu and something new. We’re rushing like a bull but also we’re creating a new industry and a new way forward. It’s a really good—

ZARA ZHANG: Yep. Lot of puns [laughter]

YAN LI: And just a little touch on that, niu in Chinese is a little bull, right? It has a very good implication. It’s not like you’re super proud, but you’re a little bit proud of the achievements you have done through effort.

HANS TUNG: Right. It has a well done, impressive kind of connotation to it.

YAN LI: Right. So I think that’s what we try to build into our users. Basically by riding our scooters, you feel that you’re a little bit proud. And hopefully, the hours you will save on the traffic you can use to accelerate your career somehow so you can feel more proud.

TOKEN HU: Also, when we selected a ticker for Nasdaq, the first choice was NIU. The second choice was NIUB [laughter]. You know what that means? It means it’s great.

HANS TUNG: Super awesome.

YAN LI: Yeah. I think that’s sort of overstretched [laughter]. It’s a joke. It’s a joke.

ZARA ZHANG: So in the first half of this year, around 13% of your net revenue was derived from sales outside of China. So could you talk about how you plan to go global? I know you’re already in Europe. So what are some other markets that you’re excited about?

YAN LI: I think we’re excited about the entire global market, to be honest. We’re in Europe first because back in 2015, when Token and I were still very young, we’d delivered our product. And a few months after we delivered our product, we had an ambition to debut our product at EICMA. That’s E-I-C-M-A. It’s the largest two-wheeler show worldwide, in Milan every year. Basically, Vespa, BMW, all the heavyweight guys are there. So we wanted to see whether we had a chance at the world stage. But we got a lot of enquiries and and interest from Europe during EICMA. And we were not even in the main exhibition hall. We were in the— what was it?

TOKEN HU: Spare parts.

YAN LI: Yeah. We were next to tires and suspensions. People usually don’t even show up to those halls. And because of us, we got really big traffic in our area. So that actually gave us the confidence that, hey, we’ve got a chance in Europe. And then there were distributors from America, there were distributors from Southeast Asia who also visited our booth. I think it’s all about how we basically plan out our international expansion, gradually in a step-by-step fashion.

TOKEN HU: Also I remember on the first day in EICMA, people asking, “Are you guys from Japan?” [laughter] Or Korea. I said, “I’m Chinese.” We’re not trying to fake. As you know, in China, a lot of brands just go register—

HANS TUNG: Register elsewhere.

TOKEN HU: Yeah. But we are a proud Chinese company doing a show. Yeah.

HANS TUNG: Let’s switch topic a little bit and talk about your IPO. The capital market right now is not very good. Some argue you could be the last company to go public in the US in this wave. What are some of the lessons or advice that you can share with our audience about what you went through?

YAN LI: About IPO?

HANS TUNG: Yes. About what it takes to go public.

YAN LI: Well, I think advice number one is make sure GGV’s on your board [laughter]. And advice number two, get Hans and Jenny involved as early as possible.

TOKEN HU: Yeah. That’s truly an insight.

YAN LI: Yeah. But I mean, it’s not a joke. It’s not a joke. We’re actually very appreciative. Throughout the process you guys have been extremely helpful. Extremely helpful. But I think the advice is really— looking back, nobody can control the timing. When we started the process, the timing looked much better. So I know the capital markets weren’t good, but there’s nothing you can do about it.

HANS TUNG: Right. But you prepare quickly. Prepare early.

YAN LI: Right. Right. And then, the whole thing was actually— I want to talk more about after the IPO. I think both of us felt that excitement when we pushed the button. But after that, tons of pressure comes in and you realize that initially you had the trust of private investors. Now you have the trust of public investors. We feel like everyone who owns even just one share of our stock, we feel—

HANS TUNG: Responsible.

YAN LI: Yeah. We feel responsible because we want to make sure we deliver value to them long term. That means we need to work harder. We need to basically do what we do the best and keep rolling out better products. And it never stops. This game never stops. So, yeah, I had more sleep when I was a private company [laughter].

TOKEN HU: Actually, since I’m the product guy, if I evaluate the launch event in Paris this year and the IPO, I feel more proud of our product launch.

YAN LI: We should talk— we can still cover seconds, but we did want to talk about our product launch. Token can go for it.

TOKEN HU: This year we launched two products in Paris in the Grand Louvre. It was awesome. It was the first time introducing our products to Europe and a global audience. It was much more pressure for me because we should be thinking about the next three or five years of our product scope around the world. And really digging into all the technologies and designs to help people globally.

YAN LI: I’m not sure if we’re the first mobility company to launch a product at the Louvre, but we’re definitely the first two-wheeled mobility company. And definitely the first Chinese mobility company. And the whole launch was live broadcast in four languages.


YAN LI: Five. Initially I was thinking English and Chinese. But no, I’ve got a German audience, so they want me in German. I’ve got Italian guys. They wanted me in Italian.

TOKEN HU: French.

YAN LI: Then I— oh, more languages. Italian, German, French and Spanish. We were lucky the Swedish guys speak pretty good English [laughter]. Because I’m looking at the financial numbers, right? Every single live translation costs money [laughter]. So I was talking to my international team. I was like, “Hey—”

HANS TUNG: Can we drop a language?

YAN LI: Yeah. “Can we drop German?” He was like, “We’re doing great in Germany. You need to do it in German otherwise you don’t respect the users.” I was like, “Okay, we’re going to have to do that.”

ZARA ZHANG: So our audience can watch the video on YouTube, right?

YAN LI: Yes, yes.

ZARA ZHANG: A lot of people will congratulate you when you go public. But does that give you more pressure? And you mentioned that you actually sleep better when you’re a private company. So what are you most excited and most worried about going forward?

YAN LI: Well, I’ll talk about my part. I think Token can talk about his. Most of the exciting part for me is actually being listed public. It really put us on the spot, globally. It sort of said, “Hey. We have accomplished from zero to one.” We started as a Chinese startup, but now we are a public company that has a chance to gain global market share. It gave us a window of opportunity. I think that’s what excites me about it. What worries me about it is the same thing. Now we’ve been given a chance, can we actually grasp that chance? I think our entire team has to deliver, has to work hard. And I think I would shoot myself if we actually didn’t grasp that chance.

HANS TUNG: Right. You don’t get that many that chances like this.

YAN LI: Yeah. And some of those chances are just once in a lifetime. So we saw that window of opportunity. Now it’s actually in our hands to say, “We need to get that.” So that’s where the huge pressure is coming from.

TOKEN HU: Actually for myself, doing the IPO is a pressure, but it’s not the most pressure part because I’m always a self-pressure person. And also, the day after we got the IPO, I was really like freezing. Because, “Okay. I got time. Come back to my product side.” [laughter] Seriously. There’s too much travel. I never work.

HANS TUNG: IPO was a side job.

TOKEN HU: We have Yan here. He is much more professional than me.

YAN LI: I saw where Token got most nervous. It wasn’t about roadshow. It was about yesterday meeting Tony Fadell [laughter]. This guy. Literally, I’ve never seen him so prepared. He wasn’t that prepared at roadshow. But meeting Tony Fadell, he was like, “What am I supposed to talk about? I spent like two hours yesterday to prep up what I need to talk about.”

TOKEN HU: Yeah. All the videos, everything in my iPod [laughter].

HANS TUNG: So getting to IPO obviously was not an easy journey. And if you reflect on what has taken you to this point, what were some of the most memorable moments that either you experienced or your team experienced that are worth sharing?

TOKEN HU: For me, it wasn’t about the time we IPO’d. For me it was after the opening bell, when we saw all of the advertisements in Times Square. So literally you’re broadcasting your product, your vision, also your ambition around the world. I took a picture there and I think it probably changed my life because it’s more responsibility.

YAN LI: I think some of the moments for me looking back— I think it’s also a moment for Token, but he’s actually in that picture so he couldn’t remember. There are a couple of moments. The first one was when we got the first product prototype, when the prototype got shipped in Beijing. And you looked at Token’s face and you couldn’t tell whether he was smiling or crying [laughter].

HANS TUNG: Or both.

YAN LI: Yeah. Or both. It was like a mix of smiling and crying. It was like freeze that moment, right. Then there was the time when we first did the crowdfunding. We knew we were going to break the record. Not on the 15th day, we knew on day one. Because on day one we saw the number was huge. Usually with crowdfunding, on day one the number is huge and then it starts to cool down a little bit. So it was midnight of day one when the results came in. Everybody was in the office. Nobody left. Even people who were not involved, they didn’t leave because everyone was looking at that number.

TOKEN HU: Also I’m yelling for the numbers [laughter].

YAN LI: So that moment is like, finally you’ve got something. Because initially the product was a concept, not a product. But finally you put it on a stage where—

HANS TUNG: Real money is being exchanged.

YAN LI: Right. Or real users come in. You feel like there are people buying it. So that kind of rush was like—

TOKEN HU: For the crowdfunding, the most memorable thing is that none of these users had seen this product in real life. As a vehicle. They’d only seen—

HANS TUNG: Yeah. Just based on your concept.

TOKEN HU: Only a couple of hundred people in our first large event had seen it in real life. We had a couple of pictures, one video. And people were buying. Full payment, buying our product. It’s a huge honor to be a product guy and have people love your project. Oh my God. It’s awesome.

HANS TUNG: Makes sense.

ZARA ZHANG: So we’ll go to the last part of the interview which is a round of quickfire questions. The first one is who is the entrepreneur you admire the most and why? Besides Tony Fadell [laughter].

TOKEN HU: Personally, Elon Musk. This guy’s crazy. This guy is beyond everybody’s thinking with Tesla, SpaceX, even The Boring Company. I really like his fire gun. It’s just dreaming about what no one else is dreaming about.

YAN LI: Since Token said Elon Musk, I would have to say Steve Jobs. It wasn’t about building a product. I think he built a product, but he actually built a great company. And he built a long-lasting company. This is a little bit cliched, but I didn’t know that Apple was listed in 1980. And then look at how Apple grew after the listing. I’ve read his biography and I’ve seen some movies about him. The guy’s driving crazy on the product, but he has a great business sense. Like I understand how to build a great company. He does it all. So you just wonder how that happened, right? And they changed the entire industry. We’re hoping we get a chance to change the urban mobility industry.

TOKEN HU: Sorry, I have to correct you. Steve Jobs did not create a brand. He created a religion [laughter]. That’s the truth.

HANS TUNG: So what’s something you’ve read recently that you’d recommend? Like a book or—?

TOKEN HU: Actually a book my wife gave to me. It’s a history of KKR [laughter].

HANS TUNG: So you get to know your partner better.

TOKEN YU: Yeah. Because as you know, I’m not a reading book guy. Most of the things I read are not about business. They’re not about finance or something. I read books more like Wuxia.

HANS TUNG: The Kung Fu novels.

TOKEN YU: Sort of. But it’s more like you’re fighting with your brothers, with your friends, to achieve what you believe.

YAN LI: I was actually looking at my— I can say Audible, right?

HANS TUNG: Yes. Book or audio. Podcast too.

YAN LI: So the one I’m listening to now is called Powerful: Building a Culture of Freedom and Responsibility by Patty McCord. I think she was the HR head of Netflix. Because as we’re building our company, the culture is super important. And Netflix has this 100-page PPT about how they build culture and hire the right people. So I think that got me interested, and then she came out with the book to see how they actually build from firsthand experience. To have a long-lasting company, in the end it’s about people. It’s about the culture. And we still have much to learn, so that is a book I recommend.

ZARA ZHANG: What do you for fun?

TOKEN HU: Me? Riding, riding, and riding.

HANS TUNG: You love to ride?

TOKEN HU: All types of two-wheelers. It’s part of my life.

YAN LI: There is another part that Token does for fun, but I think their kid is too young, so he doesn’t realize yet.

TOKEN HU: Oh, about the memories thing. I had my first daughter. And the day after, I went to roadshow.

HANS TUNG: Oh, wow. Talk about dedication.

TOKEN HU: Yeah. Everything just happened in the same two weeks.

YAN LI: Right now besides work, I think the rest of the time I am spending with my daughter. She’s 4 and a half years old.

HANS TUNG: Good age.

YAN LI: Yeah. It’s an age where you can engage in interesting conversation with her, but you never can convince her to do things that she doesn’t want to do. So she loves her NIU scooter. My wife is a little bit afraid of taking her out on the scooter. So during the weekends, she’s like, “Dad. You need to take me out on your scooter.” So that’s a 40-minute drive around our apartment complex.

ZARA ZHANG: So last question, what type of roles are you guys hiring for and how can people reach out if they’re interested?

YAN LI: We’re hiring all sorts of roles from R&D, from marketing, from sales. We were already able to attract good talent, but now, since we’re public, hopefully that will allow us to attract more talent and be as competitive as Baidu or Xiaomi.

HANS TUNG: Wow. Very good. Obviously, scooter sharing has become a very popular phenomenon in the US with Lime and Bird. And then that’s spread to Latin America and Europe. Even Hello Chuxing in China is rolling out scooters. Do you ever think about coming up with a product for that market that’s not for someone to own and ride for themselves?

YAN LI: We actually have that already. We are supporting scooter share operations in Europe. There’s a company called Scooty using our scooter share in Brussels. There’s also a company called Movo or M-O-V-O using our scooter sharing in Madrid. And there’s also a company called goUrban using our scooters for sharing in Vienna. So all those scooters are— we provide an open API so that they can link to the backend management system.

TOKEN HU: The product is not only physical scooters. We provide all the frame management, all the API, all the cloud services as a package to them.

HANS TUNG: Oh, good. We have some portfolio companies in this space. Happy to get a link about your product from you later.

YAN LI: Yeah, we’d love to.

HANS TUNG: So what motivates you to wake up each morning and what keeps you up at night?

TOKEN HU: Empty. Always empty.

HANS TUNG: When you wake up in the morning you feel empty?

TOKEN HU: Yeah. Because I’m a really good sleeper.

HANS TUNG: So the first second you wake up, you feel great? No worries?

TOKEN HU: Yeah. I wear my digital watch every day. Some people, they have a really light sleep and then go into deep. For me, in the first 20 minutes, I go deep [laughter]. And it stays deep until I wake up.

HANS TUNG: What keeps you up at night then?

TOKEN HU: At night I’m always thinking about, not product, it’s more like philosophy. Like what problem can we solve? It’s not only about urban mobility, it’s about people’s beliefs. And that’s hard. I’m always diversified and thinking randomly. Always jump, jump, jump, jump, jump.


YAN LI: My daughter wakes up at 5:30. So it’s not about what. It’s who. She wakes me up every day in the morning by rushing into our room. She goes to bed around 8pm, so that’s how I explain it.

