Q&A: China Creation Ventures’ Wei Zhou

Q: In the past year, we’ve seen many Chinese GPs opening offices in Singapore and making investments in Southeast Asia. Why is this happening?

A: First, for most US dollar funds, their traditional area of expertise is mobile internet and consumer. The key investment thesis in China is now hard technology, from infrastructure-level applications like chips to final products like smart devices, but there are still opportunities in mobile internet in regions like Southeast Asia. . Second, competition within China’s mobile internet space is so fierce and parts of the market are saturated. This has prompted local entrepreneurs to transfer their experience and know-how to other markets. Investors are following them.

Q: How big is the mobile internet opportunity in Southeast Asia?

There are many successful local start-ups, but Southeast Asia is multiple markets rather than a single market. Each one has its own rules and culture - this presents challenges and imposes a ceiling. It’s hard for a company to achieve the scale of Alibaba Group or JD.com in the near term. Where pan-Southeast Asian platforms have emerged, it has generally taken time and the skills of capable entrepreneurs. What we have done is back start-ups founded by overseas Chinese entrepreneurs, and not necessarily limit ourselves to Southeast Asia. The two biggest payment and digital bank projects in Africa – Opay and Transsnet – both have Chinese founders. We were an early investor in Transsnet. It’s the same with Perfect Corp, a Taiwan-based augmented reality solution provider for the beauty industry, and Asia Innovations Group, a Singapore-based social media business I backed in 2014 when I was at KPCB that now serves 400m users in 150 countries and regions. They were founded by Chinese entrepreneurs, but they became unicorns by operating in global markets. [Perfect Corp, also a CCV portfolio company, began trading in the US this week following a merger with a special purpose acquisition company (SPAC) at a valuation of USD 1bn; Asia Innovations Group agreed to a SPAC merger last month at a USD 2.5bn valuation.]

Q: Within China, it seems that US dollar funds can’t participate in certain technology investments for geopolitical reasons. Will they miss out on big opportunities?

A: In many sectors, no. The biggest opportunity today lies in the shift from the mobile-internet era towards the intelligence era. At CCV, we define the intelligence era by three key capabilities: artificial intelligence that defines human-machine communication, autonomous driving, and robotics. China has accumulated a lot of knowledge in these areas over the past two decades and many strong companies are emerging across electric vehicles, intelligent warehousing and logistics, smart agricultural equipment, and service robots. Because these are at the product level rather than the infrastructure level, they are not sensitive. US dollar funds can participate in investments.

Q: Even so, has the status of US dollar funds changed in the eyes of entrepreneurs?

A: Renminbi funds are certainly on the rise, but Chinese companies and entrepreneurs are embarking on great voyages. There are opportunities for US dollar funds to back Chinese entrepreneurs who want to go global and help them with that expansion into new markets. Most of the revenue may come from overseas. It is a bit like when Japanese enterprises went global in the 1960s and 1970s on the back of the evolution in high-end manufacturing. World-leading Japanese companies were created in automobiles, ships, and rail.

Q: China has a global competitive advantage in those three areas…

A: No other country can really combine the three. Rockets and space technology have existed for decades, but space station technology is only available in China, the US, Europe, and Russia. Why isn't it more widespread? It’s because technologies develop gradually into very complex systems that require deep capabilities across sectors. The more advanced a technology becomes, the fewer the number of countries able to participate in it. Take intelligent warehousing and logistics as an example. It includes not only hardware, but also entire software operating systems. China has a strong lead in both areas. The same applies to electric vehicles, as evidenced by China’s strong exports.

Q: CCV has raised both US dollar and renminbi funds. How do you distinguish what one currency does from the other?

A: Under the “intelligence era” theme, there should be a lot of overlap between US dollar and renminbi funds. We aren’t necessarily targeting underlying technologies; it’s more like a range of final products. The currency we use depends on the requirements and ambitions of the company. Those focused on domestic substitution regard China as their major market, so they are likely to want renminbi. When companies want to compete globally, entrepreneurs prefer US dollars.

Q: What advantages do Chinese GPs have when investing in Southeast Asia or other markets outside China?

A: Our key advantage still lies in Chinese entrepreneurs. We can use Southeast Asia to promote our portfolio companies to overseas customers, so they can become global enterprises. We also support Chinese entrepreneurs who want their start-ups to be global from the outset. What often happens is we invest in the overseas unit of a portfolio company when it spins out or we co-invest in opportunities they identify in conjunction with local entrepreneurs. There is clearly competition between Chinese entrepreneurs and US companies in the mobile internet space, but we find that US players typically don’t want to localise or customise products for individual markets. Chinese entrepreneurs, on the other hand, are very willing to adapt and launch tailor-made products.

Q: How do you explain the current investment environment to LPs?

A: LPs are perhaps better at assessing the big picture than we VCs. Farmers till farmland, and herdsmen raise cattle. VCs are like agricultural machinery providers – we work with farmers and herdsmen, helping them generate the best return from their land. We want to be certain, before planting, that grain will have value when we take it to market, but that doesn’t mean we obsess about the price of grain. Rather, we remind ourselves that the best way to make money is to create real long-lasting value.

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• Topics
• Greater China
• GPs
• Early-stage
• Southeast Asia
• Technology
• Regulation
• China
• TMT
• hard-tech
• China Creation Ventures