Jenny Lee of GGV Capital on Being a VC in China

Zara Zhang: Hi listeners. This is Zara from GGV Capital. I wanted to tell you about our newly-created GGV 996 Community. By popular demand, we’ve created a WeChat group and a Slack channel for followers of 996 Podcast and newsletter. This is a community brought together by a shared interest in tech in China.

In these groups, we will regularly share China-related news, insights, as well as events and job opportunities. You will get to talk directly with Hans and me, and connect with other like-minded people who care about tech in China.

Last week, Hans did a live AMA or Ask Me Anything, in the WeChat group on the topic of Meituan-Dianping and super apps. We are also in the process of planning offline meetups for our community members in multiple cities, including the Bay Area and Beijing. Details for these meetups, as well as future AMA sessions will be announced in the groups.

To join the groups, please go to https://nextbn.ggvc.com/engage/ and follow the instructions there. Now onto today’s episode.

Hans Tung: Hi there. Welcome to the show, where we interview movers and shakers of China’s tech industry, as well as tech leaders who have a U.S.-China cross-border perspective. My name’s Hans Tung. I am the managing partner at GGV Capital, and have been working at startups and investing in them in both the U.S. and China for the past 20 years.

Zara Zhang: My name is Zara Zhang. I’m an investment analyst at GGV Capital and a former journalist.

Zara Zhang: On the show today we have Jenny Lee, one of the managing partners at GGV Capital. Jenny is usually based in China, but she comes to the U.S. once in a while as well. Jenny joined GGV Capital in 2005 as managing partner, and was instrumental in setting up GGV’s presence in China.

As a self-professed geek, Jenny has an infectious love for new technologies and new products. Jenny was recently ranked by Forbes as the world’s 16th most powerful woman in tech. Her name has also appeared on Forbes Midas List of the world’s top venture capitalists since 2011, ranking as the number one woman and Number 10 overall in 2015.

At GGV, Jenny has invested in companies in consumer Internet, SaaS and frontier technologies. She has helped several companies go public, including hiSoft, 21Vianet, SinoSun and YY. She is on the board of Liulishuo, also known as Lingo Champ, CashShield, eHang184, Keep, Kingsoft, Niu.com, Phononic, Zuoyebang 作业帮Xiaozhan Jiaoyu 小站, 51zhangdan, and UCWeb until it was acquired by Alibaba. She has also invested in Drive.ai, Momenta and Globotics.

Jenny grew up in Singapore, then came to the U.S. for school where she obtained a bachelor’s and master’s degree in electrical engineering from Cornell, as well as an MBA from the Kellogg School at Northwestern.

So Jenny, my first question to you is, would you describe to us your journey from Singapore to the U.S. and then to China? Now you are a very renowned investor in China, but when you first started out there, it was actually your first time in China.

Jenny Lee: Thank you, Zara. So it’s an interesting background I have. I think if I recall back to when I was 18 years old, that was the time where I realized that being one of 3 million to 4 million population in Singapore, that’s really small when you think about the world population at 7 billion, and I’m in a little country with such a small market. You know, I found that I needed something bigger. I needed the opportunity to go out and discover what’s out there.

And so naturally, in Singapore as a student, as a kid, you are told that you can only grow up to be in four different professions. You’re either a doctor, a lawyer, an engineer, or an accountant. And so those are the four choices. I wanted to see what other choices there were. But following the engineering route of the four choices, it just makes more sense to be in the U.S. where education in the U.S. on the technology side at least ranks ahead of other countries. So that’s how I got to the U.S.

Hans Tung: It was Cornell in Ithaca? You picked it for the weather, of course.

Jenny Lee: That’s right. I picked it for the weather, what Hans says is right, Singapore doesn’t snow, it rains all the time. I never had a chance to go through four seasons, and so I figured, well, the U.S. is big, let’s start on the East Coast and let’s go to a place where it’s nice and conducive and hopefully safe.

When I went to Cornell, it was my first trip to the U.S. as well. I had no idea how the colleges worked.

Hans Tung: This is after you got accepted by Cornell?

Jenny Lee: That’s right, so I decided, oh let’s go check it out. Took my suitcase, flew by myself, went there and spent the next four years there, without coming back to Singapore.

Hans Tung: While you were still in college.

Jenny Lee: That’s right. So that’s how I got to the U.S. and so I think the story is very similar. Back in 2001 I was graduating from Kellogg. As you can see, I was going east to west. Kellogg, Chicago. Still a cold city. I did my MBA, but back then in 2001 the market, the world was crashing. We had 9/11 in the U.S., the whole Internet bubble had crashed, and so when I looked around as well —

Hans Tung: But in between Cornell and Kellogg you were an engineer? You were flying drones.

Jenny Lee: That’s right. So before my MBA when I graduated in 2001, between Cornell and my MBA, I spent about four-and-a-half years really working the field. I was an electrical engineer in what we call the electronic warfare division of Singapore Technologies Aerospace. I was really a jet engineer for four-and-a-half years. Everyday I was out in the sun, hanging out with the technicians and the fighter jet pilots. It’s kind of fun, actually.

But that’s really where I learned about technology, not just technology on the books, but how things were built, how things were designed, where systems are being developed and where all the cutting-edge technology is.

If you think about today’s Internet startups, a lot of the core technology came from the defense industry, so that was how I started my career. But I realized that having to work on a project for three years to ensure that the drawing gets developed, three years is really short actually. In the lifetime of a commercial product –.

Hans Tung: It takes too long.

Jenny Lee: Way too long. And so that’s how I got to do my MBA, deciding to do a career change. And so in 2001, looking around the world, the next-largest market at that time, the China market, was really up and coming. We saw CNet’s IPO in the U.S. in 1999, and then AsiaInfo was the second IT services IPO in the U.S. And so it felt like China was coming up. And if you believe in tech, if you believe in Silicon Valley, you see the growth that’s happened there, you have to believe that there will be a similar trend in China.

So I packed up my bag, broke my bond, paid off my scholarship loans and then went to China. Again, first time in China. No relationships, no friends, started from ground zero.

Hans Tung: And didn’t speak much Mandarin.

Jenny Lee: Yeah, at the time Mandarin was really just based off my two or three years fundamental education in Singapore, where we all have to go through some level of education. But really, I hadn’t been using the language for over 10 years. And so we learn; learn to read business plans in Chinese, learn to understand technical jargon in Chinese.