HANS TUNG: She’s always energetic in the morning?

YAN LI: Yeah. So then you’re up. I actually have a— this is one part of that I’d like to share. I’m not sure if it’s true or not, but based on Token and me, I think it might be true. I think to be a good entrepreneur, you need to be a good sleeper. I sleep very soundly, no matter what’s out there or how big the pressure. I fall into the deep sleep stage very quickly. I think you have to let go. There will always be things out there. You never know what’s going to happen the next day. But you still need energy to prepare for that, so make sure you get a good sleep. It doesn’t matter if it’s four hours or six hours. Actually, Token doesn’t sleep for that many hours.

TOKEN HU: The interesting this is that we did calculate it. It was me and Anna and our Design VP, Karl. And we talked about it with our R&D team. And one guy called Chris, a really early employee in our R&D team, said, “Okay. We know why we’re not able to be entrepreneurs,” because we calculated that me and Karl sleep like three or four hours a day.

HANS TUNG: Right. Everyone else needs more?

TOKEN HU: They need at least five to six hours. And also, a good memory is really important.

HANS TUNG: So what keeps you up at night, Yan?

YAN LI: Sort of nothing, right, because I’m sleeping [laughter].

HANS TUNG: Sure. Come on. Come on.

YAN LI: I don’t want to give big words about how to grow a company or anything. But I do have a habit of planning out the next day. So before I go to sleep, I do spend a bit thinking in terms of what things to do, who I’m going to talk to tomorrow. I don’t meditate every day. I do that once a week. But I do think sometimes it makes sense to step back and rethink the whole thing. One useful piece of advice to give to everyone is, if you do a daily job, you get sucked in. It’s worthwhile to take a step back and reflect and say, “Actually, what matters?” Because when we look back, maybe just three or four things really matter in the end. But when you’re in the job, sometimes you lose that big picture. So in some sense, what keeps me up at night is I need to constantly remind myself to step back and see what matters because I’m so afraid that I will get lost in the daily nitty gritty details and forget the big picture. I think that’s what I worry about.

HANS TUNG: That’s very good. I can relate. I travel a lot as you guys know, and I can sleep very well on planes.

TOKEN HU: Yeah. All the vehicles, any kind of transportation.

HANS TUNG: I think in the old days, the good generals could do that as well when they were fighting on the battlefield. Otherwise you’ll succumb to all the pressure and worry and not be able to function properly.

ZARA ZHANG: Yan and Token, thank you so much for being here with us, and we can’t wait to see where NIU will go next.

YAN LI: Thank you for having us. It’s great.

TOKEN HU: Yeah. Thank you.

HANS TUNG: It was a pleasure.

Thanks for listening to this episode of 996.

ZARA ZHANG: GGV Capital is a multi-stage venture capital firm based in Silicon Valley, Shanghai, and Beijing. We have been partnering with leading technology entrepreneurs for the past 18 years, from seed to pre-IPO, with $6.2 billion in capital under management across 13 funds. GGV invests in consumer new retail, social Internet, enterprise cloud, and frontier tech.

GGV has invested in over 290 companies with more than 45 companies valued at over $1 billion. Portfolio companies include Airbnb, Alibaba, Ctrip, Didi Chuxing, Domo, Hashicorp, Hellobike, Houzz, Keep, Slack, Square, Toutiao, Wish, Xiaohongshu, YY, and others. Find out more at ggvc.com.

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

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

Episode 25: Tony Fadell on Finding the New New Thing

GGV Capital’s Hans Tung, Jenny Lee, and Zara Zhang interview Tony Fadell, the inventor of the iPod, co-inventor of the iPhone, founder and former CEO of Nest, the company that pioneered the “Internet of Things,” and currently the Principal at Future Shape, an investment and advisory firm coaching deep tech startups. Tony was the SVP of Apple’s iPod Division and led the team that created the first 18 generations of the iPod and the first three generations of the iPhone. Throughout his career Tony has authored more than 300 patents. In May 2016, TIME named the Nest Learning Thermostat, the iPod and the iPhone as three of the “50 Most Influential Gadgets of All Time.”

Tony has been a long-time friend of GGV and of our managing partner Jenny Lee, who we have as a guest host on the show today.

Tony discusses why China might have a “last-mover advantage”, the qualities he look for in entrepreneurs, and how to discover the next game-changing technology.


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

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

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

ZARA ZHANG: On the show today, we have none other than Tony Fadell, who needs no introduction. But just for the sake of formality, Tony is the inventor of the iPod, co-inventor of the iPhone, founder and former CEO of Nest, the company that pioneered the Internet of Things, and currently the principal at Future Shape, an investment and advisory firm coaching deep tech startups.

Tony was the SVP of Apple’s iPod division and led the team that created the first 18 generations of the iPod and the first three generations of the iPhone. Throughout his career, Tony has authored more than 300 patents. In May 2016, Time named the Nest Learning Thermostat, the iPod, and the iPhone as three of the 50 most influential gadgets of all time.

HANS TUNG: Tony has been a long-time friend of GGV, and our colleague Jenny who we have as guest host on the show today. Welcome to the show, Tony and Jenny.

TONY FADELL: It’s great to be here. It’s great to see you all here in Beijing.

ZARA ZHANG: Welcome to Beijing.

TONY FADELL: Thank you. Wonderful.

ZARA ZHANG: So, you have been a prolific coach and investor since you left Nest in 2016. Could you share with us what excites you these days?

TONY FADELL: Well, I think the first thing that’s exciting is that innovation’s happening everywhere. There’s always been great ideas all around the world, but really, after the iPhone and smartphone revolution happened, we unlocked the DNA for people around the world to make revolutionary technologies through open source, through communications networks, through the Internet, and now you can see innovation and creation of new businesses, new technologies, new products all around the world. So, to me, it’s engaging the entire global set of brains and not just ones in Silicon Valley or in the East Coast of the U.S., but literally the whole world can now innovate at incredible world class levels. To me, that’s really exciting because that means we can get to solve big problems faster, which is really important.

ZARA ZHANG: Are there any particular parts of the world that you are especially excited about?

TONY FADELL: Well, I’m definitely excited by what I’ve seen in China since coming here—I started coming here in 2001, the very first time with the iPod—and then seeing how much it’s changed. This is the first time I’ve been back in about five years. And to see how much not just copycatting in a lot of ways that you thought, but it’s literally innovating in all new ways that we’ve never seen before. You know, I think of first mover advantages all the time when I invest, but I also think of last mover advantages. And if you think about China, when you didn’t have credit cards and there wasn’t a lot of consumer credit and there wasn’t a lot of a lot of things here, and you get to use the best technology and actually make it yourself and create things that the world has never seen before, that’s really exciting because we’re not just taking old systems and innovating them but we’re creating new things and new species of things that have never been seen before.

ZARA ZHANG: So, Jenny, you’ve known Tony for a long time. Could you talk about how you first met?

JENNY LEE: Yeah, I still remember. I’ve known Tony for about five years, actually five years exactly to this day. Back then, Hans and I were attending a party in the Valley, at Yuri Milner’s house. The first question that I ask entrepreneurs, whoever the entrepreneurs that I meet, would be “Who’s the coolest guy in the room that I should get to know?” And it was interesting because I had Phil Libin sitting next to me, ex-CEO of Evernote, and then on my right was Aaron Levie, CEO of Box, and they all pointed to the guy across the table from me: Tony Fadell. Back then, they said, “Wow, he has a new company, new cool products. You should just get to know him now.” So, that’s how we met. I went up to Tony and he was busy introducing his cool Nest Protect product at that time that was about to be launched.

That’s how we met, and I think after that, we just hit it off. It’s always great to find entrepreneurs whom you can talk tech about, who can really give me the straight “This is good. This is not good. This thing is not real.” And so, we’ve always kept in touch and it’s been a very interesting and very engaging interaction.

TONY FADELL: And we’ve invested in a lot of things together. We talk all the time. We’re on the board together. So, it’s really great and fun to see how things have developed over the last five years. But when we met, we instantly hit it off. As you said, no B.S. You tell it like it is; I tell it like it is. And when you meet people like that, regardless of wherever they’re at, you just resonate with them. You’re like “Okay, this is someone I can get along with.” It was clear after our first one or two conversations that I was like “Okay, we’re going to get to know each other a lot more,” and we’ve actually talked a lot. She’s very busy obviously, but we’ve talked a lot. Hans as well, we’ve talked many times and continue to find great entrepreneurs to back around the world.

JENNY LEE: Hans and I, after that first meeting, actually made a second meeting to go pay a visit to Nest and Tony, to try and see if we can invest in Nest. But we were too late. I think two months we were talking and talking, and then two months later, the news came out. And so, we would love to find more ways to work together as partners this time, not just investor-entrepreneurs.

HANS TUNG: Exactly. So, Tony, you have close to 250 investments now. Most of them seem to be more deep technology, at least in the U.S. and Europe. What do you look for when you invest in founders and what excites you?

TONY FADELL: Well, there’s lots of money out there and there’s lots of entrepreneurs doing a lot of interesting things, but for me, what I want to be able to do is not just make money. My job is not to make money. I’m not investing other people’s money. I’m investing my time more so than money. What I want to do is I want to really be able to help entrepreneurs who are doing very hard things, which are usually in deep technology—things that don’t have revenues for a while, that take many years to develop before they can become really disruptive in an industry—help those entrepreneurs and mentor them, not just myself but our team, to help them get their dream to become reality, to affect the world as fast as possible for the most amount of good.

I was a young entrepreneur when I went to Silicon Valley in 1991 and beyond, and I had lots of people who helped me because they saw something in me and they said, “I want to help this kid.” And it wasn’t always about money. So, now that I’m older—almost 25 going on 30 years later since going to Silicon Valley in the first place—now I think it’s my time to be able to do what other people did for me and help those innovations grow, now that we can do them in a lot of places and do many more meaningful things than we could have 30 years ago. So, for me, that’s what’s so exciting.

And it’s not just about consumer hardware and building the next iPod or something or Nest; it’s really about technology being applied to new spaces. The things that we know and we’ve created over the last 30 years, you can innovate that, sure, but it’s about bringing that and that democratization of those technologies to agriculture, to food, to medicine, to automotive things. If we look at it, there are so many things that now need to be either revolutionized by the software and hardware revolution or they need to actually be created, new things that we’ve never seen before to be created. That’s what’s interesting to me.

Because I don’t want to just keep doing the same thing. I left Apple because after 18 generations, the iPod or whatever, the 19th one is pretty predictable. I think you can pretty much predict what the next cell phone wave or smartphone wave is going to look like or the one after that. That’s not fun. What you want to do is be on the cutting edge to create something that’s totally changing. Hopefully, like I’ve been able to do in my career, now do it with 200 other companies in different things that I don’t know anything about.

And that’s what’s the best thing is: You go and do something you don’t know anything about, so you come fresh-eyed and you go “Why don’t they do it that way?” Instead of saying, “This is the way we’ve always done it, so it’s never going to change,” you just come and go, “That doesn’t make much sense. Let’s rethink it.” That’s what’s fun, is rethinking old industries or thinking of new things no one’s ever thought of before. To me, that keeps me young. I get to work with lots of young people and hopefully help them reach their dreams.

HANS TUNG: Right. So, how do you tell if a team is just doing science project versus someone who will actually have a chance to grow and learn, evolve, and do something truly revolutionary?

TONY FADELL: Hans, that’s a great question. You ask them what their mission is. You ask them what they’re really trying to do. If they’re just trying to find more money to continue their research from college, from university, it’s very clear that it’s like “Oh, I just want to do this” and they don’t think about the business implications. They just want to keep having fun doing what they’re doing. When they say, “I have this technology and it can change the world in these dramatic areas,” and then they can state some kind of business case or some kind of market case for it and they’re trying to get other people to help them understand and build a business, that’s when you know it’s something interesting.

We see a lot of great demos – and nothing wrong with robotics and those cool AI robots they’re running around, but then I keep saying, “What need are we filling? What are we actually really fixing?” You can create all kinds of nice demos, and that’s fun, but I come in and go “What are you doing? In 10 years, when you wake up, what are you going to have on your resume to show that you’ve done to build something great, and all the people on your team to do something great? And that something great is not just another product or another demo but a business, something that will last beyond your time at the company.”

So, if I think about it, my time at Apple, it still has the iPhone. The iPhone revolution, that was something we were building that really was important and it still continues to be important. And Nest. Nest continues to go on and create new products and we’ve created a culture and a business to create more products. That’s the kind of thing you want to talk to an entrepreneur about, not just this one idea and getting it to the market but “What is their big vision? Where does it need to go?” And even if they don’t know what it is, they have to have like “Wow, I want to change the world, in this way, for the right reasons, for these kinds of business reasons, to make sure it’s sustainable. It’s not just bringing a technology to the world.”

ZARA ZHANG: I also think a large part of being a successful entrepreneur is solving the right problem at the right time. So, the timing is also important. So, what do you consider to be the right problem at this current age?

TONY FADELL: Well, timing is everything. Sometimes a failure is based on execution; other failures are based on timing. You always want to be a little bit sooner than it needs to be. You know, Nest was just a little bit too soon, but it worked out. It was just a little bit cutting edge, and now you see that everybody is doing it. But we got there at the right time.

Something in China that’s a great idea might not be a great idea in North America, it may not be a great idea in Europe. So, you have to think about timing not just what people are talking about in the press but “what are customers saying?” Just because you have a great idea and you’re not close enough to the market need—and it takes a really big gap, a leap, for them to understand what it is. If it takes more than two minutes to sell your idea, you’re probably not doing a good job of either explaining it or you’re too far advanced from where they’re thinking for them to buy it or purchase it in some way.

So, I think about my time at General Magic. Most people don’t know what General Magic is, but we were basically creating the iPhone in 1991 to 1994. We had the best team; we had the best everything. We had downloadable apps, we had games, we had e-mail, wireless e-mail – we had everything. But that’s what we use today. It took us 15 years to get there. And we had the smartest people. So, we were a total failure; we obviously showed up 15 years later. But we had the right idea.

So, what is going on here in China? When I look at startups and thinking about the timing, there are things that the market needs now and things that will get funded now, and there’s something pressing for like “Made in China 2025.” If you’re doing something that needs to be done right now, you’re probably not innovative enough. You need to be building something that is going to be a hit in four to five years, when the market wakes up, because that means you’re starting before anyone else is.

But you can’t be so close that everyone else is doing it or it’s pretty simple to implement. But you also can’t be 10 years out because then business isn’t happening. So, you have to really be in. If you’re doing anything important, I always say, “It takes 10 years for it to see full fruition, to come to full ripeness, in a way, 10 years to really realize a business. A product, a good product, is usually three to four years; good business is 10. So, you should always be thinking in those kinds of horizons. Now obviously you want to ship something in a year or a year and a half, something from the time you start.

