Deal focus: PingCap puts its head in the cloud

With business-facing start-ups supplanting their consumer-facing brethren in the affections of China private equity investors, cloud-based enterprise software was always going to benefit. However, it remains to be seen whether China can nurture a local champion to match US-based Snowflake, which completed the largest-ever software IPO in October.

The recent $270 million Series D round for PingCap, a local cloud database service provider, sheds some light on the issue. While the company is relatively advanced in terms of funding and global exposure – it has a sizeable overseas customer base – it is not yet at Snowflake level. Investors think it’s only a matter of time before a Chinese start-up gets there.

“We believe China will have its own set of cloud-native software providers. Giant players will emerge in different verticals with high ceilings. We invested in open source software very early before the market was anywhere near realizing its potential,” says Yipin Ng, founding partner of Yunqi Partners.

Yunqi has supported PingCap since its Series A in 2016. The Series D was led by GGV Capital, Access Technology Venture, Anatole Investment, Jeneration Capital and 5Y Capital. Several new and existing investors also took part, among them Bertelsmann Asia Investments, Coatue Management, FutureX Capital, Kunlun Capital, Trustbridge Partners, Matrix Partners China, and Yunqi.

Open and accessible

The cloud and opensource are redefining enterprise software: putting software in the cloud changes the delivery channel, making it more accessible; opensource gives it versatility, a key selling point for programmers. Cloud-based delivery enables new business models such as software-as-a-service and pay-as-go. Rather than paying a large up-front installment fee, users are charged by storage volume, related traffic, or number of end-consumer accounts.

“Previously, it was like if I go to a city for a business trip, I have to buy a house there for my stay. It’s ridiculous. The cloud has made it possible to rent a house or find a hotel. For enterprise users, this means they can develop their business in a more agile manner and control costs better,” says Ed Huang, co-founder and CTO of PingCap.

Opensource is sometimes conflated with public utility, but actually it’s an effective marketing tool. “The marketing costs are lower because you can engage users as a community. They download the software for free, try it out, and if they want to put it into their production systems, the provider comes in and offers technical support. The price is usually cheaper than other enterprise software,” says Yunqi’s Ng.

The community element represents a competitive advantage because it facilitates co-invention and improvement. As of October, PingCap’s core product TiDB – a cloud-native distributed relational database featuring real-time analytics – had attracted 1,200 code contributors and more than 25,000 stars on GitHub, Microsoft’s software development platform. Stars are used to express appreciation for a project or as bookmarks so people can follow its progress.

Huang stresses that a software company’s value add goes beyond the source code, incorporating operations, maintenance and management. As is the case with PingCap, all these services are packaged up as database-as-a-service. Users get the source code for free, but they must pay for the final application version.

“If you are a bank and you want to use the software on your core system, wouldn’t you pay for it? If not, and something goes wrong, who do you go to? Enterprises pay us for risk controls,” Huang explains.

As a database, PingCap is comparable to Oracle or MySQL, which are mainly used for online transactions in e-commerce and banking. Snowflake, meanwhile, is more like an offline analytical database that generates business insights from previously accumulated data.

“PingCap is more upstream and our data flows downstream, feeding databases like Snowflake. We are open to integration with those databases,” says Huang.

The company is positioned as a new species of database, capable of bringing together previously disparate information streams and helping users establish relationships between data points. It is unique in two ways. First, PingCap offers a hybrid transaction and analysis platform (HTAP) that offers real-time data analysis support.

“The demand for real-time performance is a major trend in many industries. The boundary between our transactions and analytical processing is getting vague. In online trading, you must make recommendations while customers are browsing the website. They won’t wait until tomorrow. For bank’s anti-fraud functions, you must decide immediately whether a transaction is legal,” says Huang.

A typical customer is Zhihu, a Chinese question-and-answer website. When a user scrolls down the homepage and clicks on a topic, the system adjusts and makes recommendations based on what the user has been looking at. PingCap designed the database that sits behind this, interlinking with Zhihu's analysis engine in real-time to make recommendations. 

Stretching to fit

The company’s second unique characteristic is an ability to scale without making changes to the application infrastructure. It also supports data across clouds such as Amazon Web services, Google Cloud and Microsoft Azure.

Japanese payments business Paypay chose PingCap for this reason. Every time Paypay spent money on promotions to drive user acquisition, there was a spike in traffic and the system crashed. PingCap’s solution is elastic in nature, so it simply stretches. “Rapid growth is a common feature among our customers. The speed of growth doesn’t leave them any spare time to reconstruct the infrastructure,” says Huang.

PingCap serves 1,000 corporate customers across the US, Europe, Japan, and Southeast Asia. This expansion has come despite only offering one product – TiDB – in five years. Prior to raising a Series B round in 2017, revenue was zero.

“In the beginning, you should focus on one product and aim to make it perfect. A successful software company must always do a good job on its core product. Only then should it look at peripheral products and integration to become even more competitive,” says Yunqi’s Ng. 

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• Topics
• Greater China
• Expansion
• Technology
• China
• enterprise software
• Yunqi Partners
• GGV Capital
• Jeneration Capital
• 5Y capital
• Growth capital