The Harbinger - China Tech & VC Podcast

We sit down with Walker Wallace, managing partner of O’Melveny’s Shanghai office, to discuss how foreign tech companies should think about entering the China market. It’s worth noting that most tech start-ups should not even consider China entry in the early days, as building up tech and achieving a focused product-market fit should be the only priority, and a premature obsession over China could very well be a huge distraction. But for companies that have built up a relatively sustainable business and are looking to scale, a thoughtful, well executed China strategy could create significant value. Today we discuss: what type of tech companies should consider entering the China market? What should their key considerations be before designing a market entry strategy? What are the different options and structures available? How do JVs work, and what is the value exchange between JV partners? Any other best practices to keep in mind? Walker J. Wallace is a leader in O’Melveny’s China practice. He has extensive experience in international transactions and has worked with clients in a wide range of projects across Asia, from multi-nationals seeking to invest in China, to private equity funds pursuing investment strategies in Southeast Asia. In China, Walker has helped clients negotiate the complexities of investing and structuring business operations in numerous industries, including consumer products, healthcare, real estate, software, media and entertainment, retail and education. Walker has been working in the Shanghai office since 1997. He is the former Chairman of the Legal Committee for the American Chamber of Commerce in Shanghai, and is the co-author of “Acquisitions of Companies with Chinese Assets,” “Foreign Private Equity Investment in China: Which Way to the Exit?,” “Onshore Financial Investing in China,” and “Enforcement on Defaulted Loans and Mortgage on Real Property under Chinese Law.” Walker was named as a leading lawyer by Chambers Asia 2016/2017 under the categories “China, Corporate/M&A” and “China, Private Equity: Buyouts (International Firms)”. Walker earned his J.D. from Columbia University, and his B.A., cum laude from Williams College. He is admitted to the bar of New York.

Today we catch up with my good friend Michael Wang, who is currently COO of YCloset, an online clothing rental and subscription service that raised $20m Series B in March and has already scaled to 40 cities in China. Before YCloset, Michael was on the other side of the table, having spent a few years at KKR before joining IDG Capital, where he was also the lead investor for YCloset's Series A+ round. As such, Michael offers a unique view, speaking from both an operator and investor perspective, and can help us understand the following: Clothing rental companies only recently became popular in China, whereas comparable companies abroad such as Rent The Runway have been around since 2009… what's different now? How does YCloset compare against global and domestic competitors? What are key success factors in this market, from optimizing logistics to central dry cleaning to capital accessibility? What role do China's tech giants (e.g. Alibaba or JD) play in this arena? What is the "rent-to-buy" model, and what might this market look like in the near to medium term?

Alvin's career to date has been an epic adventure, a journey that's taken him across epicenters of technology and the world's three largest internet markets: China, India, and the US. As a Stanford undergrad, he started ThinkBulbs, which developed 2 leading iOS photo apps and amassed over a million users before being acquired by Megatasty Labs. After college, Alvin spent time as EIR at StartX, before joining Flipboard to lead their China entry efforts. That in turn opened his eyes to the torrid growth of China's tech sector, eventually leading to a role as Chief of Staff for Hugo Barra, the legendary Google exec who had been hired by Lei Jun to run Xiaomi Global. Today, Alvin heads up Xiaomi Global's sales operations, and plays a critical role in developing Xiaomi's India business. On our podcast, Alvin talks us through his personal journey, reflecting first on his foundational experiences in Silicon Valley before taking on the Wild Wild West of China's tech sector in the early 2010s. With Alvin, we then conduct a deeper dive on Xiaomi's India strategy. How did Xiaomi grow so quickly in India, reaching #2 market share, with its best selling 'Redmi' shipping over 1m units in just 30 days? What are similarities and differences between China and India? How does Xiaomi approach localization, not only in terms of product but also on its org structure and management approach. Ultimately, what are the keys to success in this market and how will Xiaomi fend off competitors that invariably follow it into an attractive new market? Lastly, Alvin shares his experience on why it's the right time to come out to China (and India), the need for a bridge type leaders between markets, and how to leverage a global perspective to one's advantage.

