The Power of Capital Unleashed
THE IDG Capital Partners headquarters in Beijing houses a dozen conference rooms where new projects that stream in all year round are negotiated. Founded in 1993, the company was one of the fi rst foreign venture capital firms to enter China, and has funded a string of well-known Chi - nese brands. It is a prime example of win-win business. IDG Capital Partners now commands US $7.7 billion in assets, and around 100 of the 450 companies it has invested in have either gone public or been purchased.
Hugo Shong, founding general partner of IDG Capital Partners, is the mainspring of the company’s success. When reflecting on the bullish rise of China’s capital market, of which his company is a constituent element, Shong speaks with American candor tinged with Chinese charisma.
Answering the Call of Reform and Opening-up
Shong feels fortunate to have been in his salad days when China’s reform and opening- up came into effect. He had, since turning 15, been working as an electrician when, in 1977, the national college entrance exam was reinstated after the “cultural revolution”( 19661976). Shong sat the exam and was enrolled in the foreign languages department of Hunan University. He went on his master’s program in journalism at the Chinese Academy of Social Sciences before going to Boston University to study journalism and communications.
While working in the States as a journalist Shong reported on many legendary capital investors in Silicon Valley. After joining IDG in November
GOVERNMENT SUPPORT Government support for entrepreneurship and innovation has prompted a proliferation of more innovative companies, so stoking the need for venture capital.
1991, and upon perceiving the abundant business opportunities in China, he proposed to his boss, Patrick J. McGovern, founder and chairman of IDG, exploring the Asia-Pacific market. In December 1991 he was assigned to China, to launch more than 40 jointventure magazines and newspapers.
When, in early 1992, the late Chinese leader Deng Xiaoping made his famous inspection tour of South China he made several speeches underlining the country’s resolve to speed up reforms. To Shong this signified a prospective venture investment gold mine, an observation that won McGovern’s support. Market conditions in China, however, were immature, and the first investments, including one in the development of laptop computer batteries, failed. It was not until 1996 that IDG Capital Partners made its first IPO, and in the year 2000 executed its first “exit” by acquisition. Long experience in technology, media and telecommunications helped IDG Capital Partners spot and seed the group of companies – Tencent, Baidu, Sohu and Ctrip – that now dominate China’s Internet industry. IDG’s reputation consequently soared, and Shong was heralded as China’s No.1 venture capitalist.
Tencent, founded in 1998, set out to develop the wireless paging system, and the next year received US $1.1 million from IDG. But, in common with others among the first crop of China’s Internet businesses, it experienced serious teething problems. Having fallen prey to the so-called Internet winter of 2000, IDG opted out. But at the time of this hasty exit IDG had achieved a 60-fold return on its investment. The decision, Shong admitted, remains a source of regret to this day. Now a leading provider of Internet services that generates an annual revenue of RMB 102.86 billion, Tencent shapes and influences the communication and lifestyle mode of hundreds of millions of Chinese people. It also constantly opens up new fronts for China’s Internet industry.
Embracing a New Era
Government support for entrepreneurship and innovation has prompted a proliferation of more innovative companies, so stoking the need for venture capital. Meanwhile, venture investors are feverishly putting out feelers for outfits that can potentially propagate greater returns on their investment. This symbiosis has created a flood of funding for small and mediumsized tech companies. Shong, however, believes that technology innovation takes precedence over that of business modes, as the former constitutes a more tangible company asset. “There are plenty of funds in this field, but few good projects,” Shong observed.
To foster new technologies and good projects, therefore, IDG Capital Partners established a US $ 100 million post90s entrepreneurship start- up fund. It has so far invested in around 30 nascent businesses established by post- 90s
generation entrepreneurs. One is Bilibili.com, whose “bullet screen” makes it a hot favorite among the youth. At the end of last year Bilibili held the 228th Alexa ranking globally and was 36th in China. In Shong’s opinion, one particular technology prevails in any historical period of economic development. It also generally holds special appeal for young people, so finding ample and ready applications among them. Bill Gates and Steve Jobs seized the opportunities that personal computer technology opened up. Each created two of the most prominent companies in recent history. Later Google and Facebook joined the hall of fame on the back of Internet technology. Today, mobile Internet technology is widely used, the post-90s generation having grown up with it. IDG Capital Partners has funded several companies headed by members of this demographic group with billions of dollars in hopes that they might become the next Alibaba or Tencent.
In 2014, IDG Capital Partners began sponsoring entrepreneurship competitions in universities in both China and the U.S., and have reaped many promising and innovative ideas.
Five IDG partners, including Shong, were in 2014 included on the Forbes China Ranking of Best Venture Capital Investors. IDG Capital Partners sets great store by cultivating young talent, for positions ranging from investment manager to analyst, to form the backbone of the company’s future development. “As our company started finance and investment in China in 1993, it is also one of the post- 90s generation,” Shong quipped.
IDG Capital Partners runs a range of funds, including a post-90s fund, VC (venture capital) fund, PE (private equity) fund, various industrial funds, and an RMB fund. Its media fund and PE fund are jointly invested in the entertainment company Legendary Pictures, and its RMB fund in Beijing Baofeng Inc. When explaining this mélange of his company’s investments, Shong used ping- pong jargon, being something of an ace at the sport. “We have the tennis-holder, the pen-holder, the fast attacker and the defender as well. Only when its workers are composed of all sorts of talents can a company ensure sustained growth.”
