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Below is the transcript of a CNBC interview with Edith Yeung, Head, 500 Startups China and CNBC's Eunice Yoon (I). The interview took place at CNBC's inaugural tech conference, East Tech West, in Nansha, Guangzhou.
I: Thanks so much, Mandy. Well, as Mandy was just saying, this is Edith Yeung, she is a Partner at 500 Startups, she runs the China program, and has been investing in startups for all sorts of technology, mobile, VR, as well as IoT. And I think maybe what people don't know about you, is that you have been coming back and forth, between Silicon Valley, where you're based, and China, for many, many years-,
I: So I was wondering, what are you excited about this year?
EY: Um, just to start, Eunice, I really like that one selfie at a-,
I: I know, I know-,
EY: At a time-,
I: We were actually taking a selfie-,
EY: Yeah [laughter].
I: When she was talking about it. Yeah. One selfie at a time.
EY: Um. I think there's so many really exciting technology in China in general for us, but for sure AI. You know, the Chinese government actually have publicly stated they want to make sure that China becomes the number one in AI by 2030, and there's a lot of really interesting things that we are looking at, but more focused on the B2B side of things. If we-, if we look at the internet worldwide, right, so in the US, it's the FAANG, the Facebook, Apple, Amazon and Google, and in China, there's the BAT, Baidu, Alibaba and Tencent, and, plus, don't forget the TMD, which is Toutiao, Meituan and Didi, these are the internet giants, and they have so much data. So, the way that we look at it, for AI, is there's no data, there's no AI, and this I picked up from Kai-Fu, the Founder of Sinovation, he said that now China is the new Saudi Arabia, where you will find the most data-, instead of oil, you-, you find the most data in China-,
EY: But I still find that we want to focus a little bit more on B2B use cases. For example, I just saw this news that Alibaba is launching this hotel, completely autonomous, called Flyzoo, um, I just went to Hangzhou, I really wanted to stay there-,
EY: But apparently they use facial recognition for check-in, a robot then can lead you to the room, and you can use your facial recognition for-, to open the door. It sounds amazing. But then, at the same time, I think, you know, with China, it's really interesting that, (inaudible) selfie, there are actually so many people travel overseas. I'm a vivid user of iFlytek-,
EY: Which I think is so much bigger than Nuance, but-, but for China, um-,
I: This is the translation device-,
EY: And it's amazing-,
I: Yeah. I know. I know.
EY: Yeah, and-, and, like, I-, I-, I can speak, you know, fluent Cantonese and Mandarin, but my typing is really bad, and iFlytek can recognize all my Cantonese accent down to a T, so most of my Chinese writing on WeChat is completely done by iFlytek, and I just think there's just so many really creative opportunities, particularly for AI, and then, on top of that, Chinese, in terms of-, food safety is a big issue, so you see, you know, Tencent and Alibaba both partner up with farmers, to-, to actually build the so-called AI pig, and chicken, to literally use IoT device to keep track of the vital signs, on pigs that we will eat, and make sure that food is safe. So, there are so many fun examples, in the area of AI, that is very, very exciting, for early stage investors to look at.
I: So, what is it about China, that makes it so unique, and such a special place, for AI? Why is there so much experimentation here, as opposed to in other countries?
EY: Um, I think that, you know, China is so interesting, because there's just so much data-,
EY: Compared to the US, which, obviously, you can argue about data privacy, I don't want to ignore that, but compared to-, you know, Europe, even more so, with GDPR, so you can see that there is a lot of hurdles to-, because, for AI-,
I: But in China, people are protective of their data, right? It's not as though-, I mean, I've talked to a lot of young people, and they'll still want to be protective of their data.
EY: Um, I think Chinese people is aware of it, but in general, if you talk to, you know, most of the normal people, they-, they understand that, you know, there could-, you know, big platforms have access to their data, but they're okay with it, because the national pride-,
EY: Of wanting to help to be the number one in AI, for the whole of China, that mindset is even greater than, 'Hey, I just wanted to protect my data.'
I: So, it's also because it's a-, a government push, or because of a-, a national issue. Is that-,
EY: I think that there are a lot of Chinese citizens that are really proud of the fact that, 'Hey, we are actually big enough to even be able to compete, or be in the same sentence as the US, in terms of AI,' and I think it's just a really exciting time to be in China.
I: So, I wanted to pick up a little bit more on the report that Mandy had talked about, this is a Chinese internet report, and it's essentially an overview of what's happening in the landscape here, that just came out this year-,
I: So, the thing that jumped out at me was when you said that the government policy has a visible hand. So, as a VC investor, or as an entrepreneur, how do you work with that? Because you do know that the government policy does influence everything that goes on-,
I: In business or technology here.