Dun Xiao's pursuit of a quality education has taken him around the world, from Cambridge University to MIT and Harvard, where he studied electrical and information engineering. Armed with a lifelong passion for education and his technical background, Xiao Dun was inspired to found 17zuoye.com, (a.k.a. Homework Together), the largest online homework platform for K12 students in China. And so today, we explore Chinese Edtech - a market of particular significance in China given its traditional reverence for learning and the lucrative commercial opportunity this yields. With Dun, we explore key topics and trends, including: how do you segment the Edtech market in China (e.g. by learning groups, product and delivery type?) How do you look at future of education… does this involve building disruptive products that can be applied immediately (e.g. Alt School or Minerva in the US), or should it be more of an evolutionary process where technology is used to complement existing models? What drives key stakeholders in education ecosystem, and why is it relatively more difficult to scale a education business that involves working with teachers, students, parents, school systems, and the government? What is the role of data in education? How do you apply customized learning solutions onto the existing education system? And lastly, how do you get teachers to buy in on using new teaching solution and onboard them efficiently?

Dan Hu has seen it all. From leading multiple successful investments for Sequoia China during the 2010-2014 tech boom to helping found ZhenFund (China's top seed fund), Dan has always had an eye for finding the next big thing. That penchant for uncovering opportunities has led him to found Omni Prime, a mobile consumer finance service company that provides payday loans to low income entrants with a complex, app based risk evaluation system. In China, hundreds of millions of consumers still do not have formal credit ratings. In particular, students, farmers, and blue collar workers lack credit scores, not because they are subprime debtors, but rather because they haven't previously borrowed money or needed to make any repayments. That makes it impossible for traditional financial institutions to make assessments, and unlocks an interesting opportunity for internet companies that are more risk taking, that have lower operating costs and an ability to iterate more quickly on risk management. On today's podcast (via skype call), we explore this underserved segment to better understand the market opportunity, competitive dynamics, and commercial applications. Why are blue collars underserved by credit cards? How can 3rd party offerings compete against the consumer finance solutions provided by eCommerce giants (Alibaba and JD)? How do consumer finance players find the right entry point in a fragmented market where 80% of commerce still happens offline. What are the primary consumer scores and how do they differentiate (e.g. Omni Prime's Octopus Credit vs. Alibaba's Sesame Credit)? How will this market evolve in the near and medium term?

At Chinese unicorn Ninebot Inc, VP of Robotics Li Pu compares building the Loomo personal robot to that of Apple's first personal computer, with the vision of introducing a robot helper or companion into everyday life. By democratizing the underlying requirements for robotic function (e.g. computer vision, voice recognition, mobility, etc.), Li's robotic platform serves as base infrastructure on which incredible applications and uses cases can be developed. A massive undertaking indeed, but I wouldn't put it past Li and his team to help accomplish this. After all, Li's academic background is incredible. He received a bachelor's degree in engineering from the Beijing University of Aeronautics and Astronautics and a CS Master's from Tsinghua, before receiving his Ph.D. in artificial intelligence from the Swiss Federal Institute of Technology (EPFL). He's won numerous awards, including the China Air Robot contest, and was instrumental in the successful completion of China's first UAV mission (China's 24th Antarctic expedition). Li joins us today to explain the following: Ninebot and Segway originally sold self-balancing scooters, so how and why did they decide to develop robots? After Ninebot acquired Segway in 2015, what was the impact on collaboration and partnership between the two entities? Why is there such a keen focus on personal robots, when other industrial robotic applications currently comprise 75% of revenue in the market? What are the key drivers and barriers in the personal robotics space? Why is it important to create a robotic platform as opposed to a singular product, and how will Ninebot build an ecosystem of developers to come up with killer applications? What is the competitive environment like globally, and what are some major differences between the US sand Chinese robotics ecosystems?

We sit down with Guy Sivan, who - immediately upon graduation from Columbia University - moved to Beijing in 2005 and has since started 4 different companies. In 2010, he sold his third startup’s core technology to a publicly listed company, and today he is CEO of Vericant, a Shunwei backed company that helps US schools better understand their international and Chinese applicants through video interviews and spoken English evaluations. As we know, there are few examples of foreign tech companies entering China and being successful in the long run, and similarly the start-up environment within China is just as tough for expat founders. With over 10 years of experience in Beijing, Guy offers a unique view and shares with us some of his lessons. For example, what are major cultural differences and how do you avoid the classic expat blunders? What advantages (if at all) do you have as an expat founder, and how can you play to your competitive strengths? What are trends in the lucrative Chinese education space that has churned out several unicorns. And lastly, what is like working out of Chinaccelerator, and what is their value proposition?

