East Meets West with Norman Liang (WI Harper Group), Hans Tung (GGV Capital) and Yi Wang (Lingochamp) | Disrupt SF (Day 1)
3:16AM Sep 6, 2018
China is the world's biggest market in solar is the world's biggest market for mobile phones. 750 mobile phones are out there. So its enormous. And so here to discuss that is in our east meets west session is Norman Liang, with the wi Harper group. Hans Tung with the ggV capital. And he won from the lingochamp talking about will the Belton Belden road initiative. pave over us capital markets. To discuss this will be our moderator, john Sheba from TechCrunch big round of applause for the last one of the day. Come on,
boy, do we have a good panel for you to round out the day, man, I am very excited about this one. I've actually been looking forward to this panel, no offense to my other panels of the day, which were all excellent and amazing, but I've been looking for this one for a while, you probably know only for this one. I mean, come on, we go back so far. Um, so we're going to be talking about China. And I'd like to sort of China and us and startups and investments and artificial intelligence and I'm going to try to keep it at a fairly high level because there's so much ground to cover. Luckily, we have an amazing panel to talk about it with. Hans is a very humble, but you should know he's on the Midas list. And he's an investor with ggV. And he's been investing in China for how many years now a decade, more, 20 years, 85, 2005, 13
years. Norman Liang is a serial entrepreneur over at the end is a serial entrepreneur. And he's now an investor with wi Harper, which has a long and storied history of investing in the in the China market. And last but certainly not least, in the center is he Wong, who is the Chief Executive Officer of lingochamp, which is a wildly successful education startup out of China that is going to go public or has filed to go public in the US, but we're not going to talk about that at all, because they're in a quiet period. So nothing about that. Um, I'd like to start off with the the sort of
ways in which capital has been deployed in in China recently, and, and what seems to be an increasing number of like mega rounds for, for companies there, and Norman and hands, I'd like to start with YouTube and get your take on why there seemed to be an accelerating number of increasingly large investments for rather early stage companies in China these days and take it away, guys, what Norman Do you want to start?
I mean, I think there's always a willingness to pay it forward, no matter what, right? every entrepreneur, part of the dream of being successful is being able to support other entrepreneurs. And I think a lot of Chinese entrepreneurs are no different. As they build these massive platforms that now connect people across the country, they're now looking to take their profits and their investable dollars and put it back to work towards the next big thing. I think Chinese entrepreneurs are not afraid to displace themselves, they're not afraid to bet on place those bets outside of their companies embed on new entrepreneurs. And so you see large internet players the 10 cents, the Alibaba is in the news of the world really investing in a lot of the Strategic Growth rounds to help these companies scale
in addition to that they work very closely with the ecosystem and they've been very, very active in their efforts to stay close with the ecosystem
is also part of it a competitive moat hands I mean, do you find that that people are committing capital and the way that SoftBank is committed capital is to sort of make a kingmaker or anointed king in a particular market and create some sort of capital moat around potential competitors right and move quickly or
I think there's a little bit of a chicken a kind of dynamics going on as Chinese sort of people see internet user base grew throughout the 2000s and then since 2010 mobile internet users growing you now have 750 million smartphone users by over 900 million desktop PC internet users that the internet GDP per capita about $9,000 you have an amazing market and base to grow so that that a couple where the rising middle class in the urbanization speed immunization in China makes a lot easier to build business that can scale quickly so as people see that you can scale business more quickly whereas in the case of bt and then after that you have made one Didi Xiaomi JD by dance all around us similar valuation of 50 $60 billion you start to see that other companies realize that you can scale business quickly therefore people wouldn't invest earlier and even overpay earlier to get in because the ones that work out can expand
to a enormous size interpretive time Pino door which was a publicly traded
few weeks ago started less than three years ago right with our second product and the second broader scale to $20 billion US in annual revenue in a span of two and a half years and that kind of skill $20 billion us analyze revenue you just don't see that anywhere else in the world right so so that fuels the valuation increase on stuff that's early because if it worked out great if it doesn't, who cares right? So it almost built in incentive to be more aggressive in
big cities that especially Alibaba and Tencent they're willing to invest earlier than ever before to help the scale that's through achieve critical mass as quickly as possible now the level interesting competition between the two between Ali intensive so strong makes it even easier or both camps to pump money into to eat different ecosystems, right of startups finding us each other to app market share which further fuels that validation piece
even did you see those kinds of tensions at work when you raise your you raised like $100 million what a year ago or so
and did you see those tensions at work as you were building your own business there in China or well
i mean when we raise capital we had the choice of raising money from some of the so called strategic investors but we did not choose to because we thought you know there are a lot more benefits of staying independent in our case but you know around my friend circle a definite a lot of companies when they reach like series C or D you know chances are they are gonna you know take sites if you guys you know if you look at the stats I think audio and Tencent I want to have the like the most active active you know with the most capital invested like they are the They are the ones who are making a big bats and I was at the main stage somewhere where there was another panel talking about there are less there are fewer exits during the US yes years but I think in China you know it's not the case I can these these guys they are buying companies like just like flip the pancake