A lot of entrepreneurs helped. Many of the CEOs today who are now multibillion-dollar CEOs, they were there when I was there. They were the ones who taught me how to speak, how to use the right phrases in Chinese, and of course, I helped them with their English.

Zara Zhang: And now you are completely fluent.

Jenny Lee: Now I get by pretty well.

Hans Tung: So when you first went to China, you started off in banking, right? It was Morgan Stanley, and that was in Hong Kong.

Jenny Lee: Yeah, that’s right. So in 2001 when I knew I wanted to go to China, I had no idea how to start because I knew nobody there. On top of that, as I mentioned earlier, I actually had to pay off my initial undergrad, master’s, MBA scholarships, so that was a lot of money. I grew up in a very average family, maybe lower class.

Hans Tung: Very nice parents. I met them, they are very nice.

Jenny Lee: But you know, we are kind of average. That’s why I needed a scholarship for my education. And so to really pay off, the best way to do it is to be a banker, real quick. So I was at Morgan Stanley in Hong Kong for a year, both in the IBD division and the ECM division. Very lucky as well, because it was a tough time to be in banking.

But the one year was extremely helpful, because it got me to understand the whole capital markets, how companies or startups can ultimately get to be a public company. But I left quickly because I realized, when you are a fighter jet upgrade engineer, you don’t last very well and you don’t last very long in the banking environment.

Hans Tung: It’s a very different culture.

Jenny Lee: Instead of building products, I was pushing papers and presentations and doing translations. And so I left and joined JAFCO in 2002, in the June timeframe. JAFCO is a late-stage venture capital firm, supported by the Japanese Institution, and so I really had a chance to then start to look at the China VC market from 2002, and that’s what I did from 2002 to 2005 at JAFCO.

Hans Tung: When I met you in early 2005, you were still at JAFCO. That’s when we overlapped. And then two months later, you joined GGV.

Jenny Lee: That’s right. So I still remember it. Hans at that time came to China, you were in Shanghai.

Hans Tung: That’s right, with Bessemer.

Jenny Lee: With Bessemer. This was an early time in the China VC market, where a lot of the capital was still coming from U.S. VCs. So for us to really start off our VC career in China, it’s not just about the Chinese language. You have to be extremely good with staying up late at night, because you have to do late phone calls with your U.S. counterparts, partners, you have to be doing a lot of translation.

And so when I met Hans, Hans wowed me because this is a huge guy; a nice, big boy.

Hans Tung: I always had a smile.

Jenny Lee: Always with a smile, but always working; always working. Whether it’s 10:00 a.m., 11:00 a.m., 2:00 a.m., he gets out term sheets before 1:00 a.m. And so it was an amazing encounter. We also got to work together on our first deal.

Hans Tung: On my first deal in China, yes, you were the co-investor and we were both on the board together. That was a very interesting journey, dealing with a very interesting management team.

Jenny Lee: Yeah that was, if I recall, I think this was like 2006, early 2006.

Hans Tung: Summer 2005.

Jenny Lee: And at that time, the Internet 2.0 was the rage.

Hans Tung: Yeah, blogs were very popular.

Jenny Lee: That’s right. But it was an extremely good experience. I always like to say that that was the time when I really got to know Hans.

Hans Tung: Likewise.

Jenny Lee: There were a lot of investors around the table, and when companies do well, that table gets smaller. The people around the table multiplies, you get more people around the table, everyone wanting to raise their hand to be the key person.

Hans Tung: To take credit for things, yes.

Jenny Lee: I still recall we had, this is an interesting story. We had another VC who wanted to be chairman of the board, because he thinks this is going to be a great company and he just wants credit. But again, with our business, we have more downs than ups, to be fair. And so as the sector got really hot, more competitors came in. The company didn’t deliver. And the only thing that I really remember, it was at the end of the heydays, it was just Hans and me and the CEO in his room, on a couch, trying to figure out what to do with the business.

Hans Tung: How to help the company.

Jenny Lee: And I think that’s what real VC is about. It’s about being there with entrepreneurs, not just in uptimes, but when they need us. When they need us to be there not just as cheerleaders, but to –.

Hans Tung: To figure things out.

Jenny Lee: Figure things out, and then work with them to figure it out. And if in the end it means that we have to wind down the company, then that’s what we do. And through that process, I always said, Hans is my comrade in war. If you fought a war together, you know who’s going to be in the trenches with you, who is going to be there to watch your back. VC, it’s not always a lonely business. If you have a great partner around the table, I think the effect and the upside is just an enormous multiplier effect.

Hans Tung: Yeah. It is important not only for the founder to pick the right VC, but also for the VC to pick the right fellow investors to be around the table.

Zara Zhang: So I find it remarkable that both Hans and Jenny, you guys didn’t grow up in Mainland China. Hans grew up in Taiwan and then the U.S., Jenny grew up in Singapore. So what challenges did you face when you first went to China as investors? How long did it take you to acclimate to the local environment and how business is done there?

Jenny Lee: I think that not being born in China, not having grown up in China, really gave me a healthy respect for the country, for the people, from day one. You go in fighting, you go in scared, knowing that you are starting at ground zero, at the base.

I think what that does is allows me to be very open to the people that I am meeting, to constantly be learning about what’s new, what’s normal, what’s local. To always have respect for the people around me, because any one of them can be a teacher, whether it’s in a certain trend, whether it is in a specific area as simple as hiring. How do you hire in China? How do you set up a company in China? How do you talk to entrepreneurs while he is smoking in your face?

Those are all the different local situations that we have to deal with. But having an open mind, going in knowing that there is only upside, because that’s what you’re learning. Knowing that you don’t have guanxi (关系) and so there’s really nothing that you can rely on your back end means that you have to work harder. You have to work a longer time. You just have to make yourself better compared to everybody else.

Hans Tung: I think my experience with Jenny’s is similar. I was fortunate in that when I went to China, my Chinese was quite fluent, but my way of thinking was more Americanized. Because I’ve been a student of Chinese history, and history in general for a long period of time, for me it wasn’t as difficult to adjust to China.

I think that the people, like Jenny said, were remarkably more open than I thought. It is very much a meritocracy. If you are willing to work hard, bring value, genuinely try to help a company and not try to screw them, screw the entrepreneurs on terms, not try to take every cent, everything you can make off the table, people appreciate your genuineness and willingness to help.

