Deal focus: Sobot’s journey from underdog to top dog

In 2018, Sobot was still living in the shadow of Udesk, a rival customer service software provider that enjoyed a substantially higher valuation as well as the support of Tiger Global Management, Legend Capital, and DCM. Conducting its due diligence, Yunqi Partners was forced to ask: Could Sobot survive?

“2B is different from 2C, you can’t burn money to build scale. Although the competitor’s valuation was several times higher, we believed that, if the product was good enough, Sobot could become the market leader or one of two market leaders,” said Michael Mao, a co-founder of Yunqi.

He declined to identify Udesk by name, but the company's fundraising exploits at the time were well documented.

Yunqi led a CNY 150m (USD 24m) round for Sobot that year and re-upped in each of the four rounds that have followed. The most recent, a Series D announced earlier this month, saw the company raise USD 100m. SoftBank Vision Fund 2 took the lead, while the likes of Hillhouse Capital Group's GL Ventures and Mirae Asset Financial Group came in as new investors.

Meanwhile, the competitive landscape has changed completely. Udesk didn’t raise any new capital in 2021 – AVCJ Research’s last recorded round is a USD 35m Series C extension in early 2020 – and industry sources claim its key metrics trail those of Sobot.

Tables turned

This is not a rare case of the deepest pocketed start-up getting supplanted, according to Mao. Yunqi has backed several 2B companies that have risen from second or third position to top spot in their respective segments.

Yi Xu (pictured), co-founder and CEO of Sobot, concurred: “Lots of businesses decline after raising lots of money. It’s often an efficiency issue. They expand aggressively, investing substantial sums while output remains very low, and then HR efficiency drops sharply. We hope to get the most out of every single dollar and try our best not to fall into such a trap.”

Yunqi has been impressed by Sobot’s diligent pursuit of supply chain efficiencies and the rollout of standard operating procedures to streamline processes. “The environment is fiercely competitive,” said Hock Han, an executive at the VC firm. “In addition to a good product, you need strong management and internal organization capabilities to stand out.”

Founded in 2014, Sobot initially provided chatbots for text-based after-sales services. The company now has 10 software-as-a-service (SaaS) products across marketing, sales, and customer service – from voice recognition robots to domain traffic management solutions. It handles 450m conversations each year and can serve 900,000 consumers simultaneously.

There is a partnership with WeCom, previously known as WeChatWork, to help enhance WeChat-based customer services. In addition, Sobot has aligned itself with several Chinese companies that are pushing into overseas markets. Its partners are mobile phone brand Oppo, robot vacuum maker Tenico, Hong Kong travel retailer DFS, and IT infrastructure provider xFusion.

Yunqi’s Mao noted that Sobot’s growth trajectory reflects the accelerated pace of digitalisation in China. “Sobot’s customer base is becoming more diverse,” he said. “Pre-pandemic, it mostly worked with internet companies, but in the last two years the number of state-owned enterprise and government agency customers has increased dramatically.”

Meanwhile, usage scenarios have proliferated. A company might start off with Sobot’s intelligent customer services and end up outsourcing all customer interaction. More importantly, its digital tools are being used by more large enterprises for internal communication, contributing to rising price-per-customer figures in China SaaS generally.

Being thoughtful

Sobot’s retention rates by number of customers and by renewed contract size are 80% and 120%, respectively. Xu explained that retention is correlated to the type of business process in which the software participates. The more core the process, the higher the renewal rate.

He added that start-ups should think carefully about how to satisfy the three key individuals within a company that contribute to decisions on renewals. First, the CEO. They tend place a higher value on software that drives top-line revenue rather than deliver cost controls.

Second, a line manager who likely has primary responsibility for customer service. They need software to help track key performance indicators (KPIs) such as customer complaints and satisfaction rates. Finally, there are general staff who use the software day-to-day and want a smooth experience.

At the same time, start-ups must be mindful of the qualities they seek in investors. For Xu, it is information and inspiration, but also support and trust. He recalled Sobot’s early years when competitive pressure was intense. At every single meeting, Yunqi expressed confidence in the company, while also helping out on key hires such as CFO and head of HR.

“When you are immersed in the business, that’s where your thoughts are concentrated, but investors are usually the most attuned people in terms of what is happening in the market,” Xu said. “Many of our backers have experience in 2B, so they are a continuous source of encouragement, sharing the latest ideas and business models.”

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• Topics
• Greater China
• Expansion
• Technology
• Support services
• China
• Yunqi Partners
• Softbank
• Hillhouse Capital Management
• Mirae Asset Private Equity