The Last Decade has Been Transformative for Chinese Start-Ups
We sat down with Glenn Solomon, managing partner at GGV Capital, to get his take on China’s flourishing digital economy, and what it’s like working with a bold new crop of start-ups.
Since its launch in 2000, GGV Capital has had headquarters in both the U.S. and China. Why?
The founders of the firm had a vision predicated on China emerging as the world’s second largest economy and the U.S. as its largest. The thesis from day one has been that, in technology, those worlds were going to start converging, and that being in both markets would provide us an opportunity to spot trends emerging in one region and apply them in the other. Over the last five or six years that convergence has begun to accelerate, and now we are seeing a deeper linkage between the two economies in many aspects of technology. We are seeing more and more themes emerge out of China that we can benefit from in the U.S., and the reverse is true as well.
How is China shifting the technology markets?
Apple’s biggest and fastest-growing market right now is China. So if you are developing on the iOS platform, your market opportunity in China is significant. We are spending a lot of time looking at the Internet of things as an investment theme, and so much of that is a very tightly linked industry between the U.S. and China. At the Consumer Electronics Show this year, several of the exhibit halls felt like you were in Shenzhen. And that’s where lots of the design and manufacture of consumer devices is done now.
What’s your take on China’s economy overall?
We look at China as two distinct economies: the old economy and the new economy. The equivalent of 150 years of economic development in the U.S. has occurred in China over the last 30 years, and that’s created some stark differences between old and new economy dynamics. The old economy is largely state-owned. Capital is not deployed as efficiently as it would be if it operated as a true free market, and there is a concerning amount of leverage in several areas. When pundits talk about the demise of China, they’re looking at macroeconomic figures that embody these old-economy challenges. The new economy in China, however, is very large, healthy and undergoing rapid growth. Areas like ecommerce, social media, entertainment, the Internet of things and connected devices are booming. That’s where we invest, and we are confident we are going to continue to see stellar results from our portfolio companies.
How do entrepreneurs in the U.S. and China differ?
We work with U.S. entrepreneurs in Silicon Valley and other burgeoning centers of innovation like New York, Austin and Seattle. These are markets where people have a ton of experience. Many were educated in places where entrepreneurship and innovation is learned both in the classroom and by osmosis. A lot of folks have had relevant experience at high-growth tech companies before starting their own business and are able to recruit people with that kind of experience to senior roles in their companies. Ten years ago in China, the quality of entrepreneurs was not as high, because though there was a lot of energy and drive, most of the folks there didn’t have prior experience. Fast-forward to today, though, and the Chinese entrepreneurs we work with are every bit as strong, if not stronger, than those we work with in the U.S. We’re finding similar levels of experience there, as well as an understanding of what it takes to be a success. In addition to their incredible drive and ambition, they tend to be very global in their thinking.
How does volatility in the public markets affect venture firms?
Historically the venture market has reacted pretty slowly to the public market, but the reaction to the choppiness in the public market has been quicker this time. Over the past three months, VC folks have been more conservative about deploying capital, and that’s good for us at GGV. If you look at our history, all of our best investments and our best investing years have come when the rest of the market was scared or pausing. So we are very much open for business. Last year our investment pace was more moderate because we felt valuations had gotten out of hand. I expect to do significantly more investments this year than last.