and why does that does that sort of put a cap on on the
on the opportunity set in a market I mean would you if there's this bifurcation or this is a division between sort of two sides where you have to choose and everyone is so acquisitive both companies are so hyper acquisitive does that does that make and maybe this is an investor question so we can avoid getting in se trade sec trouble does that make capital markets in the US look more attractive for for Chinese companies that want to go it alone and try to scale to a billion dollar multi billion dollar software
purely artistic standpoint, that seems very plausible as a theory
it's not true. But if
you look at number of sort of 40 to $60 billion market cap companies what of public private between US and China now are starting to last five years China has Xiaomi JD made one Didi pink gold or by death. That's six in the US Airbnb and Uber. That's it, right. And so it's that wasn't the case five years ago. But the last five years, because of all the factors mentioned earlier, it has become a very different world. And now the next the next big wave besides AI, and then
tournaments, driving EV is actually growing building business. And top of WeChat, which has become a default operating system doesn't matter of your Android phone, or iOS, which has is everywhere on all platforms. So now, people building the next Alibaba The next tab, our next team on top of WeChat. So feeling even other another wave of girlfriend coming keynote or being the biggest beneficiary of that at Norman,
if you if you think about the ways in which that the let's so we done a very cursory map of some of the things that are happening in the China market, how do you see that influencing the ways that Chinese capital is getting deployed in the US at all as well? Or do you do you see, how are you thinking about about that dichotomy between the investments domestically and advancement abroad from big Chinese companies?
I think that internationally here vid Chinese companies, the last three months have been noticeably quiet and probably the last two years have have really been quiet. And that's really been simply because of the case it's harder to move larger amounts of money due to capital controls. They have to leverage their existing businesses and their existing revenues to be able to finance some of these larger deals abroad. And then their strategic interests, it's a matter of focus, their core businesses are much larger in the US these opportunities here in the US represent growth opportunities for them. And a lot of these entrepreneurs see huge opportunities both domestically and abroad. And they believe in a global opportunity. But two hands this point, part of it is about the theory. And part of it is about the practice, how do they actually do this. And there have been a lot more things to navigate in terms of the regulatory environment on both sides to enable and facilitate these types of transactions. And there's been a lot more attention paid to it. As both companies are vying to be number one in technology and innovation
you want you built a successful business in China,
a lot of American companies look at at going abroad or trying to enter the China market. And they just fail completely. I mean, I can't think of a single company with maybe the exception of like cloud flares. That's doing enterprise stuff for Microsoft that's actually gained any traction on in the in the China market
means Airbnb is doing pretty well. They're doing okay, we're growing fast. They're doing okay, we're like it.
All right. Well, as long as you're happy hands, as long as you're happy, I'm happy. But when you look at the that, that sort of phenomenon, what advice would you give to American entrepreneurs that are trying to crack the China market? Should they should they even think about it? Is it is it better to, to, to, not
in? Well, it's always I think, as entrepreneurs, you know, I think just standing in their shoes, I think it's always attractive, you know, to, to tackle such a big market, right. So I think I have no right to say no to them. But I think there are a few things you know, they will, they should probably watch out. Number one, I think that the market dynamics, different different, the consumers are very different. If you take any, you know, comparable app like Uber and Didi or you know, you know, doordash, right, and intimate twine, you know, just open up the app and just just play with it, you know, you will see, like, the design the user experience, they're just very different. That's the nature and the mark is so huge and the unique So, you probably wouldn't want to actually set up a separate team of have dedicated people just learning about the user behavior really, you know, it raid on its own pace, even or I think that's, you know, probably point number one. Number two is, you know, the competition is really fierce. You know, Hans, you know, ggV has a famous podcast called 996, right? How many people here know about 96, what it means? It's actually really good, right? So, yeah, most people don't, it's about nine, 9am to 9pm, six days a week. That's how a lot of I'm not saying all but a lot of Chinese startups how they work, right, so it's fierce competition. And people, you know, obviously there even though the salary level has increased, increased over the years, but still, the third level is lower in China versus the US. So at the same time, Chinese companies, startups, you know, thanks to all the investors Great Investors here, right, you know, they are able to raise if not more similar, you know, level of capital, that means they are able to afford to hire more people at the competitive rates. So, I think the competition is just very, very fierce. So
more competitive you didn't really say
but but pawns, you actually invested in a company which that's managed to sort of mediate both the US and Chinese market leveraging sort of Chinese manufacturing and and Chinese suppliers to sell into the US market is that the model is it really sort of taking aspects that work well in one country and then leveraging that and another Another example would be VIP kids, right, where they're using us teacher sources there to to educate Chinese Chinese students in English.
