Ken Xu, partner of Gobi Partners, a Chinese early stage venture capital, recently shared his thoughts on Chinese startup and investment fields with local media PEDaily, we did an excerpt of the interview here to give you more sense about the Chinese startup and VC world from an investor’s perspective.
On Investments in this year
When speaking of the inactivity in investment market this year, Ken noted that dollar funds this year wasn’t as active as RMB funds for several reasons. Firstly, in China dollar-investments still involve very complex administrative procedures and require approval from the authorities. Sometimes it takes a whole year to get one investment case approved. Secondly, small projects are far enough from attracting dollar funds. For example, you probably won’t see too many US$ 2-4M investment out there in the market. Thirdly, since last year, investors have been swarmed into too limited fields, e-commerce for last year and mobile for this year, for instance. “But in the short term, we are still unsure about their business model except for some game companies. ”
He also mentioned that for tool apps, if they made it to the Top three within its territory, normally they’ll be valued at between US$20 and 30 million, or even up to between US$50 and 100 million.
In Gobi Partner’s case, the capital invested into 13 portfolios this year which is more than last year’s while the total amount actually is lower than that of last year.
Innovation Works, the once aspirational Chinese YCombinator wannabe has transformed itself from incubator to actually an early-stage VC firm. In addition to this, there aren’t many successful incubators in China, what is the wrong with Chinese incubator?
Ken’s thought on this is that, incubator is anything but no-brainer; incubator with industry expertise would be the next step forward for the remaining ones. For now, many incubators are sponsored by local governments.
Drawing on his own investing experience, the advantage of incubator is that it provides added value to startups. “Gobi aims at projects valued at US$2m to 5m, while most incubators put in RMB“, said him.
Gobi’s Early-Stage Only Strategy
Gobi has an investment philosophy of only looking at early-stage projects and investing in Series A round. The firm invested more than 50 startups, all in Series A round. “Based on our own situation, like team strength, experience and fund size, we think early-stage is the right thing for us”, Ken said. He also acknowledged that this strategy also have its disadvantages for it teases investors patience.
GobiVC website homepage
On Going Social
“Right now in China everyone wants to step into the social area, the red sea. ” Even some tool apps are trying to add a social layer into themselves. Ken wasn’t quite optimistic about it. In his opinion, a social community cannot be built by simply copying mobile users’ contact list, and it’s not always necessary for tool apps to build their own community. If need be, they can always leverage on existing offerings like Renren and Sina Weibo.
On VC Industry
To many now is the worst time for VC industry. Ken, on the other hand, thought it was still OK. He actually pointed out that investors should stop rushing into the same territory just because they saw similar deals and were worried about losing cases to their peers. That’s what leads to the turmoil in the trade.
To wrap up the interview, he made some comments on various industries. Bubbles in TMT industry still concern a lot, mobile industry is hard to tell yet while deeds like app-ranking manipulation is a big problem. The only spotlight in this year, fell under consumer space.