So I actually think my eight years of investing on the ground in China are probably amongst the eight most interesting, most rewarding years of my life. And this is why when I came back to the U.S. in 2013, having people view me as a Mainland Chinese VC, it cracks me up, because I actually think that the U.S. market is a lot easier to make investments in, than it is in China.

I think China is just super competitive. Talking about our podcast called 996, 9 a.m. to 9 p.m. six days a week, but as a VC, it pretty much is 007, 12 a.m. to 12 a.m., seven days a week, always thinking about work, always thinking about how to win and if needed, go to an entrepreneur’s office, don’t leave until he or she signs on the term sheet or the dotted line. Some people will wire money before the term sheet is signed, just to make sure they lock up the deal. That kind of crazy stuff would never work in the U.S., but in China it’s what it takes to get stuff done.

Having been thrown into the fire and be able to survive, together with Jenny and then also with Jixun, is a very rewarding feeling that you can have a lot of confidence in your teammates that when push comes to shove, you can get stuff done.

Zara Zhang: So I want to dig deeper into that point where you said it’s almost more difficult to invest in China than in the U.S. It’s that’s because there’s a lot more competition there? A lot more deals and a lot more VCs?

Jenny Lee: Yeah, definitely. I think today the market has changed. The China market has evolved substantially. The entrepreneurs are even more educated, they know what’s out there, they know how to compare. There’s a lot more information on the web, and so they don’t come from a point where they are just learning. They actually come from a point where they are doing due diligence on the VCs.

As Hans mentioned earlier, the VCs in China are extremely, extremely competitive. Meetings take place at midnight. VCs do sit in the office until term sheets are signed, and so the level of competition is a lot higher.

In China, we always say if this is a great deal, you have to do whatever it takes. Whatever it takes. Really it’s not just about putting one person in front of the entrepreneur, it is putting the entire firm; the company’s values, the company’s experience. You know, we put our portfolio services team out there as well to help our portfolio companies. Sometimes we call on our CEOs to call other CEOs as well.

So in China, you do have to be a lot more creative. You have to figure out how to break the court, how to get in front of the entrepreneurs. And so we, even after 17 years in China, we don’t sit back and just figure, we’ll just wait for the entrepreneurs to come knock on my office or come visit us.

We are actually out there constantly looking at what’s new, meeting with young entrepreneurs, trying to figure out the trends, and when we like the deal, we are there in terms of hands on, getting into the deal. So it’s a battle, it’s a fight.

And even when you’re in, an investor into a company, you also have to have a very good perspective of the whole macro landscape, because the space is highly competitive. Today there may be two players and one investor is number one. Tomorrow, the space may be 2,000 players, especially when the big guys, the Alibabas of the world come in and decide that this is the space they want to be in.

And so again, it’s not just micro around the company. It’s also having that perspective on the macro level, and then that helps us to help to navigate, help the company or the CEO navigate the path as well.

Hans Tung: You should share the story of how you opened up the GGV office in Shanghai, as a demonstration of what it takes to get stuff going and how much regulation, red tape you have to jump through in order to get stuff done.

Jenny Lee: Yeah, so this is in 2005. China was still very nascent. Back then you have no WeChat, you have no Alipay, payment was not great. Credit cards, you know, most shops and facilities don’t accept credit cards, so it was basically a very cash-supported industry.

In 2005 when I went to China, we had to set up the company, figure out the name for the company, hire our employees. It was a really weird system, because to hire employees you need to first set up the entity. It takes six months to set up an entity called WOFE, which is a wholly-owned foreign entity.

Hans Tung: Back then.

Jenny Lee: Back then. And so in theory, you cannot hire anyone within that six months timeframe. And then after the entity is set up, that’s when you’re allowed to have a bank account. And so that’s when money can go in. So for the first six months, it was a very interesting time period because I literally went to China with a suitcase of cash, RMB cash.

Hans Tung: Every month.

Jenny Lee: And when I hired our employees, I have to tell them that they are not officially hired, because the company doesn’t have the right yet.

Hans Tung: It’s not registered yet.

Jenny Lee: And so they have to agree they are part-time, so-called freelance, for that six months, and every month I will be back in the office to pay them their salary in cash.

Hans Tung: With cash.

Jenny Lee: And so, that’s part of the process of starting up the operations back then. Today it’s a lot easier.

Hans Tung: It’s faster now.

Jenny Lee: In 2005, so it takes a lot. It’s not just us studying the operation. For our GGV employees who took that leap of faith to join GGV, no one knows GGV. I didn’t have a Chinese name. We had to figure out a Chinese name for our entity back then as well.

And so it’s been a very amazing journey, really getting our hands dirty, understanding what it means to set up our own GGV there. In a way, I understand what startups have to go through to really go from zero to just 0.1 to set up.

Hans Tung: I think the point you make is very unique about China, is that the entrepreneur, if you want to, you can roll up your sleeves and work with the company because there’s just so many hurdles to jump through, so much regulation and red tape back then. And so over the last 10 years, it has improved a lot, but it just makes it even tougher to compete and differentiate, because you need to figure out where to make a bigger impact than you normally could before, just by getting through some of the red tape.

It’s also tougher in China because the companies scale and can scale so quickly. One, it’s a huge market of 1.3 billion people and 900 million smartphone Internet users. So if something works, you can scale extremely quickly. So people are willing to overpay early on, because they know that if it works, the payoff will be tremendous.

And then like Jenny said, every category, every two or three years, actually one or two years, something new happens, and in that process, a lot of copycats get funded as well, so they have to compete fiercely until one, two, maybe three companies emerge as the winner of that category. We see that movie play every year since 2005 and you get used to it, getting a sense of rhythm and pattern.

When I came back in 2013 to Silicon Valley, surprisingly Silicon Valley felt slow compared to China, because the market is already more mature, there’s a lot of stuff offline that’s already in decent shape so whatever online option there is has to be dramatically better to differentiate. And even then, it’s a smaller market so it takes more time to scale, whereas China, the leapfrogging effect of the offline makes it a lot easier to try something new. But when something new happens and it works well, the companies become extremely fierce very, very quickly.

Zara Zhang: Do you guys have any anecdotes or crazy stories to share that illustrate how things work differently in China?

Jenny Lee: So I think that here when we think about VCs doing due diligence, it’s financial due diligence, business due diligence, maybe some technical diligence, and of course legal due diligence. You will have other third-party consultants and advisors to come in and give it a second look.

