The Capital Winter Is Irrelevant To Chinese Entrepreneurs
摘要： Capital should never be the main concern for entrepreneurs. In the state of angel investment, capital is plenty enough for entrepreneurs to explore the market and develop their startup projects. Besides capital, entrepreneurs shouldn’t care too much for the evaluation of their companies. As long as you have good products that matter to the market, then you can get through any capital winter. Therefore, the capital winter is irrelevant to entrepreneurs. All they have to do is focus on the things that they are doing currently, this persistency and concentration are the things that will naturally draw capital to entrepreneurs.
As a founder of New Oriental Education & Technology Group and one of the most active angel investors in the investment community, Xu Xiaoping started as an angel investor originally in 2006 and later established Zhen Fund in 2011. In the recent four years, Zhen Fund has invested in over 200 seed-period projects ranging from the field of Internet of Things, the mobile Internet, the gaming sector, enterprise software, the O2O sector, e-commerce, to the education and training industry. Companies such as Jiayuan, Lightinthebox, Jumei, Zhaogang, Dayima etc. funded by Zhen Fund have already become significant players in the market.
At the recent TechCrunch conference, Xu Xiaoping discussed with TechNode’s founder Lu Gang on the topic of Chinese innovations, and Xu shared the following perspectives with the audience:
- If an investor wants to sign an unlimited liability agreement with an entrepreneur, then we should denounce that investor, for the fact that this is not an act of faith to become a partner with entrepreneurs.
- Founders should encourage their staff to unleash their potential despite whether they would stay in your team in the end or not.
- Good team members should be top professional talents who can handle running companies that are valued at over billions of dollars. That’s the general picture of the Silicon Valley in the U.S.
- Entrepreneurs shouldn’t care too much for the evaluation of their companies. As long as you have good products that matter to the market, then you can get through any capital winter.
What follows is the full transcript of the conversation, edited by TMTpost:
Entrepreneurs should not sign any unlimited liability agreement
Limited liability means when your company goes broke, your personal assets will not be affected by the collapse of your business. This is a great invention created by capitalism. It allows entrepreneurs to avoid the risk of losing everything for their entrepreneurial projects. Under this agreement, investors will benefit as your company grows big and profits, and they will also embrace the loss if the company turns out to be a failure.
I don’t know if any of you present here has signed unlimited liability agreement with the investors before. But if you have done so, it would mean the loss of your personal assets if your company goes down. This is an unusual phenomenon. If some investor proposes to have an unlimited liability agreement, everybody should take a stand and denounce the investor. Such agreement should be avoided. But still, it’s up to you to make the decision and you have to accept the consequence it brings forth.
What I want to say here is that investors should be fair to entrepreneurs and just don’t be arrogant. Entrepreneurs spend perhaps three years of their invaluable lives to make a startup happen. But you can just ditch the project anytime you want after investing a couple million dollars. Investors lose money, and entrepreneurs lose their youth in this case. So I am emphasizing a new value here, a new idea, a new way of thinking. Thus, when you are meeting an investor, you are in a equal position. You don’t have to treat him like God necessarily. Even though I am an investor myself, I still think this phenomenon is something we should improve about. If you agree with me please give me your applause. I can’t just trash talk all the investors out there without getting entrepreneurs’ recognition and support.
Have young entrepreneurs become restless after the mass entrepreneurship?
Have the courage to start a business, believing in oneself, and pursuing a better future are part of a great value. There’s no doubt of that. Just think about Yu Minhong’s entrepreneurial journey for example. When he first started kicking around, nobody had ever thought that he had the slightest chance of achieving success. Though one girl was the only exception, and you know how the story went. Whether it’s twenty years ago or at present, there are always people casting doubts on entrepreneurs. But how could they predict the success of failure of an entrepreneurship? Nobody is born to be a winner or a loser. At the end of the day, the time belongs to the young generation. Pioneers like Jack Ma and Yu Minhong are growing older while young people are gaining traction and becoming more passionate with every passing day. This sounds like a cliché speech, but it certainly has a point. Do you have any problem when you are on your entrepreneurial path? Not at all right? Since even if you are not running your own business you are also taking money from others. In this case, it doesn't really make any difference. So if you can run your business and earn money as well, why not do so?
