JENNY LEE JOINED GGV Capital in 2005 as a managing partner and was instrumental in setting up GGV’s presence in China. Her previous operation and finance work experience with Singapore Technologies Aerospace, Morgan Stanley, and JAFCO Asia enhanced her role as a preferred board mentor and investor to many entrepreneurs in China.
1. “Startups aren’t an object. They’re successful because of the people behind them.”
Great people, attractive markets, and significant innovation are the three key elements in any successful business. What a venture capitalist wants for a founder is a certain sort of person. Founders are inevitably unique but do tend to share certain attributes. One of the desired attributes is a missionary attitude toward the business. Others include persistence, curiosity, energy, communication skills, sales skills, focus, determination, intelligence, and the ability to adapt to change. These attributes should be sought not just in founders but in the teams they assemble to build and run the business. Having a diverse team—in every sense—is important.
2. “Founders must have the hunger to learn about new things and have the tenacity to persist in one’s judgment despite naysayers—and there will be a lot of them—and, finally, that firm belief that a single person or a single company can create products or business models that can change the world.”
You need to believe that you can clear everything in your path.
Some may think it an odd combination, but founders who are both confident and humble are mostly likely to succeed. A founder can be confident about what they know and at the same time humble about what they do not. Part of the reason why Charlie Munger is so wise is that he believes that “knowing what you don’t know is more useful than being brilliant. Real knowledge is knowing the extent of one’s ignorance.” Successful founders tend to have strong views, loosely held. If you do not have strong views, you have very likely not done enough research and probably do not know both sides of an issue. And if you have strong views, but they are not loosely held, it is unlikely you will be able to adapt as new information and ideas emerge.
3. “We are looking for the 2 percent who are going to change the world.”
To find a grand slam, a venture capitalist must discover founders who want to significantly change the world with their product or service. The best venture capitalists are constantly searching for outliers. This must be the case given how high the bar has been set by the venture capital business model.
4. “I’m a very ‘gut-feel’ type of investor.”
There are no formulas that will always generate success in venture capital. If there were simple success formulas that could be applied mechanically, nearly everyone would be rich. However, there are some general principles that can be applied to increase the probability of success. Finding undiscovered convexity offered at a substantial bargain requires the venture capitalist to be continually looking for it in new places. Once a potential investment starts appearing regularly in newspapers and tech blogs, it is often too late to find the greatest opportunities. A new approach must be new in an important way. The business must have one key element that is fundamentally different from what has been done before. That different something is always different than what was different the last time.
5. “It’s a tough market and more of a challenge to find the gems. But it’s a great time to start; the quality of entrepreneurs has increased. I love the winter.”
Often the best time to start a business is during an economic downturn. The competition for the best employees is lower during a financial correction, as is the competition in markets generally. During an economic downturn, there is also less noise to distract a business, which enables a greater focus on business fundamentals. In a tough market, there is often less time to think about distractions like pivoting and greater focus on getting things done.
6. “If you’re a late-stage company, a growth-stage company, and you’re looking to be a public company, the market fluctuation does affect you. If you are further down the chain on the early-stage side, then I would say that the capital markets have less of an impact, but it does affect how those companies now think about the quality of that capital, the stability of the capital, and the investor behind the capital.”
An early stage can be a relatively good place for a startup to be during a downturn. On the other hand, needing loads of capital during a lousy funding environment is not a great place to be. It is inevitably shocking for people going through their first business cycle when the cash spigot from investors runs dry; in other words, it becomes hard or just plain impossible to raise new cash. Always having a backup plan in the event the business can raise no new cash is wise.
7. “Founders should understand the fit between the company, their sector, the VC firm, and the partner in charge.”
Every founder and startup has different skills, resources, talents, and needs. Every venture capitalist is also unique, as is every venture firm. “Founder–venture capitalist fit” is enough of a success factor in building a business that extensive due diligence by founders to find the right investors is wise, and vice versa. Founders should talk to other founders about their experiences with any given venture capitalist before making a choice. Selecting a venture capitalist is like deciding to marry someone. Unfortunately, sometimes there is only one person who will have you. But that is not your ideal situation.
8. “For work, if the product is good, there is a paying tendency.”
