This is the first post in our series: Meet China’s Midas, where we will talk to a mix of Chinese investors who have made successful investments in China’s growing tech space. Stay tuned over the coming one month as we talk to Chinese investors from Beijing to Shanghai about what it take to be a Midas in China. You can follow our updates at @technodechina for new stories in the series. 

China has formed a venture ecosystem full of its own character and tech entrepreneurs, spurred by the past year’s O2O craze and drone innovations, to this year’s WeChat business ecosystem and internet celebrities. This could not have been possible without a strong backbone of Chinese investors. There are a total of 14 partners covering China that made it to the 2016 Forbes Midas list.

Among these outstanding visionaries, James Mi, the co-founder and managing director of Lightspeed China Partners, is ranked 50th on List of Top 50 Venture Capital Investors in China. The previous director of corporate development for Google had made successful investments, including Rong360 and MediaV.

These are standout companies that Lightspeed China Partners had invested in over the years:

  • Dianping (大众点评): a popular Chinese rating and review site, which later merged with Meituan to form Meituan-Dianping, which was valued at more than $18 billion USD.
  • Tujia (途家网): the largest online vacation rental service provider similar to Airbnb model
  • Rong360 (融360): a leading search and marketplace for financial services
  • Yunmanman (云满满): a smartphone-based schedule service for trucks
  • IfChange (e成): an online data intelligence service provider used by Alibaba and Tencent
  • Innolight (旭创科技): the global leader for high speed optical transceiver for cloud computing, with its customers including Google and Amazon AWS. The company is being listed in China.
  • MediaV (聚胜万合): the leading online advertising platform in China. MediaV was acquired by Qihoo and domestic public company Leo Group (利欧集团).

The period we are in has been dubbed a capital ‘winter’ in China, however, Mr. Mi hods a contrarian view on that.

“We are more active in investing in early stage startup now,” Mr. Mi says. “In general, VC investment pace is slowing down significantly in China, my advice to startups is: focus on generating revenue and preserve cash. Find creative ways to acquire users more cost effectively.”

Lightspeed China Partners (LCP) completed the final closing of Lightspeed China Partners III, L.P. this June, with total committed capital of $260 million USD. LCP also announced completion of a substantial closing of its first RMB fund with a target size of 500M RMB.

“Given the competition in business model innovation, technology will have more advantage going forward,” Mr. Mi says. “Some areas we have made new investments are in artificial intelligence, such as Laiye (助理来也), a virtual personal assistant company, and in enterprise SaaS, like ZaiHui (再惠).”

We were lucky enough to have him share his insights on some FAQs:

What are your plans for the first 500 million RMB ($75 million USD) funds?

The RMB fund will enable Lightspeed China to invest in companies that’s more suitable for China domestic IPO. The domestic stock market is becoming a very meaningful exit channel for VC investors. Lightspeed has invested in leading mobile internet company LianLuoHuDong (联络互动) which went public in China and currently has a market capital of 43 billion RMB ($6.4 billion USD). It gave Lightspeed over 50 times return. There are certain sectors like internet security that’s difficult for US fund to invest in China given foreign capital restriction, and it’s more suitable for RMB investment.

What did you learn from your past investments that weren’t successful? I saw the TasteV case, that it failed to adapt to WeChat.

Startup timing and team experience is important. TasteV has a good product idea to leverage the social platform similar to Weibo, but didn’t adapt to WeChat as the platform became the new favorite. TasteV team didn’t have strong eCommerce experience either.

We also invested in Pinduoduo (拼多多) and Pinhaohuo (拼好货). The founder is a serial entrepreneur with multiple cases of eCommerce startup experience, and the company did a great job leveraging WeChat social network and increased Gross Merchandise Volume (GMV) transaction from zero a year ago to close to 60 billion RMB ($8.9 billion USD) this year.

How did your past experience as a Google executive help you invest in startups?

I started Google China business from scratch in 2003 as the chief representative in China, and oversaw products and strategy. It gave me insight on future trends in internet industry and opportunities for startups where big players could not do well. These helped me to make early investments in Ganji, Dianping, MediaV and Rong360. I also set up Google China’s Joint Venture structure and obtained the ICP for Google. This experience helped me to advise Lian Luo Hu Dong to be the first mobile internet company to have the joint venture structure and ICP to be listed in China stock market.

How competitive is the environment between VCs in China right now? Are you courting startups?

There are more funds being created and more companies are being funded, at the meantime, some of the early stage VC fund size is getting bigger, and doing more later stage investment. Our observation is that the highest quality entrepreneurs will only consider getting investment from more established VC funds with experienced partners and strong track record and added value. Lightspeed China is  highly focused on early stage investments (70% series A, 30% series B). Our funds are heavily oversubscribed, and we kept the fund size to be no more than $300 million.

Can foreign startups compete in China? And if so, how?

Foreign internet startups need a strong local player (VC investors or strong local operator in China) to be successful. The market is quite different in China. It’s very competitive and things move very fast, and there’s regulatory restriction in certain internet sectors as well.

On the other hand, we do see Chinese startups like DJI and Innolight which are no. 1 market share players in the US market, and in the mobile internet space, many Chinese companies are doing well in the US, like Musical.ly.

With current high-­tech trends in mind, what do you think will be the biggest winner within five years?

We think artificial intelligence, Big data, and to some degree, virtual reality will be the big winner in 5 years and beyond, auto driving vehicles will be the big winner after 5 years.

VR is a hot area, but many of the hardware startups in china is facing a significant challenge with global players. Content startup has more opportunities and we are looking for a startup that could be more platform play.

How can we expect high-­tech investment conditions in China to change in the next ten years is capital ‘winter’ just the new normal?

Capital winter is a cycle, it happened in US in 2000 and 2008 and also happening to lesser degree right now. It’s a natural correction of significant capital that poured into the VC space in US and China. Some of the smaller VC funds will not survive in the next few years. We believe China’s innovation will be significant in the next 10 years, and that bodes well for VC investments.

Image Credit: Lightspeed China Partners