So, those are kind of the windows I see in business, but you got to make sure that what you’re pitching is close enough to what the need is, or a need that you’ve discovered that they didn’t know they need, so that they can convert or they’ll actually put their signature on a contract in some way or put some money down for it.

HANS TUNG: So, if you’re looking at a portfolio, what would be the top 3 products that fit that description, that it could be something quite game-changing, it’s still a bit early for its time but it’s close, that could really break out?

TONY FADELL: Well, I think we’re starting to see a breakout almost happening in impossible foods. Impossible foods is basically meat without a cow, right? It’s a burger that’s vegetable-based but it has almost all the same or better properties than regular meat. There’s a lack of protein in the world, we are unsustainably farming cows and cattle today, and it’s killing the planet, it’s killing us, it’s totally inefficient, and we’re just at the point where meat-eaters will go, “I’ll actually try that,” and they like it. It’s not crazy GMO technology but it’s right on the verge and it’s going multi-continent. So, it’s just on that thing and people are like, “What is that? What is it?” It’s underground. But we’ve been working on it; the team has. I’ve been working with them for a while. But the team has been working on it five, six years now. We’re finally there, and it’s going to be in total brightness as a full business in the next two to three years, because it will be everywhere. But it’s taken a long time. So, that’s hopefully an example of what I mean.

Let’s see another one. I think transportation is a big one. We’ve been talking about self-driving cars. We all want it to happen. We all understand the need. Society’s not ready for it. The technology’s not even ready for it. Everybody’s been saying, “It’s coming in 2019, 2020.” We have automakers saying, “We have full self-driving or we’re going to have a software upgrade for full self-driving.” No, we are not. The stuff isn’t ready; it’s not even nearly ready.

I think, just like people, we have to learn to crawl before we walk, and walk before we run, and run before we sprint. Cars are going to be the same way. And it’s not just the technology. Cars are all about different speeds, in different locations, at different times of day, under different environmental conditions. We’re going to do the same thing there.

Do you think we’re going to all of a sudden make a highway vehicle that’s going to work tremendously well in cities? No. Today, we have some self-driving capability on highways, in very controlled digital situations. If we look at countries around the world, there are driving modalities that are very analog, not digital. The U.S., for the most part, is a digital transportation system.

HANS TUNG: Emerging market’s not.

TONY FADELL: Emerging market’s an analog one. China is in-between. There are cities that are digital, and there’s other ones that are analog. To think that we’re going to be able to address all of this in version 1.0, or even 5.0, is absolutely insane. When I see people investing like crazy and they’re saying, “Oh, we’re going to have self-driving taxis,” they’re going to be the worst taxis in the world. You’re not going to want them. They’re not safe. So, I like the e-Mobility stuff, with the bikes and the scooters and other transportation things. But self-driving? I like self-driving in campuses on slow speeds, where you can only do this stuff, where it’s highly controlled, it’s highly digital. It only has to work under certain environments. It still has a steering wheel on the thing, so somebody has to get in to keep it running during the day. We’re going to have those kinds of on-ramps.

For people to say that it’s going to be autonomous driving in three years, we all have different expectations. It’s all marketing. It’s all kind of craziness. It’s not what reality is going to shape it to be. Just like the iPhone, we had it in 1994 with General Magic. People didn’t understand the need. We understood the need. But the technology’s not right yet. Basically, we don’t have the technology and the regulations and all the other things. So, that is much too early.

Now was that saying you shouldn’t invest? No. But you have to invest smart, and you have to understand what can be deployed when. Now people are talking about fleet mobility management solutions, software solutions, for autonomous vehicles. I’m like “Oh my god, that’s going to be 2030 by the time we need that stuff,” or 2027 or something like that. We can’t even make a car, an EV-based car, that won’t run long range enough without all the computers, let alone when you have all the computers and all the sensors. And they’re still already too expensive. There’s so much to go.

So, that’s an example of something that’s happening today. That if you smartly define it, yes, it will happen. But the way it’s being defined and being built, it’s so far out there that we all want it because it’s cool science fiction. But it’s not happening. It’s all driven by marketing and shareholders, and people think they’re going to make a ton of money right now. They’re just chasing a dollar; they don’t understand all the social implications, governmental, and the technological ones.

HANS TUNG: How about vertical indoor farming?

TONY FADELL: Another thing that I think is very interesting. But you have to look at the business model. You have to go back and go “How much is it costing to produce these vegetables or these fruits in which location? What are the alternatives?” It sounds sexy and it’s interesting for a marketing thing. But when you come down to the business aspects, you know, some of these vertical farmers go “I’ve sold a thousand containers.” It’s because everyone’s trying one. I always say that if we put anything on Indiegogo or anything, you can sell between 10,000 and 100,000 of anything to anyone because there’s enough early adopters. But they’re just demoing.

To say it’s going to truly be a business, we’re so far away from that. Now do we have to try it? Absolutely. But the valuations, a lot of these things are getting well out of hand. They just seem cool and everybody’s like “Yeah, it sounds cool,” but the reality is we have to look at the economics, because it’s not going to be carbon-based because we’re going to be getting rid of logistics services. There are all of these other elements that have to happen to incentivize, to make these things more cost-effective, and they’re not today.

And you have to really look at the numbers. I’m as bullish as anyone about all kinds of certain things but I always go back to not the sales numbers but the real hard unit economics to really understand “what are we really solving here?”

HANS TUNG: What are you betting on?

TONY FADELL: Yeah, what are we really betting on? Because that’s the thing that’s not going to change. If you can’t get the economics right, regardless of

HANS TUNG: You can’t scale it.

TONY FADELL: You can’t scale it. And I always look at the economics from a scale point of view, not just “It’s going to be hard. We’re only making a thousand of them, so it’s really expensive, so we’ll never get to 100,000.” Like solar panels took for years. From the ‘70s, we had solar panels, but it’s finally taken off in the last 10 years. Because everyone’s like “We’ll never scale.” I’m not worried about scale anymore. If we figure out the unit economics, China or another country is going to go off and figure out how to make –

HANS TUNG: Cost-up?

TONY FADELL: The cost-out happens so much more quickly. But what’s the real fundamental reason why something should exist? Look at that. Look at those details.

HANS TUNG: We think there’s a fine line in indoor vertical farming that could be different. We’ll show you. We’ll talk to you about that later.

TONY FADELL: Okay. I can’t wait to hear more.

JENNY LEE: Maybe switching gears a little bit. So, Tony, you’ve been a very successful entrepreneur as well for 25 years, and the last 10 years making investments. How do you strike the right balance between taking on the role of a coach to the founder, you saying, “Hey, you know, this is something that’s cool, I can just come, get in here and solve the issues within, I don’t know, a day,” versus just trying to coach the guy to get it in a year?

TONY FADELL: You’ve probably seen it in some of the companies. Sometimes you have to bite your tongue. The first time is just like you can ask them questions, and then it goes – you can either see in some entrepreneurs, it’s just like “Why did you do it that way? Did you ever consider this? Or did you ever think of that?” And either kind of a bit flips in their brain and they go, “Oh, my god,” and literally within hours or days or weeks, they’ve changed their whole presentation. Or it’s like six months, nine months, a year later, it still hasn’t sunk in. Not that I have all the ideas or anything, but at least coming back to you with a “I thought about that, and here’s why I don’t think it’s going to work.” Or we rule it out right then and there, like “Yeah, I really thought about it. Yeah, that’s not going to work.” So that you can really understand.

And I like to do that in the process of when we’re thinking about making the investment and challenging them there to see if they’re mentorable at the time of the investment, because that’s the time when you have the most leverage. When your investor’s like “Oh god,” roll the dice then and you have no leverage, in a way. Because I’m not worried about missing the next deal, I mean, me, this is about fun and it may change the world. It’s about working with great people who really want to work together, so I don’t worry about passing up deals. A lot of investors are like they want to have their best foot forward and they want to say, “I’m entrepreneur-friendly and I’m not going to challenge to a certain extent.” For me, I go the whole 180 degrees. I challenge them from day one. I’ll send them a hundred questions, going “What’s that about?”

JENNY LEE: Yeah, I’ve seen those e-mails.

TONY FADELL: And I want to see how far until they’ll break, in a way, not that I’m trying to like – but I want to see how far they’re going to go and how deep and how fast they’re going to respond and how detailed they’ll respond, because that’s going to tell you what their normal way they think about problems or how they communicate or whatever. And if they can do that, then it’s a great litmus test for what I think is going to happen over time. They go “I never thought about that” and they claim “No, we haven’t gotten there,” as opposed to someone who always says, “Oh, yeah, we thought about that,” or “Yeah, we’re going to do that too.” They just have to say, “No, we didn’t think about that.” And you go, “Okay.” I know that they’re real because they said.

HANS TUNG: They’re honest.

TONY FADELL: They’re honest. Right, exactly. So, yes, it’s that kind of thing.

JENNY LEE: So, do you get moments where you feel like this problem is attractive enough that you want to do it yourself?

TONY FADELL: There are a few. There are a few moments. Everyone asks me “Are you going to get back in the game one day? Are you gonna go back?”

JENNY LEE: That’s a different way of asking. Always a capitalist.

TONY FADELL: I wasn’t going to get back to it, and Nest was something that I thought of and I couldn’t let it go. It took nine months for me to finally kind of commit to doing it, because I had a look at it from every angle because I really wanted it to be right. I had been at that point over 20 years of, you know, multiple startups that failed or were marginally successful, years and years at Apple running like crazy. So, to throw yourself into it again when you didn’t have to, you’re already financially fine and all that stuff, to throw yourself into it, you have to make sure all the variables are there. Not that I’m risk-averse but I like to risk-mitigate and make sure I really understand what the real opportunity is but what are the real risks before diving into it.

So, when I look at these other businesses, I have a different calculus I use for when I’m going to be the CEO versus when other people are the CEO and I think I can help them and invest and get them around certain obstacles because I’ve been there before and I think it’s a good business. But is it something good enough that I would want to tear myself away from my family and all that stuff, since I already had been doing it for effectively now 25 to 30 years, depending on how you count? So, it’s very hard for me to want to engage and say, “Oh, I wish I could do that,” because I know how hard it is.

And I have to tell you it’s a young person’s game to really be an entrepreneur. And by young, I mean you have to be in your 30s. You know, 20-year-old CEOs, there are some of them but they’re usually not successful. It’s got to be their second or third time. That’s just the reality of it. Sometimes they get lucky. But most the time, it’s in your mid-30s to early 40s is when you’re really successful. You’ve really figured out, you’ve failed enough times, you’ve learned. So, I’m not in that category.

JENNY LEE: Unfortunately, I’m not as well.

TONY FADELL: So, that’s where you come back, to mentor. So, my calculus for me to do something is very different. When I see something and I go “Oh, my god, if I was 30 again, would I be the entrepreneur?” Yes, I want to invest because I get to go and have a fun ride with that entrepreneur, being a mentor alongside them and helping them with their board and their investors and everything else. So, I get to be in all this, I can have a lot of fun, and I get to be young again. At the same time, I get to help them and I get to almost be CEO without being so young. Right?

HANS TUNG: It’s one of the reasons why Jenny and I like being in VC.

TONY FADELL: Right. At some point, everyone has a different reason for when they are going to get involved with the risk level. I’d much rather take my time and help 200 entrepreneurs. than just do one company with a lot of people. But it’s tough. You know how it is. I always would love to go back to college or high school and say, “Yeah, I would love to play football again like I used to.”

HANS TUNG: Let’s make a little team and try to coach it.

TONY FADELL: Exactly. Great analogy.

HANS TUNG: So, you’re based in Paris; you’re traveling throughout Asia. When you see all the different markets, what are the differences and similarities amongst the founders you choose to back across these geographies? What kind of lens do you use to look at investments in different geographies?

TONY FADELL: Well, I think looking at the investment is very different than looking at the people. Human nature that I found throughout all our travels is the same everywhere. Everybody wants to care for their families, everybody cares about their communities, for their governments or countries and everyone else, they care about themselves. Human nature is the same. So, it’s very easy to go and find entrepreneurial talent. That’s very similar. They’re mission-based, they work hard, they’re proactive, they can communicate well. And you can find that on every continent.

When it comes to investments, though, you have a very different calculus in how you choose to invest in a company in China versus the U.S. versus Europe, because each of them is in different stages. One thing we learned way back when, during the time at Apple, we did the iPod. Apple wasn’t doing well at the time the iPod came out. It was a critical and somewhat success in the first year or two years, but it was all Apple-focused. You could only have a Mac to use an iPod. So, what you had to do was you could only market it to more or less the U.S. audience, a little bit of Japan. Nobody in Europe was really using Apple Macintosh or any of that stuff.

So, we worked and we modified it and all that stuff, and by year 3, we made it work with a PC. So, we took it to Europe, because it could work with the PC, and we took it to the rest of the world, people are starting to go, “Oh, I want to try this iPod thing.” That first time we hit the European shores or the Asian shores with it, we used the marketing as if we were still marketing in the U.S. after three years. We forgot that the markets themselves didn’t really know what an iPod was. They really didn’t know what 10,000 songs in your pocket was. They didn’t know all these things. So, the first six months when we launched it in these other countries, we didn’t tailor the marketing to understand the market. We tailored it based on “take what we’ve done in the U.S. and copy it.” We had to bring those people up to speed. And so, what is this long way of saying what it is, is you got to understand the dynamics of each market to understand if an investment really makes sense.

Today, I’m fundamentally deep tech, and deep tech means it’s coming out of research institutions. That’s where I like to invest. It’s not about social mobile; that’s over now. There are certain things that are over, but deep tech’s really hot in Europe. Deep tech is just starting. It’s mostly kind of the U.S. two to three years ago, you know, business process automation and alternative business models and that stuff, and innovating in that market. China is much more about scale. It’s not about deep technology, as I define it, but it’s about taking something where you have a good market, that you’ve figured out the unit economics, and pressing the button to get the capital and scaling it up to billions of people. So, it’s all about execution, it’s all about customer acquisition costs, about “how do you cement that kind of thing?”

So, you have to look under that calculus. At some point, that calculus is going to move to the U.S. again, and then it’s going to move to Europe. So, these things are always out of phase; each of these regions are out of phase. If you look at Southeast Asia investing, it’s very different than all of those.

Again, entrepreneurs, easy to determine. Whether that entrepreneur has a business that’s investable and that makes a lot of sense is very locally driven and you need to have great partners in each of those areas to help you do the due diligence to understand it. It’s great to learn about these things, but it’s hard to sometimes pull the trigger when you don’t really have all the data to make the investment. So, it’d be like the way you would as if you were investing in the U.S. for 10 years or 20 years.

