China’s mobile, savvy millennials and Gen Z youngsters mostly in their teens, twenties, and thirties, who make up more than half of China’s population compared to one-third in the US, quickly take to all kinds of new techie ways of doing things.
China’s going to each SV’s lunch. It does not make me happy to say that. Pick any single area you want, China is ong the right side of the equation. You can argue some of it is because of government protection but at the end of the day, entrepreneurs work harder in China than in the US; there is equal amount of money; 4 times the population; and 4 times the domestic consumer market as that market becomes middle class.
If things don’t change, the scale of the market, the number of graduates, every single aspect of the infrastructure that China has put together, in 10 years we will be talking about, “how do we save the entrepreneurial spirit in SV.”
China’s clean and contemporary CBDs make hubs in NYC, SF, and LA look dirty and dated.
No other country in the world can match China’s startup zeal. Founders in Beijing, Shanghai, Hangzhou, Shenzhen, and China’s tier-two cities are tireless, persistent, and driven to succeed. No fear of failure here; it’s fear of missing out.
Startup teams in China routinely work 12hr/day, 6 days a week, or “996.” It’s a reminder of SV all-nighters during the late 1990s dotcom boom when China’s entrepreneurial bloom was only percolating. “China and US are at different points of economic development and motivation. China’s entrepreneurial culture does make SV look sleepy.”
China’s gains in national R&D spending to $409B, catching up to the US at $497B, and predicted to soon surpass the US.
Huawei’s 5th-placed spot worldwide in R&D investment, ahead of Intel and Apple.
China is on a tech upgrade that will challenge the West for leadership of the global economy for the for the coming decades just as America dominated the industrial and information revolution in the past century. A shake-out will occur if SV doesn’t recognize and respond to these leading signs of a massive power shift. While the US is king of the tech hill, other SVs have sprung up in Tel Aviv, London, Bangalore, and elsewhere — but most powerfully in China.
Trade policy won’t fix the fact that China is investing heavily in tech R&D and education, while the US is cutting.
China now represents about one-third of exhibitors at the mega annual CES show. Most of China’s top executives speak English fluently, while the reverse is not true.
Meituan attracted $53B, while shopping app Pinduoduo took only 3 years to go from zero to a $24B IPO in NY.
The BAT have the best of both worlds. These 3 companies have scaled up in their protected home markets with little overseas competition, tapped the Western capital markets with IPOs, and used the money to bulk up with billion-dollar acquisitions and chunks of the most promising, innovative tech companies, in effect paying a large tuition to gain knowledge on what makes SV tick.
They did become very rich — among the richest in the world — initially by copying. Baidu’s Li unabashedly copied Google and won the Chinese market.
Tencent has to recapture the entrepreneurial spirit and creative juices that turned WeChat into a multifunctional superapp but missed the short video phenomenon grabbed by newcomer TikTok. Tencent must also reset its main gaming business, which got caught up in Chinese regulations.
New rivals are ready to pounce on China’s BAT companies if they slip up. But it won’t be easy to penetrate their league. The clubby network effect in China is just as strong as it is in SV. Similar to PayPal’s so-called mafia, that BAT trio and their alumni represent 42% of China’s venture investment, 1 in 5 top Chinese startups, and 30% of funding in Chinese startups.
Google’s app store is blocked, and Apple Pay has such limited traction that Tim Cooked agreed to accept Alipay at Apple’s 41 retail stores in China. Mastercard and Visa have tried for years to break into China while Amex was recently approved, but it’s probably too late. China has bypassed credit cards just as it did the PC for mobile phones and retail stores for online commerce.
Though compared to Spotify, Tencent Music’s 800M monthly users outsized the Swedish company’s listeners by more than 4 times. But for paid subscribers, Spotify’s 83M beat Tencent Music by 3 times. No matter — Tencent Music is profitable but Spotify isn’t.
WeChat mini-programs reached the 1M mark — half the size of the Apple App Store — and 200M daily users in less than 2 years of introduction in Jan 2017. The mini-shops across 200 service sectors blend content, ad units, and commerce seamlessly with links to sales products that can only be accessed within WeChat.
Its efforts to enter Japan in 2007 with a Japanese-language search engine, which has similar characters to Chinese, ultimately lost out to stronger international rivals Google and Yahoo!, leaving Baidu to exit the market in 2015.