So I'm involved with three companies that try to take Chinese resources and do well here that's wish in cross border e commerce house line doing bike sharing, screen sharing in the US and then also musically has been not so to buy dance, right, which is also has merged musically into Tick tock tick tock expanding globally so you do see turning something in doing that. And these three you can play with play with a in the US but as more of a minority, most Chinese companies. The first market we think about is Southeast Asia. Nick comes maybe India, Middle East
Eastern Europe, and maybe different parts of Latin America started with Brazil. So those are sort of the kind of the path that Chinese company go out. It's very similar. We talked to us before with
in the 15th century, 14th century, when the Chinese naval fleets were going out trying to explore world in a Ming Dynasty with a modern that was around that took from Southeast Asia, India, Arab and then to East Africa, some saving further, but that's different story. So you see that is emerging markets have urbanized, they have rising middle class a lot of problem they're trying to solve with technology, internet problems that China has solved over the last 10 years. So we hear constantly entrepreneurs from Southeast Asia, India, come to China and and talk to us and ask us questions, ask for questions and figuring out how to apply that model for their local markets. And we we just made our first investments in Latin America and the team in Brazil, a yellow knows exactly how the system works in China, they saw the previous autumn 99 to DVD. So it is impressive to see that more and more founders around the world are learning not just from the US market, but also from the Chinese market. Now, you
are you jumping ahead ons? I had a whole
Alright, well, Norman so when you look at your portfolio, how have you seen what successes have you seen, and how have they managed to leverage both aspects of
the the context of operating in both in both markets in the US and in China,
a lot of what we've seen has been partnership driven, it's been b2b, to see there have been some type of relationships or some type of mediation, some type of sharing of information and knowledge put towards a single product, and trying to build and localize that when we were inside of Fox interactive media and launching MySpace in China, that was a completely separate entity that was a completely separate business that was put together, it had a lot of the same UI and a lot of the same aesthetics. But I wonder how many people in this room still remember MySpace,
it's a place for friends,
well, we should all be on it.
In China, it was in experiments in content and bringing that content from the global portfolio, putting that into China, it was capitalized, invested in by local investors, Id G, being the main investor in that and a whole new team was brought in, there were some people who were brought into project manage and make sure that certain things were working. But for all intents and purposes, everything had to be brought over piece by piece, right, put together and launched with a whole separate license, a whole separate company that was actually running the show, all we had was a brand and some features and some code that were running on local machines in the world, separately in China, right,
sort of localizing in China and sort of what's going on? Well, from a global context, I'm curious whether y'all see any impact, whether you think that the the current trade war will have any impact on tech development or cross border either transactions or development for for companies that would like to move into the the US market or vice versa, enter the China market. And I guess he long if you if you want to, I know that y'all are thinking about internationalization, and it's something that's that's in the road for you. Do you have any any sense of what the ramifications of this trade war are for the tech community?
Well, for like, we are a b2c company, most most of our users are these today are based in China. So we don't yet feel a lot of pressure from that. But from a talent perspective, we do have a, you know, an AI lab here and establish about a year ago, right here in San Mateo. So that's where, you know, we have some very talented AI scientists who, you know, don't yet have the intention to move to China, we would just have them here working on some interesting problems. So I think we do see a lot of
such, you know, actions from Chinese companies, and they wanted to, you know, to the extent possible, you know, tap into the talent pool here in the US and really build either they are, you know, product type, either at the China market or global market. That's what that's what
I want anything, anything happening with other wish or something,
I think over the last five years, definitely see a lot of times companies setting up laughs here. Yeah, and before Chinese engineers, engineers were from China tend to want to work at Facebook or LinkedIn and Airbnb, Uber increasingly more and more willing to work in Chinese startup
in help Chinese companies to globalize who just very interesting, and as it's a phenomenal Harding Park, but will will there be any impact from the trade war on some of the the economics from some of the businesses that you've already invested in? Or surprisingly, what
I mean, a lot of people ask us a question for surprisingly, even with companies like wish, where they run analysis, even with the tariff, the impact on the final purchase price is still minimal. Something is, you know, cost $5 or 550 or $70, there's really not much, much much difference in terms of how the consumer behavior the other day, the the impact is minimal.