In China though, we’ve had very interesting due diligence techniques that we may have to develop. So back in the early days between 2002 and 2005, most of the entrepreneurs we meet, they are first-time entrepreneurs. There’s really no one to ask how they did in their previous job, there are no references that you can get.

And so early days, I actually hired private investigators for some of our portfolio companies. And it’s interesting, because you don’t really do that here in the U.S. anymore. And so we actually worked with third-party investigators to look through the records of entrepreneurs, to see if they have violated any laws, and in the process some of the reports we found out, we actually found out interesting things like he has a second wife or third wife, multiple properties.

And it’s another way to try and understand.

Hans Tung: Usually these are non-Internet entrepreneurs, non-Internet sector, more offline businesses, you see more of that.

Jenny Lee: Yeah, this was actually the encryption category.

Hans Tung: Yeah, IT, yes.

Jenny Lee: Mostly early on, because in early 2005 there just wasn’t enough third-party service providers who had sufficient resources and information to help us understand what it means to do due diligence on the management. We can spend 20, 30 hours with the entrepreneurs a week to understand him, but that’s not enough.

Another example of different types of due diligence is on the gaming investments that we made. So this company actually does communication tools for gamers. When we first met with the CEO —

Hans Tung: Of YY.

Jenny Lee: Of YY, he was adamant that he was the number one market share leader in China. And when I asked him for data to support, he has no data. He said I believe I’m number one, I am number one.

Hans Tung: Go, David.

Jenny Lee: Because this is a new category, there is really no third-party research firms that can help us as well. And so this is a very interesting time, 2008, 2009 and so I actually designed a survey, an internal survey of a bunch of questions and then I got my entire GGV staff. At that time we had like six of us, essentially our receptionist, assistants, associates. Actually, I don’t think we had associates.

So really, just the early team in China, and we went to Beijing, Shanghai and Guangzhou to the Internet cafes 网吧 from midnight. Back then Internet cafes were the key for the gamers who don’t have PCs at their home, they were just playing games right? And so we actually surveyed. Our guys, non-investment team members actually went in to survey.

It was a 200-person survey, so it’s not trivial. We had to ask a lot of people in three different cities, and the net result actually showed that among all the competing products, YY was number one. I think close to 75, 76 percent of market share.

So again, what it taught us is that in a market that’s emerging, in a market that was really new back then, you just have to have more creative ways to understand, to verify the numbers, less reliant on the third party but more dependent on how creative we can be to triangulate the different data that we have.

Today it’s great. I think today in China you can conduct 5,000-person surveys, you can have online surveys. But back then, it was really hard.

Hans Tung: Less than 10 years ago.

Jenny Lee: That’s right. This was like 2008, 2009.

Hans Tung: A lot has happened in such a short period of time. For me, I remember one of my first investments in China was a company called eHi Car Services, now they are listed on the New York Stock Exchange. I invested in them when we had 20 cars. Now I think they have 50,000. After we gave them their first check, the CEO opened up 20 stores in a period of like five months.

But to make sure that there are 20 stores there, I literally went to, in less than a week, went to four cities and visited 13 stores and interviewed the store manager myself and counted the cars in the parking lot of each of the stores to make sure it was there.

So that’s how I knew that he actually — I trusted him, I liked him, but I just wanted to verify that he did what he said he would do. You wouldn’t have to do as much of that in the U.S.

Zara Zhang: So doing whatever it takes to verify things.

Jenny Lee: That’s right. So always trust first, because otherwise the company or the CEO should not be the one that we are betting on. But after that, do verify.

Hans Tung: Do verify, that’s right.

Zara Zhang: And both of you mentioned, I think everyone agrees that relationships are very important in China. So I wonder, when you went to China you had no relationships, how did you go about building that network?

Jenny Lee: So when you know you have no relationship it’s good, because you have nothing else to lose if you start at zero. And so the way I’ve done it is really just to spend more time, take more meetings. For example, when I first started looking at the gaming space, while I do play games and I do understand simulator from my aircraft days, it’s a very different market in China.

And so what that means is really going to the Internet cafes, hanging out with gamers, hanging out with developers. I actually spent a lot of time in Guangzhou, Shenzhen in the early days, just having coffee talks with developers. These are like game developers. They are not the most presentable folks, they just want to play games.

Hans Tung: No, wear sandals and t-shirts.

Jenny Lee: And they want to develop games.

Zara Zhang: Where did you find them?

Jenny Lee: And so you go, when you meet one you ask the first guy that you meet after you have an hour coffee or tea with him, whether he will recommend other people that I should talk to. And so within a certain geographic area, back then NetEase was in Guangzhou, Tencent in Shenzhen, and so the number of software and game developers there, like they aggregate. They kind of hang out. They have their own ecosystem.

And so getting to know the first one allows you to find out who the second, third, then fourth person.

Zara Zhang: it snowballs.

Jenny Lee: But it doesn’t mean that there will be a deal that will come out of it. But through the process, we get to hear a lot more about what’s cool. What are the trends? Which CEO has gotten funding? What’s new there. So it’s a lot of hard work, but I think once you start to show face and show that you are learning —

Hans Tung: And you care.

Jenny Lee: Yeah, you care and you have a good attitude, people do open up to you. And those relationships actually last a long time. Today I may not hang out with them as much, but they are there. They know who I am, they know how to look for me and when there’s a cool deal that’s out in that space, they will come back and say, “Hey, I think you should take a look.” So this is just one example.

In the IT services space, where I first invested in HiSoft, I went to all the high-tech parks in China. Every single one from Dalian to Beijing, Guangzhou, Wuxi, Shanghai, every single one, and talked to the high-tech parks officer, because back then it was highly supported by the government.

Hans Tung: Yes, local governments.

Jenny Lee: And so then meeting with the top three to five companies in the high-tech park, every one. In Dalian I had to drink Baijiu (白酒), that was the worst because they had a lot of seafood and I am not a seafood person. They also had a lot of Japanese influence, so the alcohol culture is strong.

They also play a lot of golf. I still remember, there was one deal where I actually signed the term sheet on the golf course. So it’s not a cliche, it actually happened. But it does take the extra effort to go deep, to spend the time to understand the sector.

Zara Zhang: I think as long as you show respect and are willing to listen to people, you’ll be surprised how many people are actually willing to talk to you.

