The Power of Cap­i­tal Un­leashed

China Today (English) - - CONTENTS - By staff reporter HOU RUILI

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.

Re­pay­ing So­ci­ety

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.

Hugo Shong.

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