Pollution is a real problem in China. So it should come as no surprise that the 13th Five Year Plan includes drastic policy measures, calling for a reduction of emissions from coal burning industries, while showing support for wind, solar and bio power. And beyond policy making or economic restructuring, there is also a call for domestic entrepreneurs who can help develop innovative solutions to mitigate pollution in China's major cities and improve the livelihood for all. Today, we sit down with Henry Yin, founder and CEO of Xiaosolar, which operates a solar sales, installation and financing business that has installed nearly 100 residential and commercial solar projects as of mid-2017. Prior, Henry was also a founding member of Light Chaser Animation and helped produce and market Little Door Gods, Light Chaser’s first animated film. Henry first shares his journey from Harvard to McKinsey to Lightchaser, before conducting a deep dive on Xiaosolar and China's renewables sector, addressing key questions such as: what are the key macro factors driving China's renewables sector? What does the value chain look like, and how do the economics of solar power work? What does the consumer education process look like, and how may this differ residential vs. commercial? What are key success factors in this market? What is the role of consumer financing, and how can Xiaosolar differentiate against other players (traditional, large internet, specialized). Lastly, what are major differences between China vs. the US in this sector, and what is the role of cost in driving innovation?

The sharing economy is one of the hottest sectors in China, with $250m of seed and Series A capital invested April-May '17, without accounting for the $1 billion+ poured into bike-sharing start ups Mobike and Ofo. While some of these start ups have the potential to create significant businesses (e.g. car hailing and bike sharing), the verdict is still out on others that are peddling shared umbrellas or even basketballs. A more sustainable opportunity in this sector is in co-working space, which is fueled not only by the latest sharing economy craze, but rather built on the solid foundation of continuous growth in start ups and a tangible need for office space. Today we sit down with Randy Wan, CEO of Woo Space, one of the top 5 co-working spaces in China in direct competition with well known unicorns such as Wework. We'll cover a number of areas, including: how do Chinese co-working space offerings differ from that in the US, how do local competitors differentiate, and what is the role of services. We'll also review the sharing economy more broadly to understand what types of business models actually work and how do they make money. Lastly, we'll examine why high growth Chinese start-ups are so diversified, and how this applies to the very VCs that back them.

We sit down with Cheng Tian (or as we call him "Tian Ge"), partner at Shunwei Capital covering TMT and consumer related industries. Previously he held senior positions at Goldman and Temasek, and he has participated in many investments including: Alibaba, Xiaomi, VANCL, Youku-Tudou, Tuniu, Shanda Literature, Mogujie, Momo, Didi, Rong360, Jiuxian, etc. Building on a previous episode about the sharing economy, we examine bike-sharing in more detail, and in particular Shunwei's investment in ofo (小黄车）. Tian Ge will cover topics including: how is Chinese bike-sharing different from that in the US, e.g. Citi-Bike in NYC? What are the underlying factors required that enable bike sharing at scale, and is this unique to China or could it be replicated in other markets? Separately, we'll also examine other examples of domestic innovation, and how China is exporting new concepts and business models abroad. Did you know that Musical.ly was created by a Chinese founder? I didn't either…

In our first episode, we sit down with Shunwei VP/EIR Meng Xing to explore a broad range of socioeconomic, institutional, and financial factors that shape the Chinese tech environment. For example, why are the Chinese typically fast followers and excel at 1-100 over 0-1? What are primary founder incentives, and why is there a lack of talent in middle management? Why are there so many unicorns in seemingly niche markets, and how come there are so many humongous, diversified platform plays such as the BAT (Baidu, Alibaba, Tencent)? Additionally, we examine frontier technologies such as AI, AR / VR, and provide examples of the Chinese successfully productizing these technologies via innovative business models that we haven't yet seen in the US. Meng Xing is VP/EIR at Shunwei Capital covering frontier-tech, AI, robotics, AR/VR, and more. In the past ten years prior, he also founded two AI start-ups that were acquired by Amazon and a listed Chinese company. In between, he worked as an investment banker at J.P. Morgan Hong Kong and casino giant Caesars Entertainment, on top of getting an MBA from the Sloan School of Management at MIT.