Recently Meituan merged with Dazhongdianping and a lot of people are keeping close tags on the development of the merger. I think what many people don’t know about is that in the earliest time when Meituan was established, many young people joined the company. An entrepreneur should concentrate on making his or her project work, be a decent guy and win over the recognition of the market, the respect of other partners and clients. No matter your project succeeds or fails in the end, you can always find your own place in the entire entrepreneurial ecosystem in China if you can pull all these off. That’s why in my opinion there’s no so-called failure in entrepreneurship, the only thing that’s dragging you down is your own fear.
Encouraging the staff to start their own business is necessary
The boss should encourage young people to unleash their potential and individual value. Only in this way can you get the greatest staff or partners in return in the future. If a person finds his or her future path thanks to your platform and eventually achieve the goal, then that person would thank you. The outcome is you help created a new commercial platform.
I want to tell you a story. Zhen Fund has a vice president of the investment division who used to make games. 18 months ago, somebody tried to poach him with a very high salary. “I am not leaving here. I love Zhen Fund,” he said. And I told him that as his boss, if I thought he was the suited candidate, I would invest money in him, that I would become his personal investor. In the end I told him to take the opportunity to a higher ground. He was moved, and joined another company earlier this year. Now he’s incredible successful, as one of the most important shareholders of that company, which is valued at 11 billion currently. Back then I just told him to leave and don’t dwell on the things he had at Zhen Fund. In the end he left, and he brought Zhen Fund many investment opportunities. His departure actually generates as much value as he could have created at Zhen Fund.
Respecting, helping, and encouraging professional talents do matter for the fact that the very nature of entrepreneurship is realizing an individual’ true value. You need to encourage your staff and your partners in your startup team to fully understand and unleash their potential. In my opinion, it doesn’t really matter if they would eventually decide to stay in your team or not. After all either way the outcome will improve the entrepreneurial environment as a whole greatly.
This is not generosity, but rather a concept of value. People with this value can make their companies extremely big. Yu Minhong founded New Oriental Education & Technology Group, which I joined as an employee in some way. Wang Qiang was also a later comer who joined us. Together we fought to make it work. Mr. Yu was our mentor and he encouraged us to go out and find our own entrepreneurial path. We all grew up in the field of entrepreneurship in the end. This is a great thing to the young generation in China, the Chinese society, and myself. So when you have your own staff, you should encourage them to pursue their dreams as well. You should help them and encourage them to work hard to reach their maximized potential.
Internationalization and making it big
Baidu, Alibaba, and Tencent, the dominating three Internet companies in China known as BAT, haven’t reached internationalization yet. By far their main businesses are still in China. However, a group of emerging companies appears in the country, such as DJI-Innovations, whose very first target is the global market. Of course they are not yet the largest companies in the world, but we have to understand what kind of impact that their internationalization prospect will bring forth. Firstly, they started with products of the best quality. To put it into perspective, when a person takes the global standard to measure the quality of the products and run the company, then the company will certainly win over the Chinese market in the end. This is the concept of internationalization, but unfortunately no company in China has reached this height. I hope WeChat would ultimately become a world-wide social app that everyone uses. But still up till now I haven’t discovered any Chinese company that’s truly world-class. Facebook is just a social networking tool, and it became a highly internationalized company. China is huge, it’s enormous, and therefore the market here is gigantic as well. No matter what line of business you are in, whether it’s producing nails, lighters, ties, shoes, or robots, or other high-tech stuffs, you are already competing in the global market in the very beginning. The reason why pandas in Wolong, Sichuan province, can survive to today, is that they have no natural enemies there. As for us, we have natural enemies all along. Even if you don’t want to conquer the global market, you still have to make sure that the quality of your products meets the global standard in order to increase competitiveness.
As for the idea of making your company big, in my opinion this is something that small-sized companies should also consider about. Entrepreneurs should have ambitions, dreams, and a layout plan in their mind. Maybe at first you only want to open a small café or a noodle place. But ultimately I want to make them the next Starbucks or Ajisen Ramen. A true entrepreneur should plan its layout based on professional talents and form a consistent thinking.
Any industry in China is incredibly enormous. I don’t know how Meituan got started so I would talk about another Mei here. Meican is a solution to restaurant supply chain, which was invested by Zhen Fund. The company’s slogan is, “Free every cook from the trouble of buying food in actual markets.” I believe Meican would do great in the market. Regardless of your line of business, to make your company big requires having a certain strength in certain field that can set you apart from the crowd.