And is that is that something that you've seen as one of them,
I'd say that what we see at the series A is it's just a matter of focus. A lot of companies are just staying focused, they really think about that as something that's more of a longer term plan. And so the trade war's have basically just given them some parameters that have forced them to focus, put their heads down and get back to work, focus on the market they're in and build the business that they have. And so we've seeing that basically a lot of our portfolio at the seed in series A has stopped talking about rapid global expansion but launching internationally building foreign teams, they've said for now we're going to figure out what we've got make it work make it scale and then when the markets ready will continue to address that at that point
hundred. You mentioned
your first investment Latin America and how global entrepreneurs are increasingly looking to Shanghai and Beijing and Shenzhen as places to to learn from rather than necessarily Silicon Valley. So Norman and he do you do you think that the Valley has lost the stuff there was an economist article about this recently as well is, is Silicon Valley Silicon Valley behind the curve now. But first, I mean,
I think the first thing that we saw was just earlier, we saw a group of Silicon Valley VCs talk about how hard it is for their companies to just grow in Silicon Valley competing against the large tech giants. They're here for people for space, a lot of our startups that are here can't even keep the buildings that they're in, because like their buildings are getting acquired by some unknown holding company. Turns out that it's going to be a campus for some larger company or Airbnb
rooms, or it
might turn into apartments for there.
But what we see is that seeing type of thing is starting to happen. And in Silicon Valley, I think a lot of folks are getting back to work. But I think we, it's even different. When you go from San Francisco to San Jose,
you really see these companies really continuing to thrive and grow and focus. But the same time, I think that Silicon Valley isn't losing its edge and isn't losing its focus, it's still in an awkward teenage phase, trying to figure out where its focus should be. And a lot of that has shifted to where the dollars are, as opposed to what markets people believe in
always, I'm obviously biased, right. So I have been focusing a lot more on the China market in the valley, I do come back every, you know, I used to work here at Google. But these days, I come back four to five times a year, I have a few observations. Number one, you know, you know, the Valley has become so expensive, right, as the other panel pointed out. So, you know, you have the natural spill out effect where, you know, you have, you know, companies moving out even to the other parts of the states. And so, I think that that's, that may be good, you know, at a higher level, right, for the, for the, for the, for the whole whole country.
But we do see more more, you know, Chinese engineers, you know, moving back to minor right to join startups, that's also good in from the China startup startup perspective, I think that's just, you know, the value sort of a country giving back to, to the broader society in a way, but then, you know, the other thing I kind of observed is that, I think, innovations coming ways. Okay, so, so I'm kind of looking forward to the next big wave of breakthroughs from the valley Where's, where I think most of the most of
entrepreneurs in China co think is the biggest Innovation Center in terms of, you know, core technology. So, so what might be, you know, a, you know, you know, IoT, or biotech, or you name it, so, I think an AI right, so, so I think it's still has its blow, but I think just we are seeing a lot more distribution of talent, you know, elsewhere. I think that's actually a good thing. What's interesting
to me is that the regulatory environment and China in some ways is a little bit more forgiving more over some kinds of companies, then, then you see in the US, which is something I'm not exactly sure what to make of that. But But yeah, I mean, when I was in Latin America last month, a lot of the startups that I was I talked to, you were saying that,
that they weren't looking to the US at all, and that, given their regulatory regimes in the things that they had going on China was a much more relevant market for them to to look at and to model themselves after than anything that the states had going on. Which was, which was interesting to hear. We are we are unfortunately, officially out of time, we might have even run over but I will open the floor. If anyone wants to tweet at me with a question or two. I will take the best one and pose it to the panel. If there are no questions. Also, my Twitter handle j s. h. e. b ER and this pads, my user account, which is great, then I feel better about myself. I'm validated by a number of Twitter users I have, but if someone has one, one or two questions, I will feel them. If not, I would say thank you very much for paying attention. Thank you very much for a wonderful, wonderful panel. Let me see what's going on here.
Oh, no. Everyone shy All right. We're gonna wrap it up. Thank you so much for listening. Thank you for participating. It was really great. I thank you all.