Hans Tung: Yeah, that’s exactly right. I remember I used to have eight meetings a day, six days a week. When you’re willing to do so much —

Jenny Lee: And still do, right?

Hans Tung: Not as much, now that I’m older. But when you are willing to do that and you are very willing to help people, even if you are not an investor, you’re willing to share your knowledge and your contacts and your insights on the industry you are studying to people, and people think you’re a nice guy, you work hard and smart, they are very, very open.

So when a lot of people in the U.S. or elsewhere complain about China, it is harder for me to fully appreciate, because if I can go there as a foreigner and make it work, if you’re really willing to try, it can be done. So if you go to China without bias and can really understand how it works locally and not feel superior but feel like this is a country that can actually teach you something, then I think the chance of success is a lot higher.

Zara Zhang: I think that’s a great message for people who didn’t grow up in China, who maybe are from the US or other parts of the country and are interested in getting involved in China’s tech ecosystem, but don’t know where to start. I think just having an open mind, spend time there getting to know people can be very powerful.

Hans Tung: It helps if you can smoke, a lot of Chinese people smoke at night.

Zara Zhang: You don’t have to.

Hans Tung: Just smoke with them socially, drink if you need to. But actually for me, in my eight years in China, I didn’t have to drink more than 10 times, because I invested exclusively in the Internet space. It usually is very much, you don’t need to do any weird stuff. You can just focus on business, but show your worth through intelligent discussions. It can be done.

Jenny Lee: China is actually more open to entrepreneurs than people think. A lot of times our U.S. entrepreneurs, they are afraid, and so just before even setting foot in China, they come away, they go in there with a boatload of fear.

But I think I echo Hans’ comments earlier. If he and I both, we haven’t grown up in China. We did not go to school there. We did work there, and we can make it by just paying attention to entrepreneurs, by listening versus speaking all the time.

Hans Tung: Right. Be willing to help.

Jenny Lee: Be willing to help. Be willing to learn. Be very open-minded. There’s always a way to crack that market, but you cannot do it sitting in the U.S. To understand China, you have to be in China. And one day in a year is not enough. If you are the CEO of a company wanting to break into China, you have to make the commitment not just to send someone there, but for you yourself to be willing to spend that time to live.

Hans Tung: To live in China.

Jenny Lee: That’s right.

Zara Zhang: I think Jenny, you’ve said before that what motivates you to be an investor is really your love for technology. I wonder where this came from? Why are you so passionate about the new technologies?

Jenny Lee: I don’t know. I think I was born with it. But I always have this belief that a single person can change the world. Somehow I believe that, and I’ve seen again and again in the last 17 years that individuals have the ability to move markets, to change perceptions, and to create companies that today are amazing companies.

Look at Jack Ma with Alibaba. If you had known him 20 years ago, he was a teacher from Hangzhou. He can make it. Even he can make it. So I always felt like the individual, believing that the individual can make changes is very important. And then too, in today’s age, the monumental change, disruptive change versus evolutionary change, my belief is that it has to leverage on something. That leverage is likely to be technology.

Because if you can have a robot that can achieve the task of 1,000 workers versus one, that can remove the repetitive tasks that 1,000 workers have to do, that’s efficiency and therefore with new ways of thinking, new ways of competition, new ways of technology you can create brand-new products.

And so I think that’s where you get the leverage, not by having 1,000 people do the same thing. Even smarter is not enough. If you leverage a chip to do better, a robot to do better, then I think that is how the world is being changed.

So that’s what drives me. Everyday I want to see new, interesting products and services that can really go out and create something that maybe we haven’t thought of today. Just like when we got our first iPod or our first phone, we thought that was like a gaming device. Today it is not a gaming device.

Hans Tung: You can’t live without it.

Jenny Lee: Absolutely. It’s our uniform communication and service information platform. Even the three-year-old cannot do without their iPhone or iPad.

Zara Zhang: Hans, do you want to elaborate on that?

Hans Tung: I was lucky that I went to Stanford for my undergrad. I think that helped me see what Silicon Valley is like upfront, and see how it changed. Stanford back then in the 90s and the Stanford campus now is very, very different. In fact, it’s all that Internet money that the Stanford alumni donated.

So when you see a place that can change a lot in a very short period of time, it makes you appreciate what technology advances can do. The first time I went to China actually was in 1995. The second time I went to China was in 1999. I remember when I first went to Shenzhen in 1995 I thought, “Oh my God. This is going to take a while to become modernized.” In 1995, when I first got into banking, I saw that Chinese state-owned enterprises were trying to go public on the New York Stock Exchange, and these are very old-school companies.

But in 1999, you can see that wow, China has become different, because now there’s a thing called Internet that is catching people’s attention. Once you go there again in 2003, 2004, 2005 you just start seeing the country change very, very quickly.

And so when you see what technology has done to a communist country, where now the most valuable companies in China are VC-backed, listed in New York and Hong Kong — that’s Alibaba and Tencent, and they are much bigger than any other single enterprise in China — and that happened in literally less than 20 years. it makes you look back and see wow, I was part of that. We were a part of that change. It makes you very proud that your life has some kind of meaning.

Zara Zhang: Tech probably has had more impact in China than anywhere else in the world.

Hans Tung: In the last 50 years probably, yes.

Zara Zhang: I think also in China, people consider tech to be a force for good mostly, whereas people here are more likely to talk about elimination of jobs or how new technology can have negative impact on various stakeholders. But in China, we don’t see much of that discussion.

Jenny Lee: I think a key component is because of government support. So the Chinese government, by and large, this is one of the benefits of being in a controlled economy.

Before I went to China, I never quite appreciated the communism as demonstrated by China. Now that I have been in China for 17 years, I think that a planned economy is not always bad. And by planned, the Chinese government do plan.

As I mentioned, in 2002 to 2005, they said, “Okay, China is going to now upgrade our students and our workforce from manufacturing to IT services.” And so that’s how high-tech parks were supported in every city. That’s why grants and scholarships were given to encourage these students to actually choose to learn software programming.

And so then that created a huge talent pool for the IT services industries. So when HP Services, IBM Services, Microsoft, the local enterprise like HiSoft… Neusoft, for example, wants to go into this category. They now have a talent pool and it’s because the government supported it.