Enterprise customers are more likely to be willing to pay cash for services than consumers who have been conditioned to expect services “for free.” During the free period in the freemium model, the hope is that the customers learn the benefits of the product in a very low-cost way through self-education and become paying consumers. Freemium at its core is about lowering customer acquisition cost. If your competitor is using this “land-and-expand” approach, it can often undercut your price if you do not also adopt the approach.
9. “The monetization technique in China cannot just be advertising supported. The China population is actually a paying population. They pay for games, things that they don’t even need. They pay for virtual items so they can look like a duke. They drive a virtual BMW to a concert that’s all online. They can pay. This is the young generation. For them, do I line up, get stuck in traffic, buy a 300 renminbi ticket and get stuck in an auditorium? Or can I do that for 100 bucks and look like a king online? So the time has changed, and therefore, if you have users, any company should try to monetize through various ways. That’s how we push our CEOs when they say, ‘Well, this is how the West does it.’ We say, ‘Let’s see if the East can do it better.’ ”
The lack of … fully built-out offline retail and services in second- and third-tier cities in China means that many services and products are not available offline. Variety and convenience factors are lacking. Hence mobile commerce is a very natural transaction-based value for users. Thanks to Alipay and Tencent’s further efforts to tie users’ phones to payment providers, the ease of payment has greatly enhanced e-commerce and anytime-anywhere transactions via the mobile devices.
China is not only a huge market but a key part of the global supply chain. As a market and supply base for most companies, it cannot be ignored. So for a business, the right question is how to deal with China, rather than whether you deal with China. I spent four years of my life working in Seoul, South Korea, and even wrote a book about doing business there. What I took away from my experience living in Korea, and later Australia, was how little I knew about the countries despite living there and that even if I spent a lifetime working there, I would still have much more to learn. When dealing with a county and culture where you are not a native, it is wise to know as much as you can about what you do not know. To help deal with cross-cultural differences, it is best to have a relationship mentality rather than a deal mentality.
10. “One of the most common questions we hear today is, ‘How can I take my model to the other side?’ U.S. companies always come to us and say, ‘I am doing this in the U.S. Should I be doing it in China first?’ If you’re an entrepreneur, you’re no longer just thinking ‘my hometown.’ Some of them come from the point of ‘If I don’t do this on a global basis first, someone is going to copy me.’ I’m sitting in China; somebody is going to copy me in the U.S. I’m sitting in the U.S.; somebody is going to copy me in China.”
Once upon a time people thought of innovation as originating in the West and then moving to China. Now the flow is moving in both directions. This is a very good thing since the world benefits from more innovation.
11. “If you can do without China, and you have this fear of setting up there, then don’t go. But if you are in the maker community, 90 percent of your supply chain is in China. So in not going, you will fail.”
Maybe you can find that 10 percent in Vietnam, but the price is not going to be the same (and you will encounter the same problems anyway). If your business requires you to be in China, then my advice as an entrepreneur is figure out how to get smart about it. It is as simple as that. There’s no perfect answer.
Lee is saying that dealing with China is not something that should be done lightly. Success will require a big commitment. She is also saying that China is not only a huge market but a key part of the global supply chain if you are a maker. China a great opportunity for any business, and in some industries it simply cannot be ignored. There is no substitute for having experienced local help from people who understand the current business environment in China, which can change quickly and dramatically. I lived and worked in Asia for five years and yet would not do business in or with China without the assistance of people who are aware of the situation in China right now.
12. “My friends told me I was crazy to leave the iron rice bowl that ST Engineering provided. But I had to take the risk. To get what you want, you must get it yourself.”
After graduating from Cornell, Lee started her career in Singapore as an aerospace engineer. She could have stayed in that job and been very secure financially. Instead, she did what she needed to do to achieve her goals. Startups are not a great place for people who value security highly. The reality is that most startups fail. The struggle to build a business from scratch is inevitably hard.
Elon Musk describes the process in a colorful way: “A friend of mine said running a startup is like chewing glass and staring into the abyss. After a while, you stop staring, but the glass chewing never ends.” If you are not a missionary, the odds that you will endure the many rejections and hardships of the venture world are significantly lower. Venture capitalists know from experience that people who are working on someone else’s idea or dream are less likely to stay the course than those attempting to realize their own dreams. Many startups have been inches from failure before eventually finding success. Getting through all the glass chewing is a job best suited for missionaries.