And that’s what’s so great about GGV is that you guys have been here and now you’re going even further into other markets, investing ahead of the curve and learning this stuff, just like you should be creating startups ahead of the curve – not too far ahead, right?

Investment is all about seeing the next horizon; entrepreneurs are all about seeing the next horizon, and then finding those things and nailing it. So, it really takes people on the ground, great understanding, because you just can’t cookie-cutter and copy things from place to place. It doesn’t work that way.

HANS TUNG: A lot of VC firms try to globalize when it was way too early to do so, and a lot of them have sort of retreated. I think for GGV, for us, quite frankly we benefit from the penetration and proliferation of iPhones and Android phones. When you have so many smartphone penetration in a lot of markets, it becomes easier to scale the biz model that’s worked in one country to the other, especially in emerging markets where there’s a high degree of urbanization and rising middle class in a smartphone penetration.

TONY FADELL: Absolutely. There’s a lot of similarities you can do. Finally, there’s 4G in India, and finally there’s 4G everywhere and it’s cheap enough. It’s cheap enough.

HANS TUNG: That’s key.

TONY FADELL: So, you’ve got to look at the infrastructure, and then you have to look at the ARPU and figure out what is really the discretionary capital that each of these families has and where can it be deployed, or for that matter, the IT budgets for each of these companies, because everybody around the world has to digitalize. Right? Families too. The question is: What’s the cycle? Where are they? Where’s the acceptance?

Just like when I was coming back to the iPod, the timing is critical in each of these things. When everybody just says that they can move their business model from one continent to the next really easily, “Oh, yeah, it’s just a language change,” that drives me nuts. That’s the kind of entrepreneur who sometimes they need to be mentored and other times they just say that because they’re selling it, trying to prop up their value. And I’m like “Forget it.” It’s just like smattering AI on every single president. AI is just a new form of social mobile or whatever it is. “I’m the Uber of.” “I’m the AI.” But it’s like “No, sorry, ain’t gonna happen.” You got to be much more thoughtful than that.

ZARA ZHANG: Would you say would-be entrepreneurs should first train at big companies or should they jump straight into entrepreneurship? You yourself have been at some big companies.

TONY FADELL: Yeah. I have some real lessons learned on that. If you’re going to be a great entrepreneur, you better know what sales and marketing is, not just what engineering is or operations or finance. You need to know pretty well what each function does and how they interrelate. At a massive company or corporation, are you going to learn that? No way. You’re going to be a cog in the machine. At a startup of five people or ten people, are you going to know that? Absolutely not. What I’m for is those small 80-150-person startups, not more than that, where you can go in in the first two years, you can watch it grow, what kind of stress goes on in the environment when they’re growing at 20 people per quarter or 10 per quarter.

When you can go and have lunch with the marketing person and learn what they’re talking about, or the finance person, and you can start to get some sense about it – because you’re not learning this stuff in school. No business school is going to teach you this stuff. They’re not going to tell you about the failures. You’re going to hear about the successes and the real big failures and then the not, one, it’s dynamic and it’s really happening. It’s just case study.

You got to be there. You got to learn. You got to learn by doing. Learn by doing means learn by doing with others who are knowledgeable and experienced with a good enough team.

If you just got out of school—and this is what happened to me. I started my own company, and I didn’t know what I didn’t know. And that’s why it was so great about me going to General Magic; I got to see everything. Maybe I wasn’t that thoughtful at that, but that’s where I landed and I was employee #30 at this company. But we grew to 200 in a very short period time. You got to meet and learn and become part of many pieces of the organization. That’s your real PhD. When everyone says, “I have a PhD,” it’s not a PhD in entrepreneurialism. It’s a very neural thing that doesn’t help you create a company.

You got to really be able to speak the language of all these different divisions and different types of people and know enough when you need something. Not that you know who the best experience professional is or how to do that, but start to understand, and you can only do that by doing and working in a company.

HANS TUNG: It’s usually B or C companies that have raised two to three rounds of financing, 50 to 200 people.


HANS TUNG: So, small enough that you can talk to almost everyone but big enough that you have different functions emerging all right.

TONY FADELL: Exactly. And you’re going to go through some failures. It’s not going to be about maintenance mode. “Oh, yeah, we just need to have this.” It’s like, no, there’s like real fighting to try to win the market or fix this problem or whatever, and it’s really ugly and gory – because that’s where you’re going to learn. It’s fun. It’s fascinating.

So, yeah, do not go to a big company, a huge one. Do not go to a little tiny one. Go to something where you can really add value but they’re going to teach you probably more than you’re going to be able to bring.

JENNY LEE: Those in the J-curve.


ZARA ZHANG: I remember you’ve said before that Nest would have never happened if I didn’t get out of the echo chamber of Silicon Valley. So, how did Nest happen and why did you move to Paris in 2009?

TONY FADELL: One of the biggest reasons why I’m here in China, why I’m traveling throughout the world, to Southeast Asia, why we’re living in Paris, is that you don’t know about other people’s problems unless you live them. A lot of people say, “Oh, yeah, I can go in…” From Silicon Valley or whatever else, everything looks like it’s all solvable for there. It’s absolutely not the case. The reason why you start a startup – you know they didn’t all get created in Europe and then they got shipped over to the U.S. when the U.S. started. Everybody has different problems to solve with different needs and different ways of being. And even though you might think “Oh, that car’s the same as that car over there,” there’s regulation differences galore between the two different cars here in China, you know, a Buick here versus a Buick in the U.S. There are so many differences that you need to be able to live them.

The other thing is you habituate. In other words, you get used to your environment. So, after being in Silicon Valley for, at that point, 20 years, you kind of see everything is the same. They’re all shades of the same thing. You see the same problems; you see everything else. When you get outside that bubble and you go to a different place where fundamentally everything’s different, it knocks you off your thing and you have to re-evaluate everything and relearn how to live and learn how other people go, “Why did they do it that way?” We did it that way. “Is it smarter?” I always thought that’s the way it’s always been. It’s like a big company. “That’s the way we’ve always done it. We’re going to continue to do it that way.” You’d be like “Wait a second, I’m over here. They do it differently, and that’s some smarter.”

Like I just thought the U.S. political system was really smart. But living in France and seeing how they elect the president, oh my god, I’m like “This is genius compared to the US.” I never knew it could be better. I was like “This is so smart.” And so, when you have that kind of an experience and you go “Wait a second, there are smart people all around the world.” They may not be marketed and the media might not be focused on them, but go and interact with them.

Most times, people are like “Come meet with me and move your startup near me because I know better.” No, no, no. You got to go the other way and go meet with people, because technology has been democratized, communications has been, all of this stuff’s been democratized. Everyone can get access to it. Now it’s about going to the markets and making those markets happen. So, if I wouldn’t have done that, I would not have seen the problems, I would have continued to solve what everybody else thought were the problems.

What I love is the other thing that happened—this was in Paris in 2009 when we were there—was I went to different museums. When you’re in Paris, there’s hundreds of museums and you start to see a pattern. A pattern emerged where if you looked at Picasso or Michelangelo or any of the great artists, you start going “Wait a second, they lived in this city for a while, then they took a little bit of time off and they lived in this city for a while, and then they lived in that city, and they had different inspiration and new art or new things that they were working on.”

It was all about refreshing and pressing reset on your brain to get new inspirations, new ways of looking at the world, to come up with new and creative solutions or ideas. So, you’re like “Wait a second, I’m in Paris. I see this, I see the artist, they did this.” I’m like “Duh, I got to do the same thing.” And that’s when, bam, Nest happened there, came back to build it, and now I’m traveling the world, seeing other things, and I’ve got some really cool things that I want to do now, you know, traveling in this area of the world as well as in Europe and going “We’ve got to build some of these other companies. I’m trying to find investments around that stuff,” because I would have never seen it in Silicon Valley, or frankly, in Paris or in Europe, unless you travel to the place where

HANS TUNG: For example?

TONY FADELL: For example, we were talking about this earlier, which is if you think about Southeast Asia, it’s very much like Europe was before the EU, before the European Union. There are different currencies, people are traveling around, middle class is now being established and it’s traveling around, commerce is happening within, inside a block, and things need to move more quickly. So, what technology, what things need to be built for that region, that trading region? It’s not all going to come in and out of China to the rest of the region. It’s not. I’ll go to Europe back and forth. It’s going to be traded inside that block amongst themselves. What needs to be built in that, inside of that?

And to make it more fluid, reduce the friction. Because I don’t think, given this whole wave of populist behavior, there’s going to be another EU created anytime soon. There might be trading blocks, but there’s not going to be a new kind of political system put on top of things. So, given that, how are our businesses going to adapt to that? What businesses can be started in that? That’s going to be really wild and interesting to watch, and it’s just now getting there, as you see things like Go-Jek and Grab. In other words, starting to go to multiple countries in that region. Pretty interesting.

ZARA ZHANG: So, what we’re now seeing in Beijing, what has surprised you or impressed you the most about your current trip to China and what’s your overall impression of the China’s ecosystem.

TONY FADELL: China, it’s underestimated. I think a lot of people want to continue to “Oh, it’s the China of 15 years ago.” It’s an incredible opportunity or an incredible threat, depending on how you look at it. I hope that while there has to be the right reckoning and balance between superpowers in the world and trading blocks and all that stuff’s got to get itself worked out, we still need to cooperate, we still need to work together, and we still need information to flow and the knowledge of all of different people to flow freely between each other.

It’s really important because we live on one planet and we cannot be hunkering down. Especially when you look at the IPCC report from last week, saying global climate change is going to affect us in 12 years, not 30 years, we’re going to have to be working together on this. I would rather see countries compete to make the world better than to lock off each other and then we starve each other of the innovation that goes back and forth.

I know that’s vague. But China is an incredible opportunity for the world because it can set the standards and help to bring scale to a lot of these industries that are going to need it to help us with climate change, just like we did with solar panels. Rightly or wrongly, forget solar panel dumping and all the other stuff, if people played the game right and they played by the rules and we don’t have a global currency meltdown because of currency wars, we can help the planet go much more quickly together than apart.

If we have global currency wars and global trade wars, we’re going to slow down tremendously the revolution we need to get to a CO2-less environment. Otherwise, we could lose 10 or 20 years on our way because we’re sticking our head in the ground and saying “us is awesome, we’re going to do it our way.” We can’t do it. It’s one planet. There’s no Mars. Sorry, that’s market. There’s no Mars, there’s no moon, there’s no space. We’ve got it. We’ve got to solve it. We’ve got to solve it together.

And so, for me, China is going to be a huge win, especially as more cities are developed. And the rest of the world—or at least in what some people consider the modern world, China is very modern—the U.S. and Europe, or North America and Europe, there are no new cities being created. Here, they’re being created, and you can use the new technology to create those. And you can figure out new ways of being and do that more so than the Middle East, more so than Africa, because you have all the pieces here.

So, I hope that the technology that’s going to be created and the cities that are going to be created are going to be models to help us get out of this because we’re going to need it. The population, yes, it’s slowing around the world but it’s not slowing fast enough. It’s not going to solve it. We’re going to need experimental cities and a lot of different innovation for this DNA to mutate enough times to find our way out of this.

HANS TUNG: And China’s the best place to try it.

TONY FADELL: And so, China is an incredible opportunity to help save the world, even though, yes, there do need to be reforms. But this is where everyone can lead together and not be divided about things.

HANS TUNG: Well said.

JENNY LEE: I think we’ve talked about how the world is changing, entrepreneurship is changing. Tt’s getting more global. Capital, as well, is getting more global. So, you’ve had so many interactions with investors in the U.S., in Europe, in Asia as well. Any inputs, advice, for folks like us? You said that we are the dockside, right?

TONY FADELL: Look. In the world, there are good people and there are bad people. There are good businesses and bad businesses. There are good leaders and bad leaders. In the world of capital, it’s the same. At the end of the day, entrepreneurs should only take money from people they respect, from people who can add value, not just a brand name. It’s about a person-to-person relationship with a partner or a mentor. It’s not just the firm, it’s the person you’re going to have on your board. It’s going to be about hopefully a person you can call in the middle of the night when you’re in utter panic to get advice, and that you trust them and they’re not going to use it as a weapon against you, that it’s a trusted partner, someone you want to go have lunch or dinner with, that you wouldn’t mind having your families get together at some point. Obviously, there’s always business relationships, but at the end of the day, it’s got to have a personal relationship because it’s all about trust.

And it’s two ways. When you get an investment from someone, they’re trusting you to return that. But you’re also trusting that they’re going to believe in you. It’s not just a business transaction. Because with all the failed startups out there, because there’s still going to be tons more, this is about a long-term relationship. So, even if a startup doesn’t work out, there are so many entrepreneurs that I’d back again because I saw him in the tough times, through the hard times – because that’s when you really know a person, is when, whether it’s on the investor side or on the entrepreneur side, when it’s tough times, that you can push each other, you’re there for each other. And you know that in 20 years, you’re going to call each other and go “Hey, I’m here. You know, when it was tough you were there for me, I’m there for you.” Whatever it is, no matter how much we read in the media and all the BS and social networks, taking people down and everything, it’s about that relationship at the end of the day, not what the media says or what’s the latest thing on Twitter.

So, the reason why I’m successful is because of the relationships I hope I’ve invested in. This is not about transactions, it’s about relationships. And it’s a two-way street. Because you’re getting married. Look, the investor’s getting married to an entrepreneur. And an entrepreneur is getting married to a partner, not a VC firm. And a VC firm is made up of really good partners, if they’re really good.

So, yeah, there’s bad actors out there and bad firms. You’ve got to be much smarter as an entrepreneur and you’ve got to be much smarter as an investor to make sure that it’s not just “I’m putting my money into something because, oh, my god, it’s the next hottest thing.” It’s because you really believe it. And at the end of the day, it’s not about who gives you the biggest pre-money valuation or whatever. You’re going to see it in the terms, you’re going to see in how fast they work together, how fast they get back to you, how much value they can add, and it requires both sides. Because an entrepreneur with too much ego, forget it, I will never invest in that. And the VC who thinks that they’re the new CEO on the board, you don’t want that either.

So, look, take capital from good folks and only invest in good folks, because, look, inevitably, a lot of things are going to go south, it’s not going to work out like we all want it to. You get one in five, one in ten, is a great homerun. We don’t hear about all the failures, but they do happen, and you got to be there for that. And let’s just remember it is about people and relationships, not about transactions and money.

ZARA ZHANG: So, we’re going to proceed to the final part of the interview, which is a round of rapid-fire questions. The first one: Who is an entrepreneur you admire the most and why?