Similarly, fast-forward to today where AI is huge and is a hot topic, the government has committed to really investing in core R&D for AI talent to develop AI-type IP, AI-type talent, to attract international talents from different schools, Ph.D. programs, to also come back.

So it’s not just local policies but it’s also international policies to bring back. And so I think having great government support does help the whole industry to think about the possibilities.

I was talking to another company that was manufacturing, using robotics to automate some of the process. My question was, are you worried that your workers are going to get really angry?

Hans Tung: Their job could be replaced.

Jenny Lee: They are cutting their jobs from three shifts to one shift and then to zero, because some of the workstations are being replaced by the robots.

His comment is that number one, there are certain jobs that I want to hire and I cannot find that skillset. Something as simple as picking mushrooms. There’s actually a skillset that that you cannot now retrain, because most of the youngsters don’t want to be trained as a mushroom picker. That’s number one; you can’t find the talent anyways, and you cannot do enough to train them.

Number two, the government is actually supporting by subsidizing automation. So over 20, 30 percent of factory lines, if you automate, they are paid by the government. You could almost try this for free, to start to automate one station and then the next station.

So again, I think the government support isn’t just verbal or just in policies, they are actually doing it in real subsidy support. And you see it not just in factories; we see it in the whole EV sector, the electrification of cars where infrastructure is being built to support. So across all the different verticals. So that’s one.

And then number two, there’s also great role models. We talked about Tencent, we talked about Alibaba. We have seen in China, the Chinese entrepreneurs now have seen that you can be special. Through technology, you can be an average guy and yet be able to be the next Pony Ma or the next Jack Ma. So enough precedents to show that it is possible.

And I think lastly, the mindset of parents have changed. You know 10, 15 years ago we were interviewing our associates, most of the associates, once they are in great schools and when they graduate they want to —

Hans Tung: Work with government.

Jenny Lee: That’s right, they want to be friendly it was the government and then it was the waiqi (外企), like the Microsoft multinationals.

Hans Tung: Multinational corporations.

Jenny Lee: And then it was the startup, and now when you talk to them, they want to do startups themselves, and so I think the whole mindset has changed. So net-net I think the ecosystem is pretty healthy.

Hans Tung: The number of STEM graduates in China over the last 10 years has increased dramatically. Now it’s 5.6 million back in 2016. That’s almost ten times the size of STEM graduates in the science, technology, engineering and math in the U.S., even compared to India. So there’s a lot more people willing to learn tech, try tech and do tech.

As China continues to grow, the size of the service industry continues to grow, so you may lose jobs in one sector, but as the economy is growing at almost 7 percent year on year, there are new jobs happening. So China’s pretty smart to upgrade itself while the economy, although slowing down compared to historical numbers, are still growing almost faster than most countries around the world.

So it can afford the population to accept that technological changes will make things even better and make the country grow to sustain this growth rate. So I think that China is at a very different point in its economic development cycle versus U.S. and Western Europe, and that makes it easier for AI and other technology innovations to happen in China.

Zara Zhang: Yeah, I will actually argue that the Chinese government is very forward-looking in this regard. When it wants to get something done, it gets done.

Hans Tung: Very efficiently, very quickly.

Jenny Lee: So I wonder what advice do you have for U.S. companies trying to navigate the political landscape there? How do you predict what the government is going to do in a certain sector? How do you align your interests with the government’s interests?

Hans Tung: While I will try to start it off first. If you look at the example of Uber, and you talk with the Uber team in China, I think most of them feel that they were not extra discriminated by the Chinese government. Everything they have to go through and get approval for, Didi in China had to do the same thing.

Zara Zhang: That’s something Travis said himself.

Hans Tung: That’s correct. So there was more or less a similar playing field for the most part. And I think the Uber team, of all U.S. companies in China, they are probably the most aggressive team and worked the hardest and were willing to do things the more Chinese way.

So if you’re willing to adapt locally and work long hours, work smartly and work very hard, the chance of success is a lot higher.

I think there are certain sectors for sure that the Chinese government do regulate and make it tough for foreign players, especially in the field of media and social networking and so forth. So Google and Facebook do face some challenges. But when it comes to e-commerce brands or a lot of other things, U.S. companies still have a great advantage.

I mean, look at all the fear that the U.S. Congress has on Chinese Internet companies buying assets in the U.S., but Apple is amongst the most successful phone companies in China. Apple generates more revenue from its iTunes App Store in China than almost anywhere else. And one could argue, the U.S. government, through Apple, can have access to some data and the Chinese government still allowed it to happen.

So yes, there are some government regulations issues, but they apply to both Chinese companies and U.S. companies, so it’s not anything different. It’s a matter of how willing you are willing to adapt locally to compete.

Jenny Lee: Right, and I will add that really watching the regulatory changes and what the government sees in their Congress is actually very important as well. As I mentioned earlier, in 2000 to 2005 when the Chinese government was saying, “I want to boost the IT services workforce, I want to be the next Bangalore in terms of IT outsourcing.” You have companies like Microsoft, HP, actually establishing R&D centers in China to support this growth, to actually train engineers here as well.

And so understanding where the Chinese government is putting effort to grow, to develop. Like for example in the AI sector, to bring talent back, it makes sense that Google has an R&D center in China. So understanding the trend, reading the trend, don’t go against the grain. Once you understand where the big trend is going, then you can help to support that growth.

Then, whether you’re a local company or an international company, you’re going to have a way to play in the market. And getting in ahead of everybody else is probably even better. If all your competitors are still thinking about how to read the regulation and you are a year ahead of them by working with local governments to make sure that you’re on the right track, whether it is as I mentioned some of this EV trend, AI trend, then I think you have a way to play.

We are now seeing a lot of automotive OEMs, international ones, trying to tap into the China automotive market. China is the world’s largest automotive market, 120 million in the stock base of passenger car, every 20 to 25 million new cars are being sold in China alone.

And so if you are Ford or GM sitting here in the U.S., or Daimler in Europe or in Japan, you have to want to figure out how to play this. And so understanding this trend, understanding who you should talk to, understanding who you should do a JV with. Once you understand the trend, then be very flexible in terms of the approach.

It may mean that you have to do a JV first with a local partner. It may mean that you have to set up some high-tech development centers to encourage talent. It may mean you taking a strategic investment stake in some of the startups in China. And so then being open to others’ different tactics will also help companies to understand the local nuances better as well. That is a better formula for success.

