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Below is the transcript of a CNBC interview with Jixun Foo, Managing Partner, GGV and CNBC's Deirdre Bosa. The interview took place at CNBC's inaugural tech conference, East Tech West, in Nansha, Guangzhou.
DB: Thank you very much, Mandy. I am thrilled to be here, and Jixun, I could not be more excited to talk to you, because it's not just your own track record as an investment, but it is worth mentioning, your first Chinese investment was Baidu, you've been involved with Qunar.com-,
DB: Any other ones, you're particularly proud of, that you want to mention?
JF: Well, there are quite a lot, uh-, [laughter].
DB: There's a lot. There's a long, long list, Didi and Grab, those are two that I certainly wanted to highlight, and GGV, as a VC firm, some very legendary investments. I think one of the ones I like the best is they started investing in Alibaba, when Goldman Sachs was getting out, and that was a big mistake, a big loss for Goldman, and a big, big win for GGV, so thank you very much for being here.
JF: Thanks for having me. Really appreciate this. Thanks.
DB: Now, I want to start by talking about one of GGV's latest exits, that is Xiaomi, listing this year, one of the mega IPOs, in Hong Kong's banner year, really, for IPOs, and it seems that Hong Kong is back, post-IPO, after losing that listing, requirements have changed. Why is it that you think Xiaomi chose Hong Kong over American exchanges, and I have to ask that, as the American representative here.
JF: Sure. Well, I think the-, the choices are actually pretty open. I think what Hong Kong has changed, more recently, as you mentioned, are just some of the classes of shares, the rules, so that allows, you know, companies to go IPO, while maintaining a certain level of control over the running of the company. I think Hong Kong being close to China, the proximity does help, so I think you do find that companies, especially those with decent amount of profitability, are choosing Hong Kong as a good choice, especially when the business model is even, you know, more likely to be appreciated in the China context.
DB: You talk about appreciation, let's talk about some of these post-IPO performances, and yes, it is still very early days, but Xiaomi, Meituan, it's been a little bumpy since those listings.-,
JF: Oh yeah, absolutely.
DB: So, what does that tell us? What do the public markets know, perhaps, that private investors don't know? Or perhaps did they get something wrong in valuing these companies? What does it tell us?
JF: I think there is the individual company, you know, we-, we've seen cycles like this, the dotcom bubble, the 2008, and so on and so forth, so these cycles comes and goes. I think, underlying it, it will take the public investors some time to appreciate the underlying value of these companies, you know, the likes of Amazons, and others, the same. So, I do think that that's one. I think the macro market is affected by many factors, obviously we have these big tensions going on, trade tensions going on, around the world, the US and China, in particular, so those macro factors does affect the sentiment towards Chinese IPOs or Chinese stocks. So, I think there is the macro effect, and there is the underlying-, appreciation of the underlying value of those companies, which takes time. Hopefully, in a few quarters, by their performance, you know, public investors will better appreciate them.
DB: Okay, let me ask you about some of the big Chinese companies that are listed in the US. Alibaba, Baidu.
DB: We tend to simplify things, call Alibaba the Amazon-,
DB: Of China, and Baidu the Google of China, even though that everyone in the room, I think, knows that couldn't be further from what these companies have evolved in to. Do you think that American investors understand Chinese companies? Or do they seem them simply as a proxy for the Chinese economy? You mentioned trade tensions perhaps playing in to some of the bumpiness we've seen for these IPOs-,
DB: Would that make them less willing to, perhaps, list in the US?
JF: Uh. In part. I think that, uh, to understand the China-, I mean, saying that Alibaba is Amazon is-, it's an easy reference, and so you kind of know, yes, they are an ecommerce company, they are now moving in to e-retail, just as Amazon is doing. But I must say that the whole landscape in China is very different the whole infrastructure it's built up is very different. Alibaba has spun out Ant Financial. That's a huge-, initially, as a-, you know, a payment infrastructure, but it's evolving more than just a payment service, it's becoming a financial services provider. So, I think we have to address the market, based on what the market looks like, what the consumer demands for, and how the market is evolving, and these companies are evolving with the market, and so they are becoming a quite different animal from what the US comparables are, or look like.
