Adam Bao recently interviewed Hong Lu, founder of UT Starcom, one of the pioneering telecom companies in China. Lu is widely respected not only as a tech entrepreneur, but also as founding chairman at SoftBank China Venture Capital (which wrote an initial $18 million check for Alibaba), and for his close friendship and successful collaboration with Masayoshi Son, founder of SoftBank Group and the Vision Fund. The story goes, while working the night shift at an ice cream shop near UC Berkeley, Lu met Masa Son, who refused to pay for a milkshake unless it was made extra thick. The two Japanese speakers quickly became friends and eventual business partners on Masa’s first start-up, an electronic translator that would sell to Sharp for $1.7 million, and the rest is history. Lu shares with us his personal story, what it was like partnering with Masa on multiple ventures over the years, bringing wireless services to China, and key lessons learned along the way.
The original version of this article was first published on The Harbinger China.
Harbinger: Let’s spend a little bit of time on your undergrad experience at UC Berkeley. How did you and Masa meet, and how did you become close friends and work on startups together?
Lu: I used to work at an ice cream shop in Oakland. One day, a customer came in and refuses to pay if we didn’t make exactly what he requested. I agreed to make his order. I delivered the order myself and overheard them speaking Japanese. I was so surprised. I introduced myself in Japanese and they were very surprised, too. So anyway, that was the first time I met him.
Masa was a couple years behind me in school, but we were the only undergraduate Japanese speakers. He was starting a company then, and before graduation, I met him again at the ice cream shop.
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His wife suggested that I go work for him. I told him I wasn’t interested because I was ready to start making real money instead of starting a venture, which wasn’t a thing back then. But then he said that we should really start something together instead of working for a big company that was created by someone else. He is the most persistent guy I know, and I eventually took the job with Masa.
Harbinger: That’s a fascinating story, the details of which people have never heard before. What was the first company you worked on together?
Lu: He persuaded me because he got a contract with Sharp and showed me a prototype. It was a pocket translator. Masa was about to marry Masami Ohno, and he promised her that he would make one invention every day. So he created a program that combined two random words together, and one time the two words were “talking” and “translator.” This was the idea that he sold to Sharp.
You’ve known Masa for more than 30 years. How would you say he has changed over the years? Did he have a several-hundred-year vision, even back then?
Lu: Well, the first day of work, he asked me to create a three-year plan. I said, “I don’t even know what we are doing, and you’re asking me to give a three-year plan?” But he said, “Oh yeah, we need to do that three years prior.”
He was always very fascinated by cash flow and wanted the revenue to come in. He wanted to create something on top of the talking translator business. He tried to get into magazines because of the ad revenue. He was also very interested in infrastructure.
Masa was very sophisticated. Even as a student, he must have read a lot of things when I was too busy figuring out how to build the bridges or the dam in school, and working for the ice cream shop.
He is a very unusual person. He’s a very persuasive person and he knows what he wants. When I first met him, he was probably only 20 years old and he was already saying that we needed to create the business with cash flow coming in. That was amazing.
Harbinger: After spending a few years with Kyocera, you started Unitech Telecom, before it merged with Starcom Networks. Could you share a bit more about that?
Lu: After Kyocera, I went back to China for the first time back in 1991 to look for other opportunities. China totally lacked telecom infrastructure then and it was a huge opportunity for us to grow. So I founded Unitech Telecom with a schoolmate at Berkeley, Charles Xue, and Peter Wang, whom I knew through Charles.
Unitech Telecom started with a digital local loop as a wired solution. At one point, we had the largest market share of digital local loops in China. But we thought that Chinese users really wanted much faster phones, and we needed a wireless solution.
At that time in China, getting a line was very expensive, and even if you had the money, you had to wait 6 months to a year to get it. But using our wireless solution, people could get it right away. We started with Panasonic, then Mitsubishi and Sharp, to license their technology. Eventually, we started making our own chip to stay competitive. In 2004, the company made $2.8 billion, which was a lot of revenue back then.
After we knew that we were profitable, we merged with Starcom. Together with Charles Xue and Wu Ying (founder of Starcom), we brought the combined company to Masa. Masa and two of his board members decided to give us $30 million for 30% [of the company]. Our revenue was, at that time, probably $10 million. I have to say Masa really had a lot of trust in us. “If you don’t invest, our company would become bigger than yours,” I told him. “Wow, you still talk very big,” he said. We accelerated much faster with his investment.
UTStarcom became quite a large business, and I believe you also were involved with the founding of SoftBank China Venture Capital fund, an early VC in China. Could you share a bit more about that as well?
Lu: Charles Xue was one of the co-founders of UT Starcom, and he used to be in charge of R & D. One day he said: “Hong, our company is getting too big and I’m not really interested anymore. I want to start something else. Can you persuade Masa to create a China venture fund so we can invest in China?” I said sure. I persuaded Masa and he agreed. He gave us $90 million and we brought out $10 million to create the $100 million fund.
Harbinger: Tell us a bit more about SoftBank China Venture Capital and your investment in Alibaba.
Lu: I remember all of us listening to Jack Ma’s presentation (Masa, Charles, Wu Ying, Bill Huang, and me). None of us understood his business and we didn’t really think it was that exciting. We asked him, “Are you profitable?” We were very old fashioned because if you were not profitable, then you weren’t going to raise money.
We didn’t see any sight of profitability, but Masa was so excited about the business and he said we should invest $18 million. Investing $18 million out of a $100 million fund was way off the whack. You don’t invest more than 10% of your fund in one company. But Masa said: “I can smell the money.” We were like, “All right, since you have 90% of the fund, we will agree with you.” So we went ahead and invested, but at the beginning, they kept running out of money, and Charles had to go there and ask them to step on the brakes at times. It was an investment made out of the China Venture Fund.
Harbinger: How do you spend your time today? What is on your mind in terms of what the next 10 to 20 years look like?
Lu: Well, a lot of the tech used to be created in the US, and then gradually copied and expanded in China. But now, a new concept is created from the localized needs of the market, and you see this all around the world. So innovation is really created by what is required by the market. It will be much more dynamic. It’s nothing like it used to be, where innovation had to come from the US The “time machine” way of doing business—where you see something successful, copy it, and bring it back—will shift to the instantaneous requirement of using available technology and finding the right solution.
Editor’s note: The opinions expressed in this article are Hong’s own and do not reflect the views of UT Starcom, Masa Son, or any companies and funds that Hong is affiliated with.