New Areas of Investment
In the past decade China’s maturing capital market has fetched in more international investors. They bring with them various new funds, new managerial systems, and wider applications for Internet tools. This has significantly improved start-up financing efficiency, but also intensified competition for IDG Capital Partners. Weathering market ebbs and flows has fostered Shong and his team’s keen insight into the Chinese economy. It enables them to make rational judgments on investments with the best potential.
IDG Capital Partners predicts the advent of new super companies in several subsets of Internet finance. It has consequently invested in 35 businesses that cover almost the entire spectrum in this realm. So far, 14 have attained secondround financing, and their estimated values have each generally soared above US $100 million.
As conventional energy resources become further depleted, humankind faces the pressing issue of finding new sources of renewable energy. Venture capital hitherto seldom entered new energy projects, due to the high demand they exert for heavy spending and lengthy exploration. Shong now believes the time has come for a change. IDG Capital Partners has hence invested in Titangas Technology’s production of charging poles for electric cars. Environmental pollution, the unwelcome byproduct of China’s strong economic growth, is now a broad national concern. Promotion of electric autos is a response to this problem, but public interest in them is dampened by a dearth of charging facilities.
To adapt to this age of consumptiondriven growth and mass tourism, IDG Capital Partners has taken on several asset- light tourism projects, including the riverine towns of Wuzhen in Zhejiang Province and Gubeikou in Beijing. These waterside towns, with their wellpreserved and restored ancient buildings, offer the denizens of neighboring metropolises a welcome getaway from hectic urban life. The company is also cooperating with six scenic areas in China to upgrade their amenities by staging cultural performances and other activities.
Through its partnership with Beijing Tourism Group, IDG Capital Partners has made inroads into reputable chain hotels and restaurants, such as Home Inns and Quanjude (Beijing roast duck). Meanwhile, the trend among Chinese families, due to better living conditions and higher incomes, of buying paintings for home décor has prompted the company to team up with Baiyaxuan and open galleries selling replicas of old masters.
The convenience of online shopping has made it all the rage. Many online retailers, however, do not deal in fresh foods due to storage requirements and high safety risks. IDG Capital Partners is a notable exception. It jointly operates with COFCO womai.com, so guaranteeing stringent tests of all the foods it sells.
“The market economy in China having reached a fairly high level, investment decision-making can now rely on market demand, particularly when it comes to consumption goods, information service, and e- business,” Shong said.
Education changed Shong’s life, and he has repaid it in spades since building a successful career. He donated RMB 1 million 21 years ago to Hunan University to establish a scholarship. He later followed this up with an award for teachers, a gymnasium, and a swimming facility. His total donations exceed RMB 10 million.
In 2004 Shong endowed Boston University with the Hugo Shong Lifetime Journalism Achievement Award, with an accompanying US $ 35,000 bonus, about US $5,000 more than the Pulitzer Prize, and the Hugo Shong Reporting on Asia Award, with a US $ 5,000 bonus. These are the first awards for a particular profession ever established in the U. S. by a former overseas Chinese student. Shong also donated US $2 million to the McGovern Institute for Brain Research (MIBR) at MIT towards research exchanges on diseases of the brain between China and the U. S. At the advocacy of Shong, IDG reached agreements with Tsinghua University, Peking University and Beijing Normal University respectively in 2011 to establish the IDG/ McGovern Institute for Brain Research at these three celebrated Chinese universities, with a total funding of US $ 30 million. Dedicated to research on brain diseases and human cognition and communication, the facilities are expected to advance development of neuroscience in China.
Six years ago, IDG and Beijing Normal University jointly founded the Institute for International Communication of Chinese Culture. The institute’s Looking China program, which Shong initiated, sponsors the joint production of micro films on China by foreign and Chinese students of cinematic arts. It has so far yielded more than 200 projects, including one expounding the concept of harmony in Chinese culture, and the philosophy of taiji . Shong hopes that these short films may promote Western understanding of Chinese culture, and so promote international appreciation of Chinese movies.
Chinese President Xi Jinping referred to the Looking China program during his speech on November 7, 2015 at the National University of Singapore. “Last July, several Singaporean college students in their early 20s joined the Looking China program to learn about China through taking photographs. The program took them to Northwest China. There they captured images of modern China through the camera lens, and experienced and shared Chinese culture with others by watching the local Qinqiang Opera, snacking on Lanzhou hand- pulled noodles, and taking a river trip on sheepskin rafts. Meanwhile, two Chinese students studying at the National University of Singapore spent an entire year filming the personal stories and dreams of 50 Singaporeans. I am sure you have heard many similar anecdotes of such people-to-people exchanges.”
In the past 23 years during which the Chinese economy achieved its strongest growth, Shong has put the strength of capital to good use, so realizing both his American and Chinese dreams.
Since 2014, IDG Capital Partners has sponsored entrepreneurship contests in Chinese and American colleges. The winners receive IDG investment and internships at the company.
Participants in the Looking China program in Hangzhou. Initiated by Shong, the program aims at promoting Western understanding of Chinese culture with micro films.