TONY FADELL: Right now, the best visionary-operator, all-around kind of businessman, quiet, smart, everything, Jeff Bezos. Jeff, without a doubt. I watched his site go up the first time; I think it was in 1994. And to see the long-term thinking, the absolute long-term thinking there, very Chinese-like in many ways.

HANS TUNG: I’m glad you said it. That’s how we feel.

TONY FADELL: The ability to keep rolling the dice and saying, “I’m not going to give back the money and buy shares back from shareholders. I’m going to continue to invest in myself.” That’s an amazing thing to watch where it’s at. And of course, now he’s got a huge responsibility to the world. To not just show how business is done right but to show how to be done in a socially conscious manner is a whole new phase for them, because they can make a lot of great changes for the world and in many directions. So, I’m looking forward to seeing the next phase of Jeff and where he goes with that. But what he’s done in the last 20 years –

HANS TUNG: Amazing.

TONY FADELL: Absolutely. Hats off. It’s undeniable.

HANS TUNG: You don’t have to answers this question, or if you do, we’ll have to broadcast it. But everyone would think or call Elon Musk the next Steve Jobs. What do you think about that?

TONY FADELL: I think they’re two totally very different people. I’ve met and spent time with Elon, and I spent a lot of time with Steve. They are very different people.

HANS TUNG: How so?

TONY FADELL: Let’s just leave it at that.

HANS TUNG: Okay, next question.

ZARA ZHANG: What’s something you read recently that you would recommend, either a book or article?

TONY FADELL: Well, they’re two older books. Some people might think they’re older but they’re absolutely – I think about them on almost a daily basis, and a third book as well from a design perspective. But there’s from Daniel Kahneman; that’s Thinking Fast and Slow. And the other one is Sapiens. Sapiens just rocked my world. So, those two books. Sapiens is so much about society, and Thinking Fast and Slow is so much about the individual. And when you combine the thoughts in both of those books and where we’re going with societies, where we’re going with the individual, and where we’re going with the individual as a computer, an AI thing, you put those together and it’s a synthesis for helping you understand the world in a better way, to help you make better decisions as a leader for where we need to go as a society of people, and a society of people that company-evolve with machines. So, I take those.

The third book that I’d recommend—and this is only from seeing things in a different way, to get out of your space, if you can’t move to go see things differently—is a book called In Praise of Shadows. I don’t know if you know it, but it’s only a 60- or 70-page book and it’s by a Japanese author in 1930 who wrote down all of his comparisons of the old Asian Japanese world to the more Western modernized world, when things were becoming electrified and machines lights and everything were coming to Japan, and the differences between them. And you can then see like “oh my god, there’s a different way of living” and maybe the way we’re living today isn’t the most effective way. There might be some older things or some different ways of looking at things. So, it makes you rethink your surroundings and help you tune into that what is it that I’ve habituated, that I’ve kind of suppressed, that I need to go look at again and re-think of in a new light to get your mind flowing again for creative juices.

ZARA ZHANG: What do you do for fun?

TONY FADELL: What do I do for fun? I love to bike. I love to run, yoga. So, I do yoga a lot. Music, without a doubt. I can’t get enough music. Music, music, music. Concerts, going to a lot of concerts. What’s also fun now for me is watching my kids grow and going out surfing when I know the kids can surf better than me. I try, but they’re already like well past it.

HANS TUNG: That’s impressive.

TONY FADELL: So, fun for me is watching them grow, and our family grow. But the other thing that’s fun is watching these startups grow. They’re all little kids in a way, and watching them mature and watching the leaders, not just the entrepreneur, the founder, but watching the management team grow and seeing them go through different phases and you’re like “Wow!” It’s really amazing to watch. So, those are all fun things for me and I’m only doing the things I like in my life because they’re fun, because I don’t have to do anything I don’t like.

HANS TUNG: Your answer got me thinking of another question, which is, a lot of people who do well or achieve a lot in life are quite intense and operate at a faster speed. But when you try to manage a large organization, people operate at different speeds. So how do you reconcile that to get everyone moving in the right direction without burning a lot of them with the level of intensity?

TONY FADELL: It’s a really great question, but it’s all relative. Sometimes you can push too hard because that’s what you want. You also have to remember that good decisions don’t just happen fast; it does take some time. So, you can have analysis paralysis, but you also can’t make knee-jerk reactions based on gut. There are fact-based decisions and opinion-based decisions, and leaders need to know the difference.

Opinion-based ones should be made by a core team or one person and continue that, and fact-based ones, as long as you don’t get an analysis paralysis, it should be fast, and so they make a good enough decision. You know what the basis was of making that decision; you can undo it if the assumptions change. So, if you’re working 100 hours a week, 120 hours a week, no way. Look, it’s not going to happen. It’s not sustainable. That’s what happened when I was in my 20s, and I had to reboot my life because of it. I think Elon Musk is learning that right now. You can’t work that hard. You’re not going to make a decision.

So, your organization needs to move fast. You set up the main goals, they set up the sub-goals, and then they give back to you the tasks and the work product, the deliverables and the timing, and then you can negotiate over that, and you push. And what normally happens is one team says, “I can move this fast,” the other team says, “I can move that fast,” and they have to work together because there are no teams that work in the silo. So, they’re normally “push you, pull me” kind of experience as long as you have it laid out, but you have to agree on what the parameters are and those things up front. It sucks, it’s not fun, and things change all the time. But until people understand that relationship and that bonding, and that they each have to work with each other and under some kind of schedule of deliverables, that’s when the whole thing gets moving.

It’s your job as a leader to set the mission and set the major goals. Let them come back with the details and make sure you all agree. But then each team’s going to push each other, and as soon as it comes up, it’s like “You want me to get involved? I can help him push him along if you like and I will.” And if it happens enough times, then you’ll know you need to replace the person.

Or sometimes they rise to the challenge. But typically, I see if you hired well enough, people will rise to the challenge as long as you’re not, number one, overdoing it, like going too fast. You can explain your decisions. And that you’ve set up some framework for a scheduling so that everybody understands their interdependencies so everything can move faster. So, you got to have good tools to make that happen. But they all have to relatively be on the same page. If not, you’re going to find out very quickly to trim off those people.

And then the other one, when you’re at a certain enough size, is you make sure you have mentoring inside the company so that the mentor, third-party mentor—not internal—third-party mentor comes in and can then be that advocate for whichever party is moving too fast or moving too slow or whatever, to help you normalize what’s really going on, because all that you’re going to do is get a lot of people pointing to each other. It’s this blaming and blaming and blaming. And the more times I get people blaming, I always say, “Look, you can come and complain to me as much as you want. Okay, both of you, show up in my office. I’m going to make a decision that neither of you are going to like. So, you guys figure it out before you get in this meeting.”

Meetings should never be about the arguments inside the meeting unless something new happened or it’s some disaster planning or who knows what it is. Those things should be all worked out, just like a great board meeting. A great board meeting goes really smoothly because all of those individual issues got worked out well before the board meeting and the board meeting is a formality. Large team meetings are also the same way. We talk about the big things and we get through with the big decisions, not the little stuff, the squabbling.

So, that’s about being a professional and learning that and having a mentor there to help those people learn that because you really have a lot of young teammates and they start doing the old pointing fingers and everything. They don’t understand what it means to be a true professional. That’s just lack of experience in a team, but that can be learned quickly if you have the right tools and processes.

HANS TUNG: As a follow-up question, all of you in the Valley obviously believe in work-life balance, and I also thought that you can’t really make it work like Chinese speak which is, at least 996, which is the name of this podcast, which is 9 a.m. to 9 p.m., 6 days a week. That is not possible, and you think that –

TONY FADELL: No, that’s not possible.

HANS TUNG: To do innovations in the environment. But between those two kinds of arguments, where do you think truth lies and how could some of the team move fast, work hard, and still innovate?

TONY FADELL: First, they have to understand what their true value and differentiation is. If you understand what your differentiation is and the value, then you work really hard on that and you have to work double time to build it till it gets to a certain extent. There are certain crunch periods when it’s a week or two weeks where we’re all shipping something or something’s got to happen. Yes, there’s going to be extra time and, yeah, it could be 996, it could be 997, whatever it takes. But it can’t be that all the time because, again, just like you can be in the echo chamber of a city or an industry, you can be in the echo chamber of a company, and you can never get to see what reality is like outside and know what the real problems are because all you’re doing is solving, coming in, and probably you don’t even remember what your own problems are, again, inside yourself or inside your family.

So, everybody needs time to process. I always say, “Sometimes you need to slow down to speed up.” That means having the proper checkpoints, product development checkpoints, proper board meetings, the proper communications. It doesn’t mean it needs to be lots of red tape and tons of processes, but you got to slow down in some cases to be able to go faster, so that you don’t make the mistakes. And that’s about, again, experience management as opposed to “we’ll just work faster and harder and we’ll get it solved.” It doesn’t work that way. Because you’re going to do that, and like you said, you’re going to end up burning up. It’s just not going to work.

I’ve seen that a lot in startups and young managers. I also see it a lot where I’ve been in various places in China. It’s not thoughtful. You got to step on the gas and step on the brakes sometimes. And frankly, some of my best ideas and best solutions to problems have happened when I’m away from it, for just even a few hours, when I go for that run. Don’t go for a run and have music on. Don’t go for whatever and be distracted because you’re sitting there walking and you’re still on your phone. You got to have a shutdown time. It doesn’t mean sleep, and it does mean having another meeting. Literally, I call it “Tony time.” I got to have Tony time. There’s nothing. I turn everything off. It’s just like “Okay.” And I’m not thinking about, it but all of a sudden, boom! The solution to the problem shows up in your brain. People think that working harder is going to solve it. It’s not always. Most of the time, it’s not.

HANS TUNG: But the world’s increasingly extremely global. Do you worry about the mindset of Silicon Valley as being not hungry enough or not aware enough of what’s going on?

TONY FADELL: I think that people are a product of the culture they live. Just like I needed to get out of Silicon Valley after 25 years, it’s great, nothing wrong with it, but I get to learn new ways. I think that each person should understand that there’s great things about all kinds of places and there’s not so great things about that. Nowadays, because of the democratization of technology, you should go to different places and see how they innovate and see how they build their companies and how they get along. I’m not saying you got to do it much but you got to have more than one data point to know the right way to do things.

A lot of people who are in Silicon Valley for whatever ask me “What would you do right now if you were me?” And I said, “You’re in your 20s. Go somewhere, go anywhere.” Go to China, go to Korea, go to Europe. Go somewhere else for three months. Just go live there. Go see what it’s all about, build a network outside, so you get a new baseline of what’s going on around the world so you come back with fresh ideas and you’re valuable to someone. Even if you have to go back for whatever reason, you’re valuable because you have a different perspective than what everyone else says. What do colleges look for? They look for people who are differentiated. Differentiate yourself. It’s not going to happen when you’re in the same place all the time. Go differentiate yourself and go challenge yourself somewhere else, and go learn about a place or learn about a new sect or learn about a new thing. So, you come back and you’re more valuable for yourself and more valuable for other people around you.

ZARA ZHANG: Tony, thank you so much for your time.

TONY FADELL: Thank you. This is great. It’s a lot of fun, a lot of fun.

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

ZARA ZHANG: GGV Capital is a multi-stage venture capital firm based in Silicon Valley, Shanghai, and Beijing. We have been partnering with leading technology entrepreneurs for the past 18 years, from seed to pre-IPO, with $6.2 billion in capital under management across 13 funds. GGV invests in consumer new retail, social Internet, enterprise cloud, and frontier tech.

GGV has invested in over 290 companies with more than 45 companies valued at over $1 billion. Portfolio companies include Airbnb, Alibaba, Ctrip, Didi Chuxing, Domo, Hashicorp, Hellobike, Houzz, Keep, Slack, Square, Toutiao, Wish, Xiaohongshu, YY, and others. Find out more at ggvc.com.

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

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

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

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

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

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


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

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

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

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

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

ZARA ZHANG: Welcome to the show Ashley.

ASHLEY PENG: Hello Zara, hello Hans.

HANS TUNG: Hi. Good to see you here.

ASHLEY PENG: Good to see you.

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

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

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

HANS TUNG: You’re very modest.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ZARA CHANG: They’re fragmented?

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

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

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

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

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

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

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

ZARA ZHANG: Like tiger mothers.

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

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

ASHLEY PENG: Yeah exactly.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

HANS TUNG: Yeah more enlightened, more knowledgeable.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

HANS TUNG: In local school?

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

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

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

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

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


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

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

HANS TUNG: They become more independent.

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

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

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

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

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

HANS TUNG: Yeah. Very good point.

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

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

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

ZARA ZHANG: What do you do for fun?

ASHLEY PENG: I play with my kid for fun.

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

ASHLEY PENG: Pillow war.

HANS TUNG: Interesting.

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

ZARA ZHANG: Pillow fight.

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

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

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

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

ASHLEY PENG: I think both.

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

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

ZARA CHANG: Great. Thank you, Ashley.

ASHLEY PENG: Thank you.

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

Hi, Xueling, David. Welcome to the show.

DAVID LI: Thank you.

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

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

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

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

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

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

HANS TUNG: Right, live longer.

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

HANS TUNG: Sohu 搜狐 and NetEase 网易?

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

HANS TUNG: And you continued to evolve and grow.

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

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

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

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

HANS TUNG: And 90 percent to the new business.

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

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

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

HANS TUNG: Who was that?

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


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

HANS TUNG: Back then in 2007, around then.

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

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

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

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

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

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

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

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

DAVID LI: My first job was an accident.

HANS TUNG: Despite being a philosophy major.

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

HANS TUNG: Giving you a chance, yes.

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

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

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

ZARA ZHANG: In-depth feature.

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


HANS TUNG: RMB. It was paid.

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


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

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

DAVID LI: This newspaper is China News Daily.

HANS TUNG: China News Daily, got it.

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

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

DAVID LI: Because of that article.

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


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

DAVID LI: So, I got the job.

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

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

ZARA ZHANG: That’s fast.

HANS TUNG: Very fast.

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

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

HANS TUNG: Time share. What year was this?

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

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

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

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

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

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



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

HANS TUNG: IT channel for news.

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

HANS TUNG: For the IT channel.

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

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

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

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

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

HANS TUNG: SARS was in 2003?

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

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

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

HANS TUNG: Give more channels to manage.

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

HANS TUNG: Sohu 搜狐 gave you the gaming channel.


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

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

HANS TUNG: Including NetEase 网易?

DAVID LI: The last one was Ding Lei 丁磊.

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

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

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

DAVID LI: Everything.

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

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

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

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

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

DAVID LI: I liked the challenge.

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

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

HANS TUNG: That was rare.