EY: Um, so, in the report, which, by the way, the report was really for all my non-Chinese friends-,
EY: To have a better sense that everything in China is not that scary, it's actually really exciting to be-, so, to help decipher what's going on in China, in terms of all these trends that are going on. So, it's written for people like me, which is for investors to look at what are the opportunities, but what we can't ignore, obviously Chinese government are very particular in-, in content, uh, related things, you have seen example that we-, you know, case studies related to-, it could be Tencent, it could be Toutiao, that sometimes, if you-, there's certain content that is a little bit sensitive, they may ask you to take a certain application down.
EY: For cases like this, it's less worry for investor, honestly-,
EY: Because we don't actively operate any of these apps, or anything that is sensitive, but certainly, we want to make sure that entrepreneurs and founders that we invest in are aware of all these regulatory related policies, to make sure that they don't get in to trouble.
I: So, I know you're crazy about blockchain and crypto, so then for the China market, given that there are certain sensitivities here-,
I: For example, bitcoin exchanges blocked, but still, there's a big industry, people still like it. So, how do you approach that? What's your strategy, for-, for crypto here?
I: Or for, say, gaming, for example, there's another one, that, in the report, what I also thought was interesting, that you had mentioned that with the gaming industry, biggest one in the world, at the same time, recently, we've seen restrictions coming in for the industry, so how do you approach it?
EY: I think that, as a-, as a-, from an investor point of view, you certainly need to be aware of-, like, pick your battle. Which means that, you know, a lot of my investor friends, from outside of China, I would suggest, or recommend, if anything that is really, like, B2C, that is focused on the consumer, usually it's actually quite hard for a non-Chinese investor to get in to the game, because gaming, for example, right, it's really not about just, like, a fun game. It's about operating a game. If you have no idea when is Chinese New Year, or-, or when is, like, the-, the national-, all the other national holidays, which Chinese have so many, you really have-, like, there's all these campaigns that you need to run, to make sure that you can actually monetize the game, and I think that has nothing necessarily to do with, 'Is this good for a foreign investor or not?' it's really about, you know, when it's B2C, it's harder for someone who doesn't speak the language.
EY: And then, on blockchain and crypto, it's really a love/hate relationship. I think the Chinese government-, by the way, I think both Shenzhen (inaudible) and Hangzhou have particular funds, government-backed, to invest in blockchain-,
EY: What the Chinese government is not endorsing is the crypto part of the thing, which is challenging the fundamental financial systems. You see a lot of really interesting use cases for blockchain, logistics, healthcare, trade finances, I think the Hong Kong Monetary Authority actually launched a trade finance system using blockchain, so you certainly see a lot of really great examples that can use blockchain for deployment.
I: Well, I was going to ask you, do you have any examples of blockchain companies, or the type of companies that you would be looking at, that you think would have potential in China?
EY: Um, I think certainly more on the enterprise side of the house, so any enterprise can potentially use, sort of, the trustless, decentralized data architecture, that could be really interesting. It doesn't matter, like, with insurance, or certain-, I was looking at a use case where-, trying to certify diamonds, and, you know, as diamonds come from one place, you pass it to-, to verify, to a jeweler, you want to make sure that it's real jewelry for us. So, I think there's a lot of really practical use cases that, you know, the whole world can use blockchain for.
I: Mm. So, um, like I said, I'm based in Beijing, and one of the things that I hear, over and over, is that winter is coming-,
I: And they're not talking about the weather. So, these are private equity guys, uh, VC folks, and they're looking at the slowing economy, they're looking at the slowing economy, they're looking at the trade tensions, with the United States, the pullback in the markets-,
I: Is this something that's weighing on your mind, when you're looking at these startups, thinking about early investment?
EY: Yeah, I think as an investor, you certainly need to be aware of what's going on, right? There's-, certainly, there's certain examples, this year particularly, with Xiaomi, Meituan, Pinduoduo, that have a really big expectation for IPOs, that, you know, some of the investors didn't end up, especially for a later stage, looking-, not necessarily getting the multiple that they were looking for. But having said that, I'm early stage, I certainly don't want to ignore, sort of, the secondary market, and what's going on, but as an early stage, I should not be investing another Taobao, I should not be investing another Xiaomi, I should be looking at things that is literally ten years out, things that we haven't even imagined, because what I focus on is early stage. So, as much as I am aware of what's going on, in terms of day-to-day, and investment, I'm-, I'm thankful that I still continue to focus on that technology side of things.
I: So you're not worried about it so much?