Hans Tung: Right. When you look at Apple, they are pretty smart, right? They invested in Didi when they could have invested in Uber. It is shown into China as a willingness to help support the local entrepreneurs, startup community ecosystem. Apple is helping a lot of Chinese apps to expand through its App Store to overseas markets.

You see Tim Cook going to our portfolio company like Keep, where Jenny and Jixun sit on the board, to see another innovative Chinese company that is doing well, and recognize them through his influence, on a global basis. So Apple’s smart and understanding that China’s government wants to see Chinese companies go global and is playing a role to help them to do that, but not based on guanxi (关系) or subsidies or favoring, but these actually are great companies that users like them and most people are just not aware of them outside of China.

For us, we don’t have a lot of special insights to what the government is going to do next. Almost no one does. So how do you figure out what regulation will not be as much of a problem going forward? You have to take the sharing market as an example.

Beijing has 20 percent car ownership, yet it has a bigger traffic problem than Silicon Valley. Silicon Valley has 70 percent car ownership, even given the rise of Uber and Lyft. So if in Beijing, as many people buy cars as there are car owners in Silicon Valley, can you imagine the streets of Beijing having 3X, 4X more cars than it does today?

So you know, no matter who is running the government, ridesharing and bike sharing has to be part of the solution to help us solve that traffic congestion problem, as urbanization continues to increase in China.

So you figure out where China is going and try to anticipate what are the problems that need to be solved, there are plenty of things where technology can play a positive role in making that happen.

Zara Zhang: So forget what China has to do to make this country work.

Hans Tung: Yes so the economy continues to grow, and for amortization to continue to happen.

Zara Zhang: So Jenny, you focus a lot on the frontier tech sector at GGV. I wonder, where do you think China stands in the world and how it compares to the U.S. in various fields of frontier technology?

Jenny Lee: For frontier technology, our definition actually covers three different sectors. The first is around transportation disruption. So from really autonomous driving, all the way down to EVs, that’s the first sector for us.

The second sector is really in the robotics area, and I mentioned about how the factories in China are really automating different workflows, different work processes. That’s happening not just at the larger factories, but really more importantly down to the small and medium-sized enterprise.

And then the third one is really around the whole AI area, which is a little bit more software versus tied to hardware cars, or to a robot.

If you look at this area of frontier tech, it is generally viewed as a new area both in the U.S. and China. So I will classify both to be at the first inning. What does that mean? I think that number one, I think when you think about the talent pool, this is really still a very hotly contested space right now. So whether it’s AI talent in the U.S. or AI talent in China, they’re almost at the same level, where there’s a severe shortage of the right type of AI talent that has engineering or systems experience, versus just a Ph.D. who has done algorithms or research in this area.

So I would say on the talent side, pretty similar, same footing. In terms of what the startups are focusing on, there is a bit of a difference. So in the U.S., we have seen startups when they call themselves AI companies, they tend to be more software based, whether it’s leveraging machine learning in different verticals, whether it’s in banking applications or in the computational area, you tend to be a lot more software.

Even in the automotive area, we’ve seen more alpha, autonomous driving startups in the U.S., trying to attack this issue than in China. In China, we see a more wide-based spectrum of startups trying to attack different pieces of the ecosystem. So they are not restricted to just software solutions. They are putting their software solutions into hardware.

And so generally, Chinese entrepreneurs are not as afraid of the hardware piece. Sometimes we think about hardware and software, it feels like there are two different DNAs, two different verticals, and a startup shouldn’t do both.

When they focus, they should be either focused on software or they are focused on doing a chip. But the new world, in the whole AI-enabled world, whether it is in the autonomous car or the robot, it’s an integrated product. It’s a system where the hardware and software has to work together. And so in that respect, we actually see more innovation around complete systems in China versus in the U.S. So still early on, early days.

From a market perspective, I think it’s similar. The problems and pain points that are being addressed, they are very similar, whether it’s cybersecurity in the U.S. say around mobile cybersecurity, it’s the same pain point that the Chinese are facing, especially in China with that many transactions going through mobile platforms as well, a very similar problem set.

I actually predict that in the next five to 10 years as the whole AI market gets more and more mature, as all these applications starts to find its vertical application, the chance of companies that has more cross-border interaction will go up. It could be talent, U.S. companies trying to leverage not just the talent pool they can find in the U.S. but the reverse.

Can you attract more Chinese entrepreneurs to stay in the U.S.? For that, we have to rely on the goodness of the U.S. government. But I think you’ll see that, or the reverse. Chinese startups actually hiring U.S. talent and then allowing them to move to China to work on this. On the talent pool, more exchange and then ultimately products as well.

Can you build better robots? Can you build better autonomous cars and have that have an impact on the global stage? That may happen as well.

Zara Zhang: I read recently that the number of papers in machine learning and AI has just been a lot higher in China than in the U.S., because a lot more studies are being done, a lot more researchers working in the field.

Jenny Lee: Absolutely. That’s actually in line with the government’s support as well. So in the past, I think it’s not just papers being written or citations, IP that’s been filed as well has gone up tremendously. It’s an interesting trend. Like 10, 15 years ago when we asked a start up in China if they have filed their IP they would say, “No, it’s too expensive.”.

So it’s not because they haven’t done it or they don’t have IP, it’s because they feel that it’s just too expensive to file on an international basis, because the awareness that one day they will go international is pretty low at that time.

Today, if you ask any AI startup in China, they will show you their list of IP. So the awareness has gone up, the awareness that they have to protect what they have early on, and that potentially they could go international as well. It’s becoming more of a higher possibility versus 10 years ago. I think that helps to bring up the awareness.

I think it’s always been there, it is just that 10, 15 years ago that awareness wasn’t there with entrepreneurs and they just don’t file.

Hans Tung: I think a lot people outside of China are amazed by China’s size. As China becomes the number one market in a lot of things, what people don’t realize is that Chinese speed, the delta, the change in a short period of time is also amongst the fastest in the world.

You also have a large pool of talent that’s very tech friendly, and a lot of users willing to try new products and services. That’s tech driven. So when you have these three combined — size, speed and willingness to experiment and to start something new and try something new — it becomes a very powerful formula to allow Chinese startups and the ecosystem to compete better on a global basis later.

Zara Zhang: For the last part of the podcast, we’ll have a set of standard questions that we ask every guest. The first one is, who is the entrepreneur that you admire the most and why? I know you’ve seen a lot, but if there is one that impressed you the most?