There is no aspect of technology that is not of interest to the BAT.
The potential is huge: Asian startups typically lag China in development by at least 5 years. The gap creates a good opportunity for Chinese investors to profit from investing in next-generation tech stars in Asia.
Baidu has pumped loads of capital into AI startups in the US with technologies for deep learning, data analytics, and computer vision. Having missed out on the social mobile and e-commerce waves of the past few years, Baidy is trying not to repeat the same mistake by going all in on AI, on all fronts.
The investment outreach is also a shield against downturns from any further regulatory turmoil in the gaming sector. Tencent has made over 700 such investments and has a good track record.
This long string of acquisitions and deals that Tencent has made has led some observers to conclude that this tech giant has lots its dream and passion for innovation. “Tencent is ignoring the core competitiveness of a technology company that should come from product innovation.”
Xiaomi operates in 3 key business sectors. Its smartphones preloaded with dozens of music, video, and gaming apps, are well known in Asia, used by 190M monthly users. What’s less known is that Xiaomi also makes and sells a wide range of internet-connected devices, like laptops, TVs, speakers, routers, rice cookers, vacuum cleaners, fans, and air purifiers. Additionally, Xiaomi runs e-commerce site Mi.com, and operates Mi retail stores that carry its array of household and lifestyle goods in Asia and Europe. This wide network of merchandise and services sold online and offline is not so easily replicated.
Their formula: affordably priced phones to drive adoption, razor-thin profit margins, and continual updates based on customer and developer feedback. They didn’t spend tons on marketing and advertising, relying instead on flash sales, word-of-mouth endorsements, and direct sales to customers in limited quantities — nothing like the iconic and flashy TV commercials for Apple.
A micromanager much like his hero Jobs and a tireless worker who puts in 100-hour workweeks, Lei led his team to a remarkable comeback in 2017. His turnaround strategy: Xiaomi invested heavily in expanding his Mi Home retail stores to more than 331 outlets across 51 China cities within 5 quarters, added retail to India to integrate with previous online-only channels, and broadened the distribution network to third parties. He and his team put in the hours — “007,” a reference to all hours every day of the week — to make it happen.
Within 2 years of its start, Xiaomi’s annual sales exceeded $1B in 2012. By 2014, Xiaomi’s sales soared to $10B, and it overtook Samsung, Apple, and Huawei to become the leading smartphone brand in China. But within 2 years, sales of Xiaomi phones dipped and its rank slipped to 4th place in China. The problem stemmed from lack of retail distribution and supply-chain shortages.
At first glance, Xiaomi may seem like a hardware company only with smartphones and smart TVs, but it’s actually succeeded as the “first IoT company with an array of smart hardware products.”
Xiaomi effectively uses the razor and blade marketing scheme of selling one item at a low cost to increase sales of a complimentary item. Xiaomi keeps the cost of its smartphones and smart household goods at a level that limits profit margins to only 5%. This helps to build a customer base. Then it hooks those users on its multiple apps for music, videos and games that are monetized with advertising, subscriptions, and virtual gifts.
He also recounted what led him to invest in Xiaomi when it seemed like a crazy idea at the time. Xiaomi was a small company of only 10 to 20 employees with no hardware industry experience going up against several well-established brands. It was the vision that founder Lei outlined, without a PowerPoint, that won over Tung in about 90 minutes:
- In the next 10 years smartphones will replace laptops
- Localized and customized features will be built into smartphones that can be updated regularly
- Direct-to-customer sales channels will bypass the middleman so cost savings can be passed on
- A world-class team of overseas returnees and locals will manage the startup
She finds the most interesting thing about Youtiao to be how it uses machine- and deep-learning algorithms to serve up personalized high-quality content without any user inputs, social graphs, or product purchase history to rely on.
Meituan founder Wang lost his FB lookalike due to high cash burn. He wants to make sure his current business thrives. He’s chasing what he sees as a $1T opportunity — on-demand food delivery in China, which he says isn’t an alternative to restaurant dining or preparing food a home, but a way of life.
No matter what happens, people still need to eat, and we provide the most convenient way for people to eat.
An intelligent voice assistant lets couriers receive and report orders when delivering without having to operate their mobile phones while riding. Such advances have helped Meituan to shave 7 minutes off its average delivery times since 2016.
Meituan packs in more than 200 service and product categories. The app has racked up 400M active buyers, 5.8M merchants in 2.8K Chinese cities, 6.7B transactions, and 5B user reviews.