DB: So what do you think that American VC investors, if they're thinking about looking at China, and sitting in San Francisco, and Silicon Valley, I can tell you that there's a fair amount out there who are scared of Chinese investments, because it may be a little bit harder to understand, and there-, like, there is no easy comparison. What's the number one thing that VC investors who are looking at China should know about Chinese startups?
JF: I think there are certain common understanding, or common, you know, theses that we can apply, in what we-, what I call the playbook, the playbook in the US, or the playbook for China, or the playbook for, say, Southeast Asia. You look-, there are certain underlying trends that drive shifts in consumption, the mobile internet, today we talk about artificial intelligence. But having said that, each of these markets are very different. The density of the cities are different, the demand for services are different, the sophistication of the consumers are different. So, new services will emerge, based on the demand from the consumer. So, Pinduoduo, or the ride-, I mean, the bike sharing services, for example, these are new phenomena. You don't see that in the US, you-, we-, it sort of launched and became big in China-,
JF: And we are seeing replicas, now, you know, outside of China.
DB: Okay. I want to go back, just briefly, to that IPO question, as well. Because of the bumpy ride we've seen this year, what do you think that the likes of Ant Financial, and Didi, might be looking at? Are they looking at the Chinese exchanges? Or perhaps going to the US exchanges? Has it changed anything, the year that we've had?
JF: Um, I-, I don't have the-, a good answer for that. I think-, I think the-, the options will remain open for them. Um. I think for-, you know, Alibaba, at one point, was considering more Hong Kong, versus US, but because of the class structure, the partnership arrangement that they would like to have, they chose to go to the US. So-,
DB: But now they're looking at a dual listing, actually-,
JF: And they are looking at dual listing. And so options are always there, I think they will weigh these options, they will weigh this openness of the market, and the readiness of the investors to take on their-, I guess their IPO, and they will make those choices accordingly. So, I think Hong Kong is becoming a strong option for many of the tech IPOs, which never-, it was never in the past, other than Tencent, which listed much earlier.
DB: Right. I want to talk about some of your ridesharing investments-,
DB: You led investments on Didi and Grab, and this is a space I cover in San Francisco, on the Uber and the Lyft side, but you can't help but cover all of them, because it has become so convoluted-,
JF: And now there is scooter sharing, and bike sharing-,
DB: Yes, yes, exactly, throw that in to the mix. Where does it all go from here? That's a conversation I have all the time. It used to be that there was a winner-take-all, it was going to be Uber or nobody, but now Uber and Lyft coexist, Didi has invested in Uber, Masa's Vision Fund has invested in many different ridesharing apps-,
DB: What's the endgame? Do you know?
JF: Um. Well, I am learning, just as you-, as much as you are, hopefully ahead of that curve. What we have seen, obviously ridesharing started with Uber, and then Didi, and then Grab, using mobile, it makes the whole ride services more ubiquitous, you know, you just have to 'e-hail' your-, your ride. But then comes the bike, the bike services started off with simple mechanical bikes, but really, the bikes are also changing in to e-bikes and electric powered scooters, and that carries a distance from 0-3 kilometers, or miles, to more, like 5 to 10 kilometers. What that does is that it becomes a kind of-, it-, it takes on the Didi and Uber, and the Grab, for the short range-,
JF: And so I think the transportation fabric, the landscape is shifting, so that's really interesting for me. Uh. So, if you think about driverless, the bike and the scooter sharing is a driverless service. So, that direction and that contention will continue for a while. Um. Yes.
DB: Are we going to see more consolidation in this space?
JF: We might.
DB: So you've seen the ride hailing apps acquire and make big moves, in e-bikes and scooters, and with each other, and you've seen Uber retreat from some markets-,
JF: Yeah, I think the model will continue to consolidate. I think-, I think it's more important for these ride services to be more localized, increasingly, because you really have to have the end-to-end solution for the consumer. Whether it's-, you know, for me to, you know, get myself a bike, and, you know, ride it out, for 1, 2 kilometers, or do I want to take a car? The option has to be open. So, I think what-, what-, most likely, the consolidation will happen around the local players, to try to offer a more comprehensive service, or fabric, for our consumers.