EY: Um, I think worried-, I'm very worried for later stage investors, but for us, it's that, we wanted to focus all the energy on early stage, and hence, a lot of the trends in the report are all about things that, honestly, I'm still, like, learning, as a student.
I: Well, so, the counterpoint, because you're getting me thinking, um, the counterpoint, though, is that there's been a lot of talk about how maybe there's been too much money-,
I: Flowing in to all these different technologies, because they're-, you know, in-, in so many different technologies, so maybe it's a good thing. Maybe it's a good thing that we're seeing this pullback. What do you think of that?
EY: Um. Certainly, it's great for us, I think, because in the past few years, you see most of the early stage valuation of Chinese startups, I feel like it's at least three to five X more expensive, in terms of valuation, compared to the US, and you're talking about Silicon Valley. Um. So, I think a little bit of pullback is not necessarily a bad thing, because hopefully it's a little bit more reasonable, in terms of valuation, so it's better for early stage investors.
I: Which you-, does that mean that-, what would the consequences be? Do you think there could be a shakeout? Would there be a consolidation? What do you expect?
EY: Um, it really depends on what area. Um. If you're talking about, let's say, mobile payments, I don't think anybody else will stand a chance. Um. Certainly, let's say, for mobile commerce, I know this year, for Singles Day, it's like over $30 billion, and if you compare to the US, um, it's only $6 billion, for Black Friday, so this is literally, you know, six times bigger, and still only 17% for online commerce, so there's a lot of room to grow, but it really depends on what it is. You and I, backstage, were just looking at the gene edited twin baby. It's amazing that this actually happened in China, and not the US. So, there are a lot of, you know, really awesome technology related to AI and blockchain, which I think that you can see more-, even more here than outside of China.
I: So, our audience has a lot of different entrepreneurs in it, people who have their own business, their own dreams. What do you think they should be pitching to you? Like, what would resonate with you today? You had mentioned AI, you mentioned blockchain. What are you looking for?
EY: I-, I think the most important thing, for a lot of the early stage founders, when I meet, they're just so passionate, um, and-, about their product. At the same time, it really depends on what you're working on. I really-, it's hard for us to get to know a company, within five minutes, but what we wanted to know is that you have a good understanding of the landscape, and point out the obvious, right? 'We are not another Didi, we are not another Taobao, but we are very specific on this pain point-,'
EY: And it's completely okay to say, 'Hey, we are particularly solving the payment issue for healthcare, because that is unique, therefore I have a specific solution that is for B2B, let's say. If you can be very specific, that pain point-,
EY: And you are the person solving that problem, for-, it's very interesting for us, because it's not just-, purely just about the cool AI, because generic AI, we've found it's very, very hard to compete with the BAT. But if you have a really good understanding of the pain point of that industry, and we're looking at AI deals, then we have very specific things that we can discuss, and that's exciting.
I: So, obviously you're very excited about all the different technologies here, the entrepreneurs. How easy is it for you to exit, once you make some of these investments?
EY: Um, so, in-, in the report, it was really, really cool to see, is that in the last 24 months, even though, obviously, certain valuations wasn't as exciting as before, but still, there's many, many exits, and you're talking about, you know, literally, 20, 40 of these IPOs, and M&As, (inaudible), or Alibaba-,
EY: Is over 9 billion, so there is a lot of M&A activities going on, and then for IPOs, you see a lot of internet companies are not only IPOing in Shanghai or Shenzhen, it's also in Hong Kong, and on NASDAQ, and New York Stock Exchange. So, just because you're investing in China, the exit could be worldwide.
I: Okay, so better than before, better than in the past. So, when-, when-, I guess, we only have a minute left, I don't know how that-, just time passed by really fast-,
I: But is there any industry that you will not touch, and you don't think is actually very good right now, for 2019?
EY: Um. I am just-, I'm not a very good hardware investor, like we were talking about-,
I: Smart speakers?
EY: Smart speakers. I-, I just-, I think there are so many of them, and it's very, very hard, not-, and, you know what, there are a lot of really amazing hardware investors-,
EY: But just not me, so it's-, it's my bad-,
I: So [laughter]-,
EY: [Laughter] yeah-,
I: So it's your own personal failing-,
EY: Yes, and hardware is hard, and I want to focus on the software side of things.
I: Okay, well, I hope that there are some entrepreneurs out there that are going to be hard pitching you for some of the hardware stuff, since we are in the southern China, which is much more the hardware place-,
EY: Yeah, I-, I love you guys, but just not for me.
I: Well, thank you so much, Edith. That's Edith Yeung-,
EY: Thank you, Eunice.
I: Thanks so much.
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