An executive at a major Chinese competitor contends that Meituan’s business unit economics and losses are unsustainable and believes Meituan will be outspent by rivals. Going public was a big mistake for Meituan, since its poor financials were open for all to see.
He’s faced many setbacks, but Meituan could be his victory. As Wang says in a poetic way about his journey, “The more faithful we are to the future, the more patient we are.”
“For 9 consecutive years we lost money in China, “Howard Schultz, Starbucks cofounder told shareholders at a recent annual meeting. “And there were so many people who doubted whether in a tea-drinking society we could break through. Not only have we broken through, but China is going to be the largest market in the world for Starbucks.”
LinkedIn China has done a lot of things right. One was its Chinese language version with localized content. Another was not going in alone. LinkedIn CEO Weiner set up a joint venture with 2 well-connected local investment companies, Sequoia Capital China and China Broadband Capital Partners.
Almost all apps in China require a mobile number instead of email, which is going away fast in an era of texts and chats.
It’s truly eye-opening how much a local company is willing to spend with very little revenue, but based on the idea that it’s kind a winner takes all. We probably will never be willing to spend as much as the competitors, but we will definitely spend more than we do in other countries.
Nearly two-thirds of Sequoia’s new mega $8B global fund is reserved for China.
An analysis of China and US venture fund performance reveals that prominent China VC funds earned an average 21.4% return, slightly higher than most US funds.
China weighed in with 86 unicorns in 2018, toppled only by the US with 151.
ByteDance ranked #1 as the world’s most valuable unicorn at $75B and bypassed Uber at $68B. Didi placed 3rd at $56B.
China tech has progressed through 3 types of technology phases: internet startups from 2003 to 2010, mobile-centric startups for the next few years, and, today, advanced technologies and business models in AI, biotech, self-driving, robotics, drones, livestreaming, mobile payments, social networking, and social commerce that impact broad sweeps of the economy such as transportation, finance, health care, and education. These deals are not the low-hanging-fruit deals that VCs have been known to favor. It’s a stretch that would have been unimaginable even just a decade ago.
But there’s a potential downside. Many venture-funded Chinese startups are burning cash like there’s no tomorrow to chase growth, well before profits (just as Amazon did).
Experienced China-side venture investors have sometimes struck out. Matrix Partners China, GSR Ventures, and ZhenFund — as well as Alibaba — got caught in China’s bike-sharing craze and meltdown after injecting $2.2B into Chinese bike-sharing startup Ofo, which has crashed after so much hype, a victim of overexpansion, competition, and a money-losing business model.
Southeast Asia is “another China-sized opportunity.”
In the age of AI, data is the new oil, so China is the new Saudi Arabia.
By 2017, SenseTime grew to 1K employees, including 140 PhDs drawn from local universities as well as globally elite Stanford University, Tsinghua University, and MIT.
A transition to new technologies and rival entries from Tencent and Alibaba require Didi to invest more and more to stay even. Didi has raised $21B in 17 rounds of funding.
Drivers with higher scores earn more. Order cancellation are handled by an AI-powered system that takes 10ms to decide if the driver or rider is responsible for a cancellation.
Kalanick wasn’t about to give up. He took his VC’s advice: be respectful to China officials, call on mayors, and take note of their KPIs to win them over. He finally gave up in China after bumping up against new national and provincial regulations for ride-sharing services in 2016 — and getting an offer he couldn’t refuse.
Everybody thinks that China’s BAT are so big that it would be impossible to disrupt them, but there’s always a company in the garage that is going to come out and do something different.
Pinduoduo’s survival depends on the value it creates for its users; I hope our team wakes up feeling anxious every day, never because of share price volatilities but because of their constant fear of users departing if we are unable to anticipate and meet users changing needs.
In a stroke of marketing genius, DJI has obtained a dedicated section of prime real estate at Apple retail stores globally for a line of advanced consumer drones.
This former fishing village rose to become the world’s factory for Apple iPhone and Nike sneakers and has moved up the ladder to design and development of highly advanced technological products such as drones and other internet-connected devices. DJI’s proximity to designers and component suppliers lets it do rapid prototyping to find out what concepts work in practice, scrap those that don’t work, and perfect those that do. DJI can design and test its drones within 1 day and ship them out with little time lost.