DB: Mm-hm. Now, being an investor, in Didi and Grab, and then you have someone like Masa Son, who I mentioned-,
DB: The Founder and CEO of SoftBank, who is cutting some very, very large cheques in the space, for both Didi, and Grab, and Uber-,
DB: Do you need to understand his strategy, as he moves in to your space, not just in the ridesharing world, but in the VC world?
JF: Well, he certainly has a lot of money [laughter] and-, and so it's-, it's a force to be contended with-,
JF: So we do have to look at them, and work with them. So, they are both a friend and a foe, and I would say that, from a friend perspective, we-, we-, we-, they add ammunition to the portfolio that we invest alongside, for example, Grab, and Didi, and the likes. And-, but from a foe perspective, it's just they-, they are very dilutive, because they puppet a lot of capital. So, that equation, the capital equation starts to change quite a bit. So, I think we have to-, I think we are in a new, I mean, paradigm, where the capital, uh, becomes larger. You know, VC funds, Squire, Hillhouse, and the likes, so more people are raising large amount of capital, to finance the growth of companies, tech companies, in particular.
DB: Does that change your investment strategy at all? I mean, they're raising huge amounts, I should have mentioned, the Vision Fund is a $100-billion VC/PE fund-,
DB: And you guys just raised $2 billion for your biggest fund in 18 years, so how does-, how has the landscape shifted your strategy?
JF: So, I think, for us, we continue to be venture. We want to be early. We invested in Hello Bike at $20 million valuation. We invested in Grab at $40 million valuation. So, we-, we are early. We will continue to stick to who we are. And we raise initial capital, with our recent fund, we add, you know, close to $22 billion, is we are now more multistage, so we can do better (inaudible) to protect the ownership that we have in the company.
DB: Speaking of that, I want to, while we have a few minutes left, talk about your earliest investment, we've got to give a bit of time to Baidu-,
DB: I think you told the story of visiting Robin Li, in Beijing, and there was 13 or 14 people-,
DB: In a room, right? And you saw the passion. Um. Fast forward, now, a few years later, has it surprised you? Did you always envision Baidu being this big?
JF: Uh-, no. [Laughter].
JF: So, I think when I invested in Baidu, in 2000, there wasn't Google. Um. I wasn't-, I wasn't sure where Google is. But the-, the comps that I was looking at was (inaudible) and (inaudible)-,
DB: Right, you thought it was B2B, right?
JF: That was B2B, uh, services, and-, they were both trading at a high of, you know, $12, $13 billion. So, I said, 'Well, information service, that's-, that is demand, I mean, given the explosion of-, of information, through the internet, search has its value,' that was my underlying thesis. And then the other big thing for me is betting on Robin and his team, the passion that they have to make a difference. So, that-, that-, that was the-, that was the combination, the trend, and the people that I bet on at that time.
DB: Mm-hm. And now Baidu is the dominant search engine in China, and Google is looking to come back in, of course they left this market, many years ago, and, in that time, Baidu has been collecting data, figuring out how to perfect its search engine. Does Google have a chance to come back to China?
JF: Uh. I think there is always a chance, and I think it really depends on how Google will come back in to the market. The market is big enough. The question is, how will-, I think there is a regulatory factor, that Google has to adjust itself to, or any foreign companies have to adjust itself to. There is also the fact that you have to localize your service. Search, it may be as simple as it seems, it's just a search box, but when Baidu launched its search, they-, they-, they actually localized their service, with more specific needs of the consumer. At that time, 2003, they launched MP3 search. That actually was something that the consumer really would want to have. So, localizing your service to the market is quite important.
DB: Do you think that's something that Google can do, if they want to reenter this market?
JF: I think they-, if they have the will, there's a way.
DB: Okay. Well, that is our time. Thank you very much, Jixun, for sitting down with me-,
JF: Thank you.
DB: And I hope you guys enjoyed the conversation. I learned lots.
JF: Thank you very much.
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