Talent structure serves as the backbone, accumulating professional talents beforehand is a must
Every company wants to become a unicorn. But the inconvenient truth is that even companies that have a volume of three or even four billion dollars still have the chance of encountering a downfall. Happy families are the same, and those unfortunate ones have their different sufferings. We have this company that’s definitely a unicorn, and according to them what they were doing was innovative and disruptive, and therefore they wanted to do it in secret, without drawing the attention of the government. And the outcome is, the government noticed them while they didn’t pay the government any attention. Three months later, a giant awoke in this very industry and rose from the ground like a star. Perhaps it’s their public relations strategy and execution were better than the former company’s, or maybe it’s they had better relationship with the government, but anyhow this company is extremely successful now. When I want to revolutionize an industry, turn it upside down and change it, how could I not communicate with the authority and pave the way for my project? This is what we call government public relations. The lack of such layout awareness led the pioneer to a pit. It’s a shame that they neglect this important factor.
If you are going to truly revolutionize an industry, you must organize your company well and guide different divisions and departments as a whole. For instance, we have companies that have well-developed e-commerce business and very good marketing ability, but they lag behind in storage. Of course, these companies usually can tackle these obstacles. And maybe you didn’t wish to make your company a ten billion dollar company. But when you do make it happen, you have to be prepared. You need to have a talent pool in stock to welcome the coming success, honor, and wealth. So I often joke with entrepreneurs that they would totally freak out if they suddenly have a wealth of two billion dollars. To be successful, or let’s say, to have to gut to be successful, you have to have a backbone in place, and that’s the talent structure. A good team should consist of people that can manage companies valued at several billion dollars.
Startup companies must find enough professional talents in advance. You think you can appeal to talents with high salary? That won’t work. Entrepreneurs have nothing but shares. If you dare to give out shares of your company, then talents will stay. We invested in a company and the benchmarking company in the U.S. was ten billion dollars. Later we found the company only had one person, and he made the product himself, he’s the product manager, and technical personnel. I spent two hours to tell him one thing: get a sales expert. He was confused since he didn’t have a product yet, and therefore he saw no need to find a sales expert. I told him that we needed to find a sales expert from IBM or Oracle, who could develop products with you as well. This sales expert would communicate with clients and promote you, making a stir in the market and letting people know that you are make something and it’s ready to roll out to the market. And when you finally finished making your product, you can let potential users test the product first. In this case, entrepreneurs should be open-minded and have an insight to see the future. Talents must be recruited before you act on something, in case when your company grows too big and too fast you have no professional experts to handle the situation. Top talents are hard to find. Usually it’s going to take three months to find any. You have to be prepared.
Professional talents in China are catching up with those in the Silicon Valley
Chinese entrepreneurs are catching up with elites in the global community, but there’s still a gap. However, Chinese entrepreneurs do have the potential to surpass those from the Silicon Valley. For instance we have the famous Copy To China business model in China. This is an inevitable trend. But in the past few years we have also witnessed many startup companies emerging in the country. China has talents, many of which are already setting up their entrepreneurial foothold in the U.S. Many of them don’t even have a master degree from an American university and they still decide to go the America. This is an indicator that shows Chinese entrepreneurs are indeed becoming competitive and that they are catching up with the best in the world. Additionally, due to the gigantic market that China has and the country’s numerous development opportunities, this generation of entrepreneurs actually gets lucky. From this perspective, with the skills you have right now you can make a wonderful entrepreneurial journey and write your own epic story. You can realize your dreams with all the existing resources.
Capital should never be the main concern for entrepreneurs. In the state of angel investment, capital is plenty enough for entrepreneurs to explore the market and develop their startup projects. What’s more, when you want a hundred million dollar evaluation, even if you get a fifty hundred in the end you still have the incentive to march in forward. Therefore, entrepreneurs shouldn't pay too much attention to the evaluation. At one time we were about to invest around one to two hundred million dollars in a company. But the head of the company thought our offer was too low and rejected us. In the end, other companies funded his rivals. I am telling you this story to inform you that as long as you have good products that matter to the market, then you can get through any capital winter. I started my career as an investor in 2008, in which period many current giants were born or had their fastest growing period. They are the living example of that the capital winter is irrelevant to entrepreneurs. All they had to do was focus on the things that they were doing. This persistency and concentration are the things that will naturally draw capital to entrepreneurs.
[The article is published and edited with authorization from the author @TMTpost-Chinese, please note source and hyperlink when reproduce.]
Translated by Garrett Lee (Senior Translator at ECHO), working for TMTpost.