On Saturday evening, the Wharton Club of Beijing invited a panel of distinguished Wharton MBA alumni in the Chinese TMT investment sector to share their thoughts and insights into the exciting market. As Wharton is world renowned for their strong financial academic rigour, it is only fitting to listen to the panel about the direction of the TMT investment space.
The panel consisted of Michael Yin, Managing Director and Founding Partner of Summitview Capital; William Qu, Managing Director of Zero2IPO Ventures, Forest Lin, Executive Director of M&A Tencent Industry Collaboration Fund and Marvin Mao, an entrepreneur and Venture Partner of Morningside Capital. The panel was moderated by Kai Hong, CEO of Capvision Partners.
The US$10 Million Investment Idea
Kai posed a hypothetical question to the panel about how they would invest $10 Million into the TMT sector in China today.
Lin of Tencent said that $10 Million could buy 2-3 stage A investments of 1 Stage B investment. He also expressed his “huge belief in companies that can create new demand or enhance efficiency of an existing market that can make people’s lives easier.” He noted one start-up from the U.S. called ZocDoc as an example that helps improves the efficiency of booking doctors based on public ratings and reviews.
Yin uses a more ‘bottom-up’ investment thesis that is based on fundamental market conditions. Yin says “the trick is to understand the sector and next product cycle and identify the winner in the next 6-12 months.” Given China’s rapid economic development, sectors like online travel and job recruitment are providing attractive investment opportunities.
Mao is a strong advocate of mobile internet as he was a successful entrepreneur of start-ups like Pica and ShareWithU. Now as an investor he is using his experience to identify other high potential investments in the mobile internet space that can meet consumer demand with a solid business model. He feels Mobile commerce presents a good opportunity because it is close to cash and won’t take too long to generate revenue. Another view is to go after niche markets where big players aren’t looking. He advised to venture out into 2nd and 3rd tier cities of China and even rural areas to observe their behaviour and lifestyle needs. In this way it is possible to discover opportunities that are not “hot right now but will be in the future.”
Copy to China doesn’t work
Many entrepreneurs in China are asked by VC’s which U.S. start-up their business most closely resembles. It is partly this mentality of VC’s to follow U.S. investor deals that stifle creativity in China. Qu of Zero2IPO believes that copying to China exactly simply does not work. He used the example of Meilishuo and Ganji as two extreme examples. On one hand, Meilishuo looks like a clone of Pinterest, but it more quickly figured out a way to monetize shared pictures by acting as a lead generator to Taobao. On the other hand, Ganji is a classifieds clone of Craigs List in America. But with less than 30 staff Craigs List generates over US$10 Million in profit but Ganji has still not broken even with over 2,000 employees. Qu’s point is that it is not enough simply copy to China but rather adapt to China by “looking at the deep details of the Chinese market.”
Don’t be scared of the Tech Giants
As a Founder of Pica, a mobile communication app, Mao was clearly a little frustrated at Tencent moving into the space with the now dominant Weixin app. Lin of course defended Tencent saying that the Weixin team just executed with relentless focus and tenacity and this made all the difference. But the reality is that Tencent had an army of QQ Penguin followers to boost Weixin users and surpass every other walkie-talkie style app, including Talkbox. Despite the somewhat bitter history between Tencent and Pica, Mao suggested that entrepreneurs should not be afraid of giants like Tencent or Baidu because they are too big to move as quickly as start-ups. Small start-up teams are more agile, so can make quicker decisions. Moreover, in the mobile space the technical barrier of having to test across multiple mobile form factors is a common challenge for both start-ups and giants.
TMT is still a great sector to be in
Despite negative reports about the ethical financial governance of NASDAQ listed Chinese tech companies and the poor stock performance of companies like Facebook, Zynga and Groupon, the Chinese TMT investment market still provides strong opportunity for both start-ups and investors. Start-ups that focus on fundamentals of a big potential target market, strong product and team with a solid business model will always be in a favourable position no matter if investors want to invest or not. Like Lin said during the panel, companies are ultimately not created for an exit through IPO or M&A but rather to create value to customers and society.