Q&A: Qunar co-founder CC Zhuang

Q: What were the market conditions like when you founded Qunar and how did that impact the evolution of the business?

A: When we founded Qunar in 2005, Ctrip was the largest player in the online travel agent (OTA) space, although online travel transactions only accounted 2-3% of the whole industry. We thought that if the entire travel industry went online, it could be worth $60-100 billion - so if we could cover 20% of market that would be a $1-2 billion company. The initial plan was to do a neutral platform that could be used for searching travel products and finding the best deals. But internet penetration was growing so fast in China, particularly on the mobile side, so we expanded into online booking and also shifted from being PC player to a mobile player. As of the end of last year, Qunar had a 35% share of domestic flight ticket sales and nearly 20% of hotel room bookings, with 85% of transactions completed via mobile app. That volume was beyond our wildest expectations.

Q: How difficult was it for Qunar to raise VC funding?

When a start-up considers selling a majority stake to a large company, the most important thing is to make sure the terms are clear and tight.

A: We met almost every active VC firm in China (most were US-based) but no one believed there could be another big player in online travel alongside Ctrip - even Expedia-backed eLong, the number two player, was unable to match it. Ctrip and eLong were growing 6% year-on-year, but we thought they weren't expanding aggressive enough. After several meetings in 2006, GSR Ventures decided we had a chance, and then GGV Capital came to us right after the global financial crisis in 2009. Over the course of one year during the crisis our ticket sales volume increased six-fold - we were selling budget airline tickets - and we turned profitable. Expedia also made a buyout offer, but since GGV was a minority investor and willing to support our growth, we went with them.

Q: Baidu bought a majority stake in Qunar in 2011. Was this unusual for the start-up industry at the time?

A: We were probably the largest M&A deal at the time, but then the travel business was large. Almost every six months someone would try and buy Qunar, including Ctrip and Baidu. I didn't think the company's value had been fully realized, particularly given the growth in our mobile business, so I didn't want to do a full sale. At the same time, monetization was a challenge because there wasn't a reliable payment system that customers could use through their phones. A lot of our online traffic was coming through Baidu, so the best option was to take some strategic money but remain independent. Eventually they agreed to take a majority stake and help us go for an IPO. They acquired shares from existing investors as we didn't need extra cash.

Q: When start-ups work with larger internet companies there is always a concern they will be absorbed. What would be your advice to founders that receive such offers?

A: In hindsight, we should have been much more cautious about selling a majority stake to Baidu because our experience with them was mixed. We had a lot of autonomy and there were benefits from the relationship with Baidu, but issues arose when the companies' strategic paths diverged. When a start-up considers selling a majority stake to a large firm, the most important thing is to make sure the terms are clear and tight.

Q: When did you start making angel investments?

A: Before setting up Qunar, I made two angel investments. The first was in social shopping site Meilishuo. The CEO is a good friend of mine; I was trying to hire him for Qunar but he wanted to start his own business, so I put a little money into the venture. The second investment was in a financial technology start-up. When conducting research on different online verticals, I found financial services interesting as well as travel - it was a popular area in the US but quite new in China and still highly regulated. I thought the sector would see massive deregulation. After that, I backed a few early-stage VC funds, including Crystal Stream Capital.

Q: The latest step in your journey from entrepreneur to investor is setting up your own VC firm, Zebra Global Capital. Do you think individuals with a similar background to yourself will end up dominating China's venture capital industry?

A: I doubt it. If you look at the US, with the exception of Andreessen Horowitz, most successful VCs do not have entrepreneur backgrounds. Entrepreneurs have good ideas - sometimes as a result of their talent, sometimes by accident. But 90% of their success is that ability to make it happen. It requires a lot of disciplines, and strong execution and team-building capabilities. Venture capital is a different business. As a minority investor, you need to understand the market opportunity, pick the right people and then make a decision on deploying capital. VCs cannot afford to make too many mistakes when picking the right people. At Zebra, we plan on being more involved in our portfolio companies, and have greater influence over operations

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• Topics
• Greater China
• Technology
• Early-stage
• China
• TMT