This Guy Invested In Xiaomi, Airbnb And Xiaohongshu, And These Are His Tricks On Making Investments

摘要: Hans Tung sees himself as a boring person in life. In his opinion, besides understanding users and the products, to master investment techniques also requires knowing the history.

(Chinese Version)

Unlike most investors that are reserved and serious, GGV Capital’s managing partner Hans Tung has a rather outgoing and passionate personality. He speaks in a rich and low voice and gives a firm handshake. Even if you meet him for the very first time, you would remember this American Chinese investor.

Hans Tung has achieved a perfect investment portfolio during his 12 years of career as an investor. He has invested in Xiaomi and Airbnb, and later became Xiaohongshu’s board chair. He also discovered the immense potential of Wish, a small company that few people knew at that time. Up till now, these startups have grown into today’s unicorns.

Since 2013, Tung had been included on the Forbes Midas List. On the 2017 list, he has been ranked as the 19th best investor in the world.

Despite his participation in the financing of these star companies risen from consumption upgrade, Tung sees himself as a boring person in life. He hasn’t really tried all those new products and services brought by the companies he invested in. He learned most of the user experience of the services and products from his friends and colleagues.

When asked about how to conclude a method based on his long years of investment experience, Tung told us that his answer wouldn’t be what we thought would be. In his opinion, besides understanding users and the products, to master investment techniques also requires knowing the history, which he believes is in fact more important. By studying China, the U.S., Japan, and European countries, knowing their history, similarities and differences, and comparing their industries, investors will learn to detect the tendency and acquire insights, he said.

This history-based investment method is reflected in Tung’s reviewing comments on the companies he invested in.

When talking about Xiaomi’s ecosystem, Tung can start analyzing Taiwan’s semiconductor industry and the consumption upgrade’s impact on the American society’s supply chain value during the post-world-war-two era. Tung can relate Xiaohongshu and other cross-border e-commerce platforms’ rise to historical events like Spain discovering the new continent. Tung would think of his high-speed-train trip from Tokyo to Osaka 15 years ago in Japan when talked about the domestic demands that are driving today China’s consumption upgrade.

As one of the earliest Taiwanese immigrants fresh off the boat in America, Hans Tung had studied and worked in Taiwan, the U.S., and Singapore etc., eventually settling back in mainland China in 2005. He had experienced the difficult era in which guanxi was the key to investment projects. In 2013, he returned to the U.S. Now he is living with his families in the Bay Area in California, spending about one third of his time assessing projects in China.

With such work and life experience, Hans Tung developed a more sensitive mind on investment projects in the cross-border category. Whether it’s Airbnb and Wish’s importing to China, or Musical.ly’s exporting, Tung could always make use of the capital and talent resources, providing protection and guidance for the invested companies in internationalization.

For instance, Tung and GGV Capital helped Xiaohongshu hire Tiger (Qie Xiaohu) as the company’s CTO, who was the former director of Google’s global R&D department.

Tung mentioned that he really admires Hillhouse Capital’s founder Zhang Lei. In his opinion, Hillhouse Capital has been smart with investing in listed companies. The capital company also recruited a group of talented minds on mid-term investment, while willing to invest in some early-phase foundations. In this way, the company, in fact, formed its own ecosystem chain.

“When Internet companies are building their ecosystem chains, investment organizations are also doing the same thing. It’s not a matter of group efforts, but more of a strategy matter,” Tung said.

Looking from GGV Capital’s investment portfolio, which includes Xiaomi, one of the earliest smartphone companies in China that utilized community and fans, cross-border e-commerce platform Xiaohongshu, homestay platform Airbnb, and video app Musical.ly etc., we can tell it is very much focused on product distribution and the information demand upgrade. Such consumption upgrade, as well as the user profile, are becoming more common around the world.

On consumer goods: Participation, customization, and light promotion

The development trend of the consumer goods in China in the past two decades shows the growth of consumption options (diet juice, salad, amino acid shampoo) and the transformation of consumption mindset (vegetarian lifestyle, simple design, sporty style). It seems the development is influenced by the west more or less. Students who went overseas to study, as well as professionals who had previously worked in the West brought their consumption lifestyle to China, spreading their lifestyle and pushing the consumption upgrade forward.

Overseas brands have noticed this phenomenon and are using it as a reference. How to make product innovations, then promote them in a localized way, and expand brands to the global market have become part of the standards for Tung and his team’s project evaluation. At a roundtable conference last year, Tung stated that “the next decade will still be the golden era for the mobile Internet while globalization will become the next boost for startups.”

This is GGV Capital’s strength. In the past year, Tung has been eyeing the consumer packaged goods sector, taking several financing projects like Function of Beauty, Wear Lively and Dirtylemon etc. Before that, GGV Capital was involved with the financing of Wish, Poshmark and Offerup. All of these apps have made it into the top ten on App Store in the Shopping app category.

Besides the education and career background of the startup teams’ members, Tung also values the new concept, strategy and culture of the products and marketing.