Jenny Lee: I think the one that impressed me is actually Jeff Bezos, Amazon.

Zara Zhang: You’re not the only one who has said that on this show.

Jenny Lee: Right.

Zara Zhang: Any reason why?

Jenny Lee: Well, I think he’s an entrepreneur who has never stuck to just doing one thing. His ability to go from selling books online to general e-commerce, obviously that’s one type of expansion. And then to take that and leverage that scale of operations to deliver cloud computing, to go from B2C to selling services for businesses, B2B, that is something that most VCs tell their startup not to do.

Don’t de-focus, focus on your core, focus on your DNA and this is as far different as anything you can find. And then, to have the guts to go offline, to veer away from not just online but to say, “Let’s go buy Whole Foods.” and to start to think about offline.

On top of that, Amazon is on top of the leadership in terms of innovation. They’re also one of the earliest to say, “Can we experiment with having drones to do deliveries?” And so we may not see the drones on an everyday basis, but I have to believe that the R&D work is still going on quietly and hopefully we’ll see something soon.

So the level of innovation, the level of guts that this CEO has exemplified, I think it’s amazing.

Hans Tung: That’s why it’s interesting, right? In China, I think Jeff Bezos is highly admired, but in the U.S., increasingly there’s talk of antitrust, making sure that Amazon doesn’t get too powerful, break up Amazon. So the same set of achievement and facts could be interpreted very differently in the two societies.

Zara Zhang: What do you do for fun?

Jenny Lee: I love travel. As I said before, I believe the world, the earth, well it’s been getting smaller as I grow older, but it’s still pretty big and there are a bunch of continents out there that I haven’t been. So I do like to travel, I do like to go away from just work.

Zara Zhang: Humanity.

Jenny Lee: Yes, away from meeting with entrepreneurs. I love to spend time with animals, I love to spend time with nature.

Hans Tung: Jenny is amazingly travelled, you should mention some of the places you have gone, in Africa or Tibet.

Jenny Lee: That’s right. So I’ve been to Pantagonia hiking. I’ve been to Peru, I’ve been to Russia, Kamchatka spending time with the bears, literally just —

Zara Zhang: Bear watching.

Jenny Lee: I saw salmon. So really, it’s been pretty good. Nepal hiking and the likes. Generally I like to be out there not in a luxury vacation, but really roughing it out, spending time to understand in different parts of the world what the different people there are doing. The different cultures there are doing.

I think that helps to give me a very good and healthy appreciation of my role, my little role in this world. And as I said, it is still possible within my role to make changes to people around me.

Hans Tung: Right, since you travel so much, what is your system? What’s inside your backpack when you travel?

Actually, if you ask me what I have in my backpack on a daily basis, I am on the survival track. Even in my work bag I carry my passport. I always have my passport so I’m ready to fly anytime, it doesn’t matter which city. I have different wallets with different currencies, because as you know, credit cards don’t work, as I found out very early on in China, it doesn’t work in a lot of countries, and so making sure that you have ways to have cash, that you have ways to survive. I think if you have cash and you have your passport, you can basically survive anywhere.

So for roughing it out in the wild, then obviously your cash and your passport doesn’t really help, and your phone doesn’t really help either. So I think here is a pair of good shoes, a nice warm jacket, make sure you have your water bottle so you can always get water. I think with the three, you can always survive somewhere.

Hans Tung: Right. And how many credit cards do you carry?

Jenny Lee: One.

Hans Tung: Only one. How many bank accounts do you have?

Jenny Lee: I do have a few, because I work in the U.S., in China, mostly in China and I grew up in Singapore, so three bank accounts.

Hans Tung: So you keep a very small number of things that you need to take care of.

Jenny Lee: Yes, so one of the guiding principles I have is always keep my life simple, because things are so complicated on a daily basis and you can be bogged down by so many details that I think that it helps not to add to those complications everyday. So keep it simple.

Amazingly the one credit card has helped me to go global in the last 20 years, and it is possible.

Hans Tung: That’s HSBC?

Jenny Lee: That’s right. It’s the first card I had when I was in Hong Kong, yes. It is still with me.

Zara Zhang: What is something you read recently that touched you a lot or you would recommend? It could be a book or an article or anything.

Jenny Lee: I read like three or five books simultaneously. I think some of the recent books I’m reading may not be good for a recommendation.

Hans Tung: What does that mean?

Jenny Lee: So recently, and Hans know this, I have a new area that I am exploring and I’m very interested in.

Hans Tung: Healthcare.

Jenny Lee: And that’s really in healthcare, in nutritional supplements, in genetic engineering. And so I’ve been reading textbooks, I know it’s really strange. So I’ve been reading textbooks to get myself up in terms of the fundamental understanding, the basic areas. I have been reading books about diseases. Again, not the best way to recommend books, but a good way to appreciate where life can be trending in the next 10 to 20 years.

Zara Zhang: Thank you, Jenny. This was really fun.

Jenny Lee: Thank you. It’s good to be here.

Hans Tung: Thanks a lot Jenny. Always a pleasure.

Hans Tung: Thanks for listening to this episode. By the way, we also produce a weekly email newsletter in English, also called 996, which has a roundup of the week’s most important happenings in tech in China. Subscribers have told us it is informative and fun to read. The newsletter also features original content and analysis from Zara and me. Subscribe at reach out at https://nextbn.ggvc.com/

Zara Zhang: GGV Capital is a multi-stage venture capital firm based in Silicon Valley, Shanghai and Beijing. We have been partnering with leading technology entrepreneurs for the past 18 years from seed to pre-IPO, with $3.8 billion in capital under management across eight funds. GGV invests in globally-minded entrepreneurs in consumer Internet, e-commerce, frontier tech and enterprise. GGV has invested in over 280 companies with 29 IPOs and 22 unicorns.

Portfolio companies including Airbnb, Alibaba, Ctrip, Didi Chuxing, Domo, HashiCorp, Hellobike, Houzz, Keep, Slack, Square, Toutiao, Wish, Xiaohongshu, YY and others. Find out more at GGVC.com.

Hans Tung: If you have any feedback on this podcast or would like to recommend a guest, please reach out at https://nextbn.ggvc.com/engage/. This podcast is co-produced by our friend and business partner Kaiser Kuo, the host of the wonderful Sinica Podcast. It covers China’s economic, political and cultural issues.