DAVID LI: Yes, it’s very rare.

HANS TUNG: Yes, high status in Beijing.

DAVID LI: I have a Citroën.

HANS TUNG: The car, that’s right.

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

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

DAVID LI: Journalists? Four journalists.

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

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

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

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

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

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

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

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

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

DAVID LI: I worked for NetEase 网易 for–?

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

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

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

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

HANS TUNG: So you left there in 2005.

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

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

ZARA ZHANG: Were you a gamer yourself?

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

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

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

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


HANS TUNG: That’s impressive.

DAVID LI: I didn’t know the KPI.

HANS TUNG: How did you do it?

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

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

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

HANS TUNG: Comments from the users.

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


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

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

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

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

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

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

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

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

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

HANS TUNG: What were the four choices?

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

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

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

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

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

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


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

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

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


HANS TUNG: It was 2005.

DAVID LI: 2005, yes.

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

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

HANS TUNG: Okay, as in voice, messaging.

DAVID LI: We use voice, language, yes.

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

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

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

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

HANS TUNG: Different locations.

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

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

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

HANS TUNG: Be serious about it.


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

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

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

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

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

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

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

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

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

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

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

HANS TUNG: To operate?

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

HANS TUNG: The operations of the games.

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

HANS TUNG: You don’t care, yes.

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

HANS TUNG: Five times more.

DAVID LI: Actually, it’s five times.

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

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

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

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

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

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

HANS TUNG: To vote?

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

HANS TUNG: To someone else for money?

DAVID LI: No, in Taobao 淘宝.

HANS TUNG: In Taobao 淘宝? Okay.

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


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

HANS TUNG: To get the votes?

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

HANS TUNG: So the black market.

DAVID LI: So we decided to sell the vote.

HANS TUNG: On your own platform?

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

HANS TUNG: And it’s safe.

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

HANS TUNG: This was in 2009 or 2010?

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

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

DAVID LI: Just selling votes.

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

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

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

DAVID LI: It was 40 million.

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

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

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

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

HANS TUNG: Big business, yes.

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

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

ZARA ZHANG: Flowers, race cars.

HANS TUNG: Flowers, race cars.

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

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

DAVID LI: I forgot.


DAVID LI: I don’t care.

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

ZARA ZHANG: How much is the race car?

DAVID LI: I do not know.

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

DAVID LI: I do not design that business.

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

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

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

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

ZARA ZHANG: Yes, engage.

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

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

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

ZARA ZHANG: So how did you first meet Jenny?

DAVID LI: Jun Lei 雷军 introduced Jenny to me.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

HANS TUNG: Get rights to broadcast on the sports.

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

HANS TUNG: Basketball or football.

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

HANS TUNG: Online gaming.

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

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

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

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

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

HANS TUNG: Yes, make it even bigger.

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

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

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

HANS TUNG: As one big company?

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

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

DAVID LI: Yes, that’s the future.

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

DAVID LI: They know that exactly.

HANS TUNG: Right, so interesting time I had.

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

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

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

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

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

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

HANS TUNG: Okay, I remember.

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

HANS TUNG: It was a lot.

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

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

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

HANS TUNG: So what is it doing now?

DAVID LI: We closed that business.

HANS TUNG: BIGO is closed?

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

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

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

HANS TUNG: Okay, this is free internet call.

ZARA ZHANG: Livestreaming, right?

DAVID LI: Free internet calls.

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

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

HANS TUNG: It’s amazing.

DAVID LI: It’s a historical record.

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

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

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

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

ZARA ZHANG: But were you familiar with those markets?


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

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

HANS TUNG: That’s right, yeah.

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

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

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

HANS TUNG: Will you ever have YY acquire BIGO?

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

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

DAVID LI: Controlling stake, yes.

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

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

HANS TUNG: $255 million invested already.

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


DAVID LI: Combined, we raised 320 million.

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

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


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

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

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

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

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

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

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

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

ZARA ZHANG: And it’s self-sustained.

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

HANS TUNG: Yes, they get by on donations.

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

HANS TUNG: Every year, that’s right.

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

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

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

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

ZARA ZHANG: Decentralized, yes.

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

ZARA ZHANG: What do you do for fun?

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

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

DAVID LI: I have many hobbies.

HANS TUNG: You love plenty of things.

DAVID LI: Yes, I love riding motorcycles.

HANS TUNG: Yes, you do.

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

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

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

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

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

HANS TUNG: Thank you very much for coming.

ZARA ZHANG: Thank you.

HANS TUNG: We had a lot of fun.

DAVID LI: Thank you, guys.

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

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

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

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

Episode 22: Why We Invested in Yellow

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

And that saves a lot of time and energy.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

So congrats, Toby and welcome to the show.

HANS TUNG: Welcome.

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

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

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

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

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

HANS TUNG: Yeah, I remember that.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

HANS TUNG: And also help to educate the market.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

HANS TUNG: Some kind of pods or something.

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

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

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

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

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

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

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

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

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

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

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

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

HANS TUNG: That’s amazing.

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

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

TOBY SUN: San Diego.

HANS TUNG: San Diego.

TOBY SUN: Seattle.

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

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

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

HANS TUNG: There’s a lot more traffic.

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

HANS TUNG: To solve those problems.

TOBY SUN: To solve the problem, yeah.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

HANS TUNG: Super helpful.

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

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

HANS TUNG: Being a founder yourself.

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

HANS TUNG: Seriously thought about it.

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

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

ZARA ZHANG: So what excites you now?

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


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

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

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

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

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

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

HANS TUNG: Any time.

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

HANS TUNG: Very common.

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

HANS TUNG: And still very efficient.

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

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

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

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

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

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

ZARA ZHANG: It’s a marathon.

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

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

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

HANS TUNG: Perspective.

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

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

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

HANS TUNG: Work and sleep.

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

HANS TUNG: Perfect.

ZARA ZHANG: From Good to Great.

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

HANS TUNG: Makes sense.

ZARA ZHANG: What do you do for fun?

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

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

HANS TUNG: I can tell.

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

HANS TUNG: The founders like you a lot.

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

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

TOBY SUN: Like Silicon Valley.

ZARA ZHANG: Watch your life.

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

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

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

HANS TUNG: That can be huge.

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

HANS TUNG: And make a huge impact.

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

TOBY SUN: Thank you so much.

HANS TUNG: Thank you. Really enjoyed it.

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

Zara Zhang: Welcome to the show, Jixun.

Jixun Foo: Thank you.

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

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

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

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

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

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

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

Hans Tung: What year was this?

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

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

Hans Tung: Of Silicon Valley.

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

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

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

Hans Tung: Was it a Skype call?

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

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

Hans Tung: That’s 2000.

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

Hans Tung: The B2B model back then.

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

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

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

Jixun Foo: Yeah it was really 2001.

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

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

Hans Tung: Paying customers.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Hans Tung: Obviously Victor did.

Jixun Foo: Victor did.

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

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

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

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

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

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

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

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

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

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

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

Hans Tung: With Baidu’s investment.

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

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

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

Hans Tung: Tencent has that similar style as well.

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

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

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

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

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


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.


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.


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?


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.


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?


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.


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.


ZARA ZHANG: Hey everyone. Before we begin I just wanted to remind you that we have created a WeChat group and a Slack channel for you, our listeners. This is a community of people brought together by their shared interest in tech in China. Through these groups our listeners have made friends, recruited team members, and found clients.

We also organize regular offline meet-ups for this community. We had a meet-up in Beijing last month and we’ll be having another one in San Francisco on Thursday, July 26th. Details for these meet ups will be announced in our groups. To join the groups, please go to 996.ggvc.com/community and follow the instructions there. Once again that’s 996.ggvc.com/community.

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

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

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

On the show today we have Justin Kan. In 2007, he cofounded Justin.tv, a website that allows anyone to broadcast video online. In 2011, Justin.tv spun off its gaming division as Twitch, which as many people know, went on to become the leading live streaming platform for video games in the U.S. and elsewhere, which was acquired by Amazon in 2014 for about $1 billion. More recently, Justin cofounded Atrium LTS. LTS stands for Legal Technology Services. It’s a startup that’s building technology to revolutionize the legal industry and GGV fortunately is an investor in Atrium as well.

ZARA ZHANG: Justin is as a true startup veteran. In addition to starting multiple companies of his own, he’s also worked with hundreds of them as a partner at Y Combinator and has also personally angel invested in many of them. Justin grew up in Seattle as a Chinese American and graduated from Yale with degrees in physics and philosophy. Welcome to the show, Justin.

JUSTIN KAN: Thanks for having me, guys. I am excited.

ZARA ZHANG: I’ll start with live streaming. I think you’re sort of the original live streamer. In 2007 you and your partners started Justin.tv, a 24/7 live video feed of your life, broadcast via webcam attached to your head. Your live casting lasted about 8 months and attracted a lot of attention. What inspired you to broadcast your life at that time when this concept didn’t even exist?

JUSTIN KAN: It was just a crazy idea. A random, pretty bad idea actually at the time. Although I think we were onto a nugget of something popular because you know Justin.tv was before Twitter, Instagram or Facebook being popular and it was before the Kardashians, before Instagram celebrities.

HANS TUNG: There were The Bachelor and that kind of show in the offline world.

JUSTIN KAN: Yeah. There’s TV reality but there was no real reality, like I’m taking you along on my life and we thought that would be interesting. Taking someone along on this journey of your life could be interesting and then the attention could make somebody a celebrity. Unfortunately, I am not very entertaining.

And so I was a very poor test case. We should have gotten someone who was more of an actor, athlete, someone more attractive than me, maybe someone who was a musician – someone with some talents. But instead when people came to Justin.tv, which was a 24/7 live show about myself and my cofounders, they saw 4 guys sitting in an apartment programming.

ZARA ZHANG: Did you just go about your lives as usual? Did you change anything?

JUSTIN KAN: At first we tried to do more entertainment stuff, but it really fell back into mostly trying to keep our website up. And programming is not interesting. It’s interesting to do it, but it’s not really interesting to watch it because watching someone program is a lot like watching someone write an essay or watching someone watch a YouTube video or play a video game like Starcraft. The video of the person itself was not that entertaining. We tried to run around the city. Unfortunately there’s a lot of downtime.

Technology wasn’t quite there yet. It was right on the border. There was no iPhone when we tried to launch it and there was no fast mobile internet connection. We ended up stringing together multiple modems from different providers onto one computer and then send the video by multiplexing it over multiple cell phone connections. That’s how we were able to create this livestream back in 2007.

HANS TUNG: What was the first thing that hit? What was the first product-market fit that you just found with Justin.tv?

JUSTIN KAN: What happened was, we launched this show and we thought we were so cool. A bunch of people came because they thought, ‘This is a real-life Truman Show or Ed TV.’ Now, of course, it wouldn’t be so weird. But back then, people were like, ‘Why do you want to put a video of your life on the internet? That is super weird.’ So it was this big media phenomenon and then we got interviewed by The Today Show and MTV and all this stuff.

People would come and they’d show up and see us on our computers and to be like, ‘This is boring. What are you doing?’ Luckily, they would come and ask us, ‘How are you making a livestream on the Internet?’ because that was not technology that existed. So we built a platform like YouTube for live video. We launched that about 6 months later after we had launched a show and then that’s when it really took off.

HANS TUNG: That’s the product I used. I didn’t understand why it was called Justin.tv back then.

JUSTIN KAN: Right. A lot of people thought it was ‘Just In TV’, like live TV, but no, it was named after a guy named Justin. I’m a very modest guy. I’m a humble guy.

ZARA ZHANG: Did you have any idea that it was going to go on and become so big and launch a whole category or did you do it just for fun?

JUSTIN KAN: For the show itself, we thought it could be a crazy idea. Maybe it would be big, who knows. We had no idea how big it would be. But for the site – YouTube for live video – we thought that could be big. YouTube had already sold for $1.6-1.7 billion by that time. So there was an idea that video online could be valuable. So it wasn’t that much of a stretch once we pivoted to be a platform. Within a couple of years, we were at 20 million MAU on that platform.

HANS TUNG: That’s a great number – that was huge.

ZARA ZHANG: Can you tell us the story of how Twitch became a spinoff of Justin.tv?

JUSTIN KAN: We launched this site in October 2007. Technically, it was a pretty big achievement for us because nothing worked back then: the flash media server didn’t work, streaming was much more difficult, people had to install plug-ins and stuff like that. So we launched the site and then it kind of took off for the next couple of years between the end of 2007 to early 2008 all the way through around 2010.

It had done really well and celebrities started live streaming. There was other all sorts of different content: sports, entertainment, talk shows. Then it just stopped growing because it turns out that actually, not all content is good live. Only very few kinds of content are good live and most content you want is VOD – a produced video.

So we needed to figure something out because anything that’s not growing on the internet is about to fall off a cliff. Because the internet is growing. So we decided to go back to the drawing board and figure out something that we think we can invest in that could potentially be bigger than what we have right now.

We looked at what we were doing and there were a couple ideas we had. One was around mobile video – kind of like Periscope actually – but 4 years earlier than Periscope. Then the other was the gaming channel. There was a small gaming section on our site. 3% of the site was people watching other people play video games. We were like, ‘Why are people doing this?’.

The interesting thing is that back when we had our own show 3.5 years earlier, my friend Steve Huffman – who’s a co-founder of Reddit – and I had been hanging out in the early days of the show and we plugged in the camera – an analog camera – into the Xbox and we were broadcasting ourselves playing Xbox. People liked that. Unfortunately we didn’t figure it out until way later.

In 2010, people started streaming gaming content and we decided to go with it and try to make this a thing. We think this can be bigger than the existing site because it seemed like engagement was high. One of my cofounders, Emmett, who’s the CEO of Twitch today, really thought this could be something. It was the type of content that he liked.

We decided to build a small team around focusing on the product here and investing in that. Long story short, after about 6 months of working on it, we said, ‘Hey this is really working.’ It was called The Justin.tv Gaming Channel at that point but then we changed the name to Twitch and launched it as its own site and that just started taking off.

HANS TUNG: How did you decide on Twitch as the name?

JUSTIN KAN: We were debating on the name. I remember I really liked some 4-letter acronym that was kind of like ESPN. It would have had X or G or TV or something like that. I don’t even remember what it was. There was absolutely no way we were going to do that. And then he had this idea of calling it Xarth. The domain was purchasable. I think we bought it for a couple thousand dollars. That was the placeholder name, the secret project name. So he was going to call it Xarth and then a few days before launch he found the site Twitch.TV. Twitch, like fast twitch muscles. It sounded like gaming. At that point, everyone had argued so much I think he was just like, ‘OK, whatever you want.’

ZARA ZHANG: How were you making money for your original live streaming product?