For instance, there is the upgrade of value, or let’s say, mindset. Instead of following the path of Victoria’s Secret, a brand that makes sexy underswear, Wear Lively focuses more on making their underwear comfortable to wear for women besides providing sexiness boost. This design logic is different from that of the past ones, which were more about catering to men. It’s a value that more fitted for today’s female consumers.

And we have the growing customization trend. In March this year GGV Capital led the A round financing of Function of Beauty, which was completed at $9.5 million. According to Function of Beauty, the company customizes the hair products based on the consumers’ hair condition, and fragrance preference etc., offering up to 12 billion customizable combinations.

In Tung’s opinion, even though consumer goods giants like P&G have complete and mature production lines, Function of Beauty still could set itself apart from the crowd by adding personal and customizable features to its products, enhancing a sense of user participation.

However, in terms of enhancing consumer participation, the change of marketing strategies might have brought the most obvious progress. The rise of social media is powering startups to better interact with their consumers online.

Let’s look at Dirty Lemon as an example. This startup was founded in September 2015, without a brick-and-mortar store, or a shopping guide. The energy drink company went popular for its distinguishable packaging. And models and gym lovers have been posting about it on Instagram, attracting a great reputation for the company. That’s how Dirty Lemon gained momentum in such a short time.

By building a good relationship with KOL like models and gym lovers, Dirty Lemon channels its products through social media like Instagram, laying a promotion foundation for the brand’s early development.

“Platforms with high user participation rate will build their community according to their products and brand voice, which appeals to users to join willingly,” Tung told TMTPost. Similar cases include Airbnb and Xiaohongshu. When talked about Xiaohongshu’s status after the new cross-border e-commerce policy, Tung showed a rather positive attitude, saying that Xiaohongshu is having a great overall performance, and the platform is thinking about transforming to a complete e-commerce platform or a community-based e-commerce platform.

“Going for the e-commerce direction entirely is all about the GMV. After entering the platform, users will realize that the platform doesn’t have an environment fitted for them, so it’s pointless to do so. Now Xiaohongshu has figured that only by building a great community can it become a big company,” Tung said.

Short video business: the U.S. sells advertisements, China sells products

As I have mentioned in the first half of the article, investment organization’s portfolio should also form an ecosystem chain of some sort. The consumer goods companies Tung has invested in all emphasize on online marketing when it comes to customization and user participation. Besides Facebook, Instagram and Snapchat, or WeChat and Weibo in China, the emerging short video industry is also becoming an important part of GGC Capital’s investment plan.

“In the U.S., social platforms like Instagram are more open than WeChat. Small startups can connect with users through social media and channel the data flow to their platform. Companies like Amazon and Neflix etc. are doing similar things. These companies are hoping to spread their PGC content to as far as possible, lowering the distribution cost,” Tung said.

Under these circumstances, GGV Capital invested in the short video social platform Musical.ly and gif search engine Giphy. Giphy provides gif-form promotion service for TV shows, movies, and even news events.

It’s apparent that the distribution channel differences influence the development of short-video platforms and the changing forms of live streaming. Western short-video startups generally increase their profits by offering paid membership and through advertisements. This can be attributed to the fact that western users have the habit of paying for content. It’s worth noting that short-video companies are making longer videos and better videos to keep their users.

In China, e-commerce is one of the main cash-in methods for live streaming and short video platforms, which also nurtures the Internet celebrity economy. On Tmall, Taobao, and even we-media KOL, it has become quite common to watch Internet celebrities’ live shows and buy the products they recommend.

Hans Tung believes that companies can apply the advertisement and e-commerce model in different phases. For short-video and live streaming startups, even when they don’t have enough data flow yet, they can still profit as long as their content attract users. The advertisement model can only bring forth value when startups have accumulated a certain amount of data flow, which is a challenge to new platforms.

From this perspective, Chines companies’ e-commerce model is more practical. But Tung also points out that short-video companies overseas are more competitive culturally, especially in terms of cultural output. When startups are going global, companies with better cultural power will have less obstacles. Chinese short video companies would have to spend more time and energy on localizing their content. Earlier this year, TouTiao fully acquired the American short-video community Flipagram, making the first march into overseas short video sector.

“In western countries, users generally live stream partying with a bunch of people. In China, users often present a live show, which is quite grass-rooted. The U.S. doesn’t really pay attention to the grass-root market so the live streaming strategies are quite different in China and the U.S.,” Tung explained.

However, it doesn’t necessarily mean Chinese short-video companies have no hope in internationalization as there are other developing country markets like India, Brazil, and Thailand etc. Live show and short video can still be appealing features even in the U.S., if the localization and operation are done right. Perhaps they could also take away the market share under the watch of Instagram and Snapchat who have been neglecting these sectors.

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 [The article is published and edited with authorization from the author @Su Jianxun, please note source and hyperlink when reproduce.]

Translated by Garrett Lee (Senior Translator at PAGE TO PAGE), working for TMTpost.

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