JUSTIN KAN: The original Justin.tv was very advertising-supported and it was all pre-roles but we also had this cool thing that were mid-roles that the broadcaster could trigger. So if you were doing a live podcast or something and you wanted to take a bathroom break, you could trigger advertisements and then go to the bathroom. We thought that was a huge innovation – which it was at the time. It’s still a thing today at Twitch, but now Twitch is more and more like the Chinese sites: it’s more direct user donations, virtual goods.

HANS TUNG: You guys have 4 cofounders. First of all, why so many, and two, how do you figure out how to make decisions?

JUSTIN KAN: That’s a great question. We made decisions incredibly poorly. Now that sounds like a joke but it’s not a joke. There’s probably a lot to talk about, in how that’s affected my subsequent companies or Atrium today, which had a lot of cofounders. Back then, we didn’t know anything. These are 4 22 year old guys who started the company as friends. We didn’t know anything about management. Nobody had ever worked at a real job before. Michael, who was the first CEO, had actually worked at a job but it was a political campaign and you can imagine that they don’t have the best management structure or training. So we have 4 guys and we got together and we made all of the important decisions by arguing among 4 people.

Emmett was the CTO. Kyle was the V.P. Engineering. Michael was the CEO. I was Chief Product Officer, but we made every important decision together. That is not a good way to do things. You need to trust. You need to delegate. You need to have division of labor. But we didn’t do that because we didn’t figure out how to do that until we pivoted to Twitch. We also incubated this other project called Social Cam. We couldn’t even decide what to pivot on. We pivoted to 2 things: Social Cam and Twitch. Social Cam eventually spun out. We sold it to Autodesk for $60 million. But that is ‘defies all odds’ type of thing.

HANS TUNG: Despite all the mistakes you made, you actually had a pretty good outcome. Two of them.

JUSTIN KAN: But this is not a good way to run things. So it took everybody going off on their own in order to have their own domain. Which is sad because we were in a lot of ways, a great team, but it’s not sad because everybody has done super well. My co-founder Kyle ended up starting a company with my brother, called Cruise Automation that is building self-driving cars.

HANS TUNG: I met him before he sold it to GM.

JUSTIN KAN: You should have invested!

HANS TUNG: Everyone thought it was a bit too early but Kyle is interesting.

JUSTIN KAN: They’ve done incredibly. They sold to GM and just raised $2 billion from Softbank. Incredible story. So truly, there was a lot of talent in this one organization but it took a little time to mature into like leadership.

ZARA ZHANG: Why did you still have so many cofounders for your current company if that didn’t work out before?

JUSTIN KAN: It did work out but now there’s a lot more delegation and ownership of specific roles. Our cofounders who’s the CTO is really in charge of the tech. I’m not micromanaging and saying ‘Let’s make this technical decision or this product decision.’ We have a co-founder who’s really in charge of the legal side. I don’t actually even know certain things about our legal, like who our clients are. I’m not managing at that level.

It’s much more about creating actual metrics of accountability and then saying ‘Go hit these metrics. I’m going to trust you. I’m going to give feedback, I’m going to be a resource to you if you need feedback on your plan. But I’m going to trust that you are handling this domain.’ We have a co-founder on the operations side and then one also on the marketing side.

HANS TUNG: We’ll talk in more detail about Atrium. Still on Twitch, Emmett is the CEO. When you guys decided to sell the company, $1 billion is an amazing outcome obviously. Did you ever look at how this sector is evolving in China and how virtual items have become such a great way to monetize. Did you ever think about how the site could have been more than what it is today?

JUSTIN KAN: I’ll tell you two things. The site obviously could be more and has become more. When we sold it, we were 55 million MAU and that’s a lot. But at the same time, at that level, it was very hard for us to raise capital because most investors at the time did not understand it. If we had talked to more probably Chinese investors, actually they would have understood it and in fact we had money from Chinese investors. But Sand Hill investors did not understand this industry. Of course one year later they all were investing in eSports or whatever.

But the point is nobody understood it so we thought $970 million was a tremendous amount for it. About 8 months ago, I tried to sell some secondary for $200 million and got a lot of declines. So we thought it was really good. Afterwards, obviously it’s become a much greater success since that.

In the year following the acquisition, all the metrics doubled. The company hasn’t released much recently in terms of metrics, but the company’s grown to almost 1,500 people. Now it’s based in San Francisco. They’re opening up their own 9-story building. It’s a tremendous success. I was just looking at Alexa for the first time in years and they’re the #12 website in America now. So obviously there was a lot of headroom but unfortunately, we weren’t able to really convince capital sources to fund it as an independent company. But you can’t be too sour about that.

One interesting conversation we were having during the process of selling in 2014 over the summer, was on a conference call among all the board members. Everybody said we should sell, this is a great deal. One of our board members, Chris Pike, formerly of Thrive and now doing his own rumored thing, was like ‘No, don’t sell.’ We were all silent on the call, like ‘Why? What do you think it could be worth?’ Because you think of this market as not that big of a market. We don’t know, but how big could it be? And he was like, ‘I don’t know. $3-4 billion? More?’ Everybody was just silent. Nobody wanted to be like, ‘You’re crazy.’ so everyone was just silent on the call. And then we just started talking about something else.

Chris was the only one who was right. It was fun though. Such an amazing adventure.

HANS TUNG: We’re an investor and my colleague Jenny Lee is on the board of YY which started as a game commenting site back in 2006. Today it is a $10 billion mobile video site for gamers and it’s just spun off something that’s live streaming for gaming. Huya, on its own, is also a $2 billion market cap company, both listed on Nasdaq. It’s hard to imagine in 2006 that as a game commenting site that’s $30 million and it’s just so hard to believe back then that it could be a mainstream thing. You can see today that you could be bigger than most of the sports activities.

JUSTIN KAN: Absolutely because everyone’s playing videogames out there.

HANS TUNG: My 10 year old daughter’s on it all the time. She spends a lot more time on gaming than I ever did on sports when I was her age. You see the time spent – it’s almost the #1 activity for kids now.

JUSTIN KAN: That’s probably not good, but…

HANS TUNG: I tell myself it’s good for her to be a good programmer or designer later.

JUSTIN KAN: I think the gaming helps with their analytical reasoning and stuff like that. I definitely think it did for me when I was a kid.

HANS TUNG: And teamwork.

ZARA ZHANG: Were you a hardcore gamer?

JUSTIN KAN: I was probably. I was playing Counterstrike and World of Warcraft and Warcraft 3 when I was in college. Probably spent a little bit too much time playing. I actually did lose a lot of time to playing games. But then once we had started Justin.tv, it actually went down a lot because business and start ups are kind of like its own game. A very stressful and horrible game to play sometimes.

ZARA ZHANG: What was it like to sell a company to Amazon? What was that process like for you?

JUSTIN KAN: I didn’t really do most of the work because by the time, Emmett’s the CEO, I’m just on the board. I think for them it was very stressful. For any acquisition process, it’s very stressful. I think Amazon Corp Dev is one of the most disciplined in Silicon Valley. I think a lot of other companies get caught up in hype, in ‘We need this for strategic reasons.’ Amazon, out of all the companies I’ve seen or through investments we’ve sold is the most disciplined.

HANS TUNG: Meaning that they won’g overpay. We have sold companies to Amazon before. All the things we learned from how Facebook acquired Instagram and WhatsApp because if it works out it’s a lot bigger than they can imagine. If it doesn’t work out, it doesn’t matter how much you pay.

JUSTIN KAN: There’s two types of companies that are good at acquisition: the ones that are really truly strategic and visionary, who are making visionary bets, and then there’s the type that are more really disciplined. That works too if you’re truly truly disciplined. I think the people who really struggle are the ones in the middle who are kind of half and half and then they lose important deals because they were too tight or they overpaid for things that don’t matter.

HANS TUNG: People forget that we’re about 3 billion internet users worldwide now. If something does work, it will be massive. If it doesn’t, it doesn’t really matter how much you pay because you wasted it already. And if it does work, you’ll make up for most of the losses.

JUSTIN KAN: Absolutely. You’re riding the world’s biggest wave right now.

ZARA ZHANG: A report last year found that there is now a bigger audience for game video than audiences of HBO, Netflix, ESPN, Hulu combined which is kind of crazy to think about. Did you imagine this would happen or were you surprised when game streaming took off?

JUSTIN KAN: We were surprised how fast it was growing, the game streaming, in the early years. It doesn’t surprise me though. Back in 2007, the gaming industry passed the movie industry. That was a big thing. All these entertainment people were like ‘What the fuck’ nobody saw that coming. OK, well when you do MTV Cribs, you see that every athlete has an Xbox. That makes sense to me.

I think it was pretty obvious that gaming video was going to be a huge thing. It was already the #2 category on YouTube by the time we started Twitch and then 1-2 years in, it was the #1 category on YouTube. So it was not a big surprise. It’s actually a surprise that it didn’t happen earlier.

HANS TUNG: In China at the same time – 2006, 2007 – gaming was already the #1 monetization method for internet. It was bigger than e-commerce, it was bigger than advertising. Shengda and NetEase were both churning out games and then Tencent got into it. Now, 10 years later you see Tencent everywhere from Riot Games to Fortnite to Supercell. It’s amazing to see how big the industry has become.

ZARA ZHANG: What was it like to have this whole startup journey as an Asian American? How aware were you of your identity and did that change things for you in any way?

JUSTIN KAN: That’s a good question. I grew up in Seattle and I didn’t speak Chinese at home. I went to a small private high school, University Preparatory Academy, with mostly white kids. I never really thought that much about identity and my ethnic identity. At Yale, I had joined the Chinese American student association – the club – and that was cool. But I think it is a little bit different from a lot of people who grew up maybe in California or the Bay Area or something where there’s a lot. In San Francisco, it’s like 33% Asian American or Chinese.

In the industry, it didn’t feel like – in my YC network or whatever – that there were not that many Asian American founders. Although I think actually if you look at it statistically, there weren’t that many – it was about 10% of YC, but it felt like it was 30% of YC or something like that. I didn’t really feel like it changed things very much.

HANS TUNG: What was your first reaction when you went to China?

JUSTIN KAN: Before the last time I went to China, it was 2002. So when I went to China in 2002, they were about to open Three Gorges Dam. I did the cruise down the thing and it was rural. I thought China was a developing world. I went back last year in December 2016 and I was like ‘Oh my god. This is crazy. This is different world altogether.’.

I feel that way a little bit because I’m not taking that many frequent trips to Asia. I’m probably going once a year but it’s a different place. I’ll go to Jakarta or Singapore or Seoul and it’s amazing how all of these places have better infrastructure than America, better taller buildings, more buildings, worse traffic unfortunately. The world has changed so much. I think it’s super interesting. I wish the climate in Asia were better – I’d consider moving.

HANS TUNG: We’ll get through it. London went through it in the 1950s. Tokyo went through it in the 1960s. It’ll get better but it takes time.

JUSTIN KAN: I was blown away. Also by the work ethic and innovation that’s happening. It’s pretty obvious now. If you came to America in 2014 – that’s when a lot of Chinese investors started investing in Silicon Valley – and people were wondering where this money is coming from, what’s going on.

And if you had told U.S. investors or founders that the innovation is actually coming in from China, they’d say ‘You’ve got to be kidding me.’ Now you see obviously the dockless transportation models coming here. A lot of AI innovation is happening in China. The balance of innovation is shifting pretty rapidly. You should be pretty scared if you are an American patriot. At the same time, we’ve taken a lot of things for granted. We take immigration of skilled labor for granted. We should be trying to get every single engineer from around the world to live here and to stay here. We should be giving incentives. Because just look at the numbers: the bell curves of the populations might look the same, but China has 1.3 billion people, American has 330 million people. It’s just not competitive.

HANS TUNG: The number of STEM grafts this year is 4.7 million for China, just under 600,000 for the U.S. Obviously quality matters, but over there, people are just as smart, work twice as hard and there are a lot more of them – you do the math.

JUSTIN KAN: You don’t have to be a math major to draw the rest of the curves and where they intersect. I just feel like people are going to be very surprised at how fast change happens, especially in the global balance of power.

HANS TUNG: On that note, a couple of things. One, we all say competition is good and when there’s real competition that’s when true colors come out. Do you really want to learn from competitors and get better? Or do you want to sit around and bitch and try to keep them down. That’s a decision that the U.S. has to make.

Secondly, if you look at the way that Chinese startups started, they try to turn everything into a math or engineering problem. What is the end goal? Where are we at? How do we go from A to B? Just work backwards: what has to happen for this to happen? So the time it takes to scale is actually faster in China because the end problem is clearly defined. How you guys started with Justin.tv and Twitch – you tried to innovate and try to get to something – is a lot more creative and anything could happen, but it takes more time.

JUSTIN KAN: Absolutely. I think there are merits of both sides and you probably want to figure out ways that you can combine both.

HANS TUNG: That’s part of the reason why I wanted to do this podcast and interview you as the first Chinese American on the show. To share more of different ways to scale, to come up with a problem to solve, how to get the right product-market-fit so that both sides can learn from each other. It’s an open platform: whoever learns faster from both sides will win. We hope there will be more of an American audience listening to this as well.

JUSTIN KAN: Absolutely. A lot of the criticism from when I started in Silicon Valley back in 2006 through 2010 or 2012, was that the Chinese were just cloning everything. Now I think people are clearly like ‘Oh that’s not the only thing.’ But even if you think that Chinese people are culturally less risk-taking, less innovative, there’s still 4x as many people. So you could be 1/4 as innovative. Only 1 in 4 people could be as innovative as an American person and you’d still be competitive. People should think about that.

ZARA ZHANG: How do you grow from someone who is very creative and cool and from a hacking culture, just trying to build things into a manager or someone who can run a team and run a company?

JUSTIN KAN: That’s a really good question. When I was young, I felt like experience was worthless. Because Silicon Valley has this myth, this legend, of: we just get a bunch of smart young people who are sleeping in a tent in their living room and they just make something amazing and then BAM – Snapchat, Twitter.

But the reality is, Twitter is a great example. Look at the scaling of Twitter. Its growth was massively stunted by the downtime for years and years. And what I realized over time, experience can be really valuable. Especially around management stuff. The thing that I didn’t realize when I was younger was in Silicon Valley, I thought you had to rethink everything or rebuild everything from first principles. But not everyone’s Elon Musk.

Mostly, you just needed to innovate on 1-2 things really well and have a 10x on 1-2 axes and then the rest of stuff, you should just do the best practice – whatever they did at Google or Facebook. You don’t have to innovate on your HR or recruiting, you just need to do the top level. That’s something that I didn’t really realize.

You can hire people who have experience and bring them in to do excellent work. We did that at Twitch actually, years later. 6 years later after we started, we brought in Jonathan Simpson-Bint as our Chief Revenue Officer. He had built gaming ad sales teams before for IGN – he was a co-founder for IGN. He knew what to do and just plug and play and boom, this guy already hires his sales team and then start ramping revenue.

So we started learning that you can hire these leaders who have experience who can execute. That’s a big thing to realize. If you’re young, you might have really fresh, innovative ideas that change the culture, but you can have other people with more experience help you execute.

HANS TUNG: How do you figure that out early?

JUSTIN KAN: I don’t know. If you figure it out early, that’s how you become super powerful. That’s how you become Evan from Snapchat. Or Zuck. Most people struggle with it and get a middle outcome.

ZARA ZHANG: You’ve seen and advised hundreds of startups. What’s the most common mistake that you see in founders and what do you tell them?

JUSTIN KAN: The most common mistake I see in founders is that they’re not focused enough. Companies always need to focus as much as possible. That’s super hard to do. I understand the temptation. I’m always tempted to go as broad as possible. I think focus is really important.

Second thing is that people give up way too easily. Now that startups are in fashion, it’s a job, like a kind of career. Lots of people try it and then they just give up after a year or whatever and go do something else. I don’t think that great companies are made that way.

HANS TUNG: They value their opportunity cost as too high. And therefore they think it’s not working out, they should do something else.

JUSTIN KAN: It kind of makes sense because in technology now, the salaries especially in the Bay Area are insane. So your opportunity cost may actually be high.

Other mistakes that people make? It depends. It depends on what kind of company you want and how much risk you’re willing to take. But a lot of people – once something is working, they go too slow. They don’t hire the best execs they can to help them scale. They’re scared to let go of things. They’re scared to overspend, which is reasonable in some ways, but it also can limit your growth.

HANS TUNG: I notice a lot of founders underestimate how important is to have their drive, their passion to be the guiding force of culture in the firm. They always worry if they hire somebody too experienced, their VCs will replace them with someone who’s more experienced. What a lot of founders don’t knows is that you can hire experienced hires. But they will never have the vision and the passion you do to continue to expand the business and pushing the envelope. So if you just focus on doing that well and pushing the executives you hire, you can build a much bigger company.

JUSTIN KAN: Absolutely. You must learn to manage and you must learn to scale. Very quickly, after your team is probably more than 5 people, the marginal effort of your work – your direct individual contributor work – like you programming, you doing sales, whatever it is is – is very low. Now it’s 20% of the company. If you have a team of 25 people, it’s 4% of the company.

If all of your effort in the entire year is 4% of the company, if you just spend your time affecting people’s work product, you only have to make people more than 4% more productive through your management in order to equal know how much individual contributor work you’d be doing. So your ability to manage people is your leverage. And I think people go into that mode too slowly. Once they have product-market-fit when something works.

ZARA ZHANG: Let’s move on to talk about Atrium, your current venture. Can you tell our audience more about what the company does?

JUSTIN KAN: Sure. Atrium came from my problems, my experiences as a founder with legal. I was an involuntary power user of corporate legal services. Every time you want to do any major business transaction in America, you pay lawyers: when you’re raising funds, if you’re doing M&A (we did big M&A obviously), litigation. For all of this, you need to hire lawyers. I loved the lawyers that I had who basically gave me expert advice based on their expert knowledge.

But there were a lot of experiences where I felt like it’s cookie cutter stuff, crank-turning work, and I wondered why they aren’t using more software to deliver services, to automate things, to streamline the flow of information. Lead law firms out there in America don’t even use project management software. They don’t use Trello or Asana. They don’t use CRM software for their clients.

I sat down with an attorney and I had been a client of their firm for 6 years with Twitch and she didn’t even know who I was. That’s weird because this is a $700 million a year business and you didn’t even know that I was a client. That’s weird because the level of professionalism compared to a normal enterprise sales organization is just not there. There’s a bunch of reasons the industry is like that.

Our goal with Atrium was to change that industry. We’re making it better for founders and we’re making it better for attorneys and paralegals as well. We want to make legal streamlined. Atrium is a top tier technology-enabled law firm that delivers legal services to founders. We make it streamlined, faster, more transparent and we make pricing much more upfront so you can know what you’re going to pay.

For our attorneys and paralegals who come from top firms, our goal is to make things easier for them and to automate all the low-level work so that they can focus on the high-level advising stuff, which is what people want to do. You didn’t go to law school to crank out signature matrixes or to put together the first version of a boilerplate doc.

HANS TUNG: And on top of that, lawyers know the cap table. Every time we do a fund raise, you can wait for shares to be issued and stuff, but the lawyers know exactly what’s going on the cap table and that’s super powerful. You can imagine other services can be rendered by having that information.

JUSTIN KAN: Absolutely. So what we’re doing is we really think about that we’re building as a platform where we take legal documents, we turn them into structured data so we can, for example, read all your financing docs, understand who are the owners of your company. And then from there, we can do things like we can produce and render a cap table. Or we can make that data accessible in other ways back to the business owner. And so I think that’s the super valuable thing that we’re doing and I’m pretty excited about it. It’s only been a year. We launched in June 2017 so it’s been exactly a year and things are going pretty good so far.

ZARA ZHANG: Last year you guys raised $2 million in your Series A from over 90 investors, GGV being one of them. Why did you decide to do such a party round with so many investors?

JUSTIN KAN: I just wanted to throw the biggest party biggest party ever. So a party round in Second Valley is kind of what happens now. I think the same is true in China. Someone will go and they’ll raise money from the dozens of investors, usually angels and maybe funds for their seed round.

We chose to do that because we wanted our investors to funnel us portfolio companies, business. It’s worked pretty well so far, so we’re pretty happy with the results. Another thing is legal is something that people don’t necessarily want to take a risk on. We didn’t want investors to say ‘Hey, don’t try this service.’ Even if they just had been familiarized with us, it helps.

ZARA ZHANG: What has been the progress so far in terms of providing the actual services?

JUSTIN KAN: We’ve done work for over 240 clients so far. We’ve helped those clients raise over $400 million in the past year.

HANS TUNG: How do you do that?

JUSTIN KAN: We do a couple of things. We obviously do the legal around their financing. We also have this bootcamp called Atrium Scale where we teach people how to fundraise. One of the things we realized through the course of operating Atrium is that a lot of founders come in and they want help with the process. You and I are very experienced because we’ve done it so many times. A lot of guys are coming in and they just don’t know what to do. You see more and more technology companies coming from outside the Bay Area now because of the cost of living is so high here, but they don’t necessary have the connections, they don’t know what to do. So we put together a program that’s a 2-day long bootcamp for free for founders to teach them how to raise money. We help them work on their deck and their narrative.

ZARA ZHANG: Are most of your clients first time founders?

JUSTIN KAN: No, many of them are multiple time founders or we have clients that are later stage companies, like 200 person companies and stuff like that. But we do have a lot of first time founder clients as well.

ZARA ZHANG: So there’s an education component too.

JUSTIN KAN: Yeah absolutely. One thing I learned from YC is, how did YC scale? They built a lot around education, around free content out there in the market, events and community. I think that one of the things that we can do here for Atrium being a platform for companies, if I think about Atrium’s mission, it’s really to help fast growing companies and provide them with services and applications that help them grow even faster. So how do we do that? Well I think education and community and teaching people how to run companies and information that they need is a way to do that.

HANS TUNG: So founders can go to YC first, once they get funded, they can come to Atrium for the next phase in their growth stage.

JUSTIN KAN: Absolutely. I would love to be able to help founders in that way.

ZARA ZHANG: It’s been 12 years since you started Justin.tv. What’s one thing that you wish you knew when you were just starting out?

HANS TUNG: Knowing what you know today.

JUSTIN KAN: Knowing what I know today, I would have just sold it to Facebook in 2006. Besides that, I think that when you have something that is a market category leader in a growing category, I think Ben Horowitz says it, don’t sell it.

HANS TUNG: Besides that.

JUSTIN KAN: Okay. Besides that, I think we could have been much more effective if we had implemented actual management in the early days of Justin.tv and going through Twitch and done a couple of basic things – maybe hired senior leaders. I know it sounds so cliche to be like, ‘Oh just hire the gray hairs.’ But having some more senior leadership, structuring the company where there’s more division of labor among the cofounders, where we were metrics driven, goals driven. We never were like on OKRs or anything like that. I think putting in some of these management tools.

HANS TUNG: So having workshops around that will be helpful for your founders then.

JUSTIN KAN: I should do that. For Atrium, we should have an OKRs workshop because I think it’s super important. Understanding that management isn’t a job right. It’s not something that’s supposed to make your life not fun as a startup. It is a tool for you to be more successful. It’s a collection of tools for you to be more successful. I always thought that management was a dirty word because we were supposed to just hack on something until it was like Facebook or whatever. We didn’t really realize how like the working world works. And I think that’s the benefit of actually having a job before you start a company, which we never had.

ZARA ZHANG: Hans, I’m curious on your perspective on what Justin said about if are a category leader you should hold onto it. Do you think that applies in China too? Or is that a different story.

HANS TUNG: I think in China, most people know that from early on, just so many sectors got disrupted so that if you have a category leader, they never, never, never sell. What has changed in China is now you see industry consolidation. So #1, #2 player fight for 3 years as hard as they can, raise as much money as they can, to figure out who’s better than figure out a way to merge so they can own more of the world. And the one who sold out ends up becoming a great angel investor. So now you have best of both worlds: you have more angel investors that are more professional, have experience going through that scaling experience and you also have a much bigger outcome in the original category. So it’s win-win.

ZARA ZHANG: We recently saw Mobike being acquired by Meituan and sometimes I guess the business is just hard to be a stand alone business depending on what you’re doing, it can be hard to be a stand alone business.

HANS TUNG: You look at the unit economics and after a while, you figure out that it is hard to be stand alone. If that’s the case, then finding the right home for it would be great. We were investing in musical.ly, helped musical.ly figure out a way to scale and then encourage them to – when they want to merge into someone else – find a great home in ByteDance so that works out very well for both sides.

ZARA ZHANG: Let’s move on to the rapid fire questions. Who is the entrepreneur you admire the most and why?

HANS TUNG: Someone who’s older and someone who’s younger.

JUSTIN KAN: Everybody probably says Elon Musk. So I won’t choose Elon Musk. I mean I do admire Elon Musk and I think I admire him because he’s always looked so stressed out and he has so much pain that to keep doing it despite the pain? That, I admire. That is a guy who is not enjoying his life. I respect that because he’s doing it for the mission, for the good of humanity even at the sacrifice of the self and that is truly incredible.

HANS TUNG: He might not view it as a sacrifice.

JUSTIN KAN: Maybe that’s right. I hope that’s the case. But the person I would say actually if I can’t choose Elon would be Brian Chesky. Brian is someone I’ve known their entire journey through Airbnb. They used to come by our office across the street in the early days because we were one step and then they rapidly eclipsed Justin.tv and then Twitch. I admire Brian because he always is learning. He’s always trying to level up from somebody who’s a couple of steps ahead and finding mentors. That has inspired me here at Atrium. I’m always like, ‘How do I level myself up?’.

The reason I started Atrium is that I want to build a company bigger than Twitch which is a very high bar. And in order to do that, I’m going to have to continue to be self-aware and level myself up and figure out what I am good at and what I’m not good at and work on improving my strengths and maybe complementing my weaknesses. Really a lot of that’s inspired by Brian. I have a lot of respect for what he’s done to build his company.

There are two younger founders I respect immensely. There’s an obvious one and a non-obvious one. I’ll just go with the obvious one. First, Patrick Collison from Stripe. He’s such a genuine, good person. Who can’t respect that? He’s also very curious. I think his curiosity drives him to really build a company that embodies that. I think with Stripe, there’s so much on the technical excellence side and really investigating the technology side that you can kind of just tell that that’s in the spirit of the company and obviously that has driven massive success.

Maybe the not obvious side, someone I really admire is Daniel Gross the co-founder of a company called Cue which sold to Apple 4-5 years ago. He was very young when I met him. He was maybe 18 years old or something like that. I was just like, ‘This guy is one of the smartest people I’ve ever met.’ He’s just so smart and not just smart on the side of intelligence and technology but he’s also very connected in Silicon Valley, has high emotional intelligence, has been able to like build an amazing network here in Silicon Valley. Now he’s a partner at Y Combinator, is running this AI grant program as well. I always feel like when I talk to Daniel, I’ll learn something.

It’s funny because I would go to him and I’ll go to him and I do for Atrium and I ask him for feedback and advice on my business ideas and plan. And there’s not that many people in Silicon Valley including many of investors who I’m like, ‘Actually that’s the guy I want to talk to.’ And he how much younger than me? He’s probably 8 years younger than me. So that’s amazing to me.

ZARA ZHANG: What’s something you read recently that taught you a lot?

JUSTIN KAN: Something I’ve read recently that I think was really great was this book called The Elephant in the Brain by this guy Robyn Hansen who’s an economist and another guy from Silicon Valley, a programmer. This book is all about the hidden motivations in human behavior that we don’t actually want to talk about.

One of the things that I remember from the book was that brand advertising works not just because it’s brand advertising and you see it so you get that exposure, but it’s also because when you know other people have seen it. So BMW advertising as a luxury brand works not just because you see BMW and you see this cool ad and you think “BMW is cool”, but because you know other people have seen that.

So you know that BMW has a luxury place in their minds. And so that means that basically if you buy BMW then you get that value of knowing that all these other people think it’s a luxury. So I thought that was an interesting observation and it was something that I haven’t thought about. The book is filled with examples of that. And so that was pretty fascinating.

ZARA ZHANG: What do you do for fun?

JUSTIN KAN: Great question. I have a place up in Sea Ranch, California on the California coast and go up there and I ride my ATVs around and throw axes and go on hikes outdoors.

ZARA ZHANG: All right thank you so much for your time. This was fun.

JUSTIN KAN: All right thanks for having me.

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

ZARA ZHANG: GGV Capital is a multi-stage venture capital firm based in Silicon Valley, Shanghai and Beijing. We have been partnering with leading technology entrepreneurs for the past 18 years from Seed to pre-IPO. With $3.8 billion dollars in capital under management across 8 funds, GGV invests in globally minded entrepreneurs in consumer internet, e-commerce, frontier tech and enterprise.

GGV has invested in over 280 companies with 29 IPOs in 22 unicorns. Portfolio companies include Airbnb, Alibaba, Ctrip, Didi Chuxing, DOMO, HashiCorp, Hellobike, Houzz, Keep, Slack, Square, Toutiao, Wish, Xiaohongshu, YY and others. Find out more at ggvc.com.

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