Interviewed by Hans Tung and Zara Zhang.
GGV Capital’s Hans Tung and Zara Zhang interview Jane Sun (孙洁), the CEO of Ctrip, the largest online travel platform in China which is listed on the NASDAQ. It’s current market cap (at time of recording) is around $23 billion.
Jane has been at Ctrip for 13 years. Prior to becoming CEO in Nov 2016, Jane served as COO of Ctrip for four years and CFO for seven years. Before joining Ctrip, Jane worked at Applied Materials in the US as the head of SEC and External Reporting Division. Prior to that, she worked with KPMG as an audit manager in Silicon Valley for five years. Jane received her bachelor’s degree from the business school of the University of Florida, and LLM degree from the Peking University Law School.
Jane discussed her journey from studying abroad in the US to one of the one of the top female leaders in Chinese tech, her daily routine as the CEO of a New York-listed Chinese tech company, and her advice for young people with cross-cultural backgrounds.
This episode also features a bonus interview with GGV managing partner Jixun Foo, who led the firm’s investment in the online travel search company Qunar, which merged with Ctrip in 2015.
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.
Also, I highly recommend joining our listeners’ WeChat groups and Slack channel, where you can connect with like-minded people interested in tech in China. We organize regular offline events across the world for our followers. You can join these by visiting https://nextbn.ggvc.com/engage/
Hans Tung: On the show today, we have Jane Sun or 孙洁 in Chinese. She’s the CEO of Ctrip, the largest online travel platform in China which is listed on NASDAQ. It’s current market cap is around $23 billion dollars. Jane has been at Ctrip for 13 years. Apart from becoming CEO in November 2016, Jane served as COO of Ctrip for four years, and before that CFO for seven years. Before joining Ctrip, Jane worked at Applied Materials in the US as the Head of SEC an external reporting division. Prior to that she worked with KPMG as an Audit Manager in Silicon Valley for five years. Jane received her bachelor’s degree from the Business School of the University of Florida and LLM degree from the Peking University Law School.
Zara Zhang: Just yesterday Ctrip announced its financial results for the fourth quarter, and full year end of December 2018. Net revenue for 2018 was $4.5 billion, a 16% year on year increase. And total GMV for 2018 was $105 billion, which is around a 30% year on year increase. Welcome to the show, Jane.
Jane Sun: Thank you.
Zara Zhang: Most of our audience is already familiar with Ctrip and you have been part of the company for over a decade. Could you share with us three things you’re most proud of about Ctrip that most people may not know?
Jane Sun: Yes. First of all, it’s the growth of the company. When I joined the company, we only had about $500 million market cap and today we’re exceeding $20 billion in the past 13 years. So, I’m extremely proud of our growth. And secondly is our expansion in the global spaces. When I joined the company Ctrip was only a very small Chinese online travel company. And now in terms of GMV we’re already the largest in the global space. I’m extremely proud of the achievements our team has made. And lastly is our initiation in terms of protecting the female leadership. Because I’m one of the very few CEO’s in major Internet companies. We put a lot of emphasis in helping female leaders to nurture them and to make sure they thrive in our company.
Zara Zhang: I read recently in one of your interviews that you actually provide the option to pay for some of your female employees to freeze their eggs in case they want to preserve the option of working and having a child at the same time.
Jane Sun: Yes, very progressive company policy. And we are the only company who offer this benefit to our female employees. Our female employees really are very excited to have this protection for their career path.
Hans Tung: I’m going to take the interview to an earlier point in time. When you went to the US you were already in college in China. Why did you go to the US for business school? You started with the law school first, and then you went to US for business school. Why did you decide to do that, and also decided to go to the US for it?
Jane Sun: Yeah, when I first came to the United States, I was a sophomore in Peking University Law School. In the Chinese system law school is a undergraduate system. But in the United States law school is a graduate school. My original plan was to go to the business school first, and then go to law school next, and get my PhD as the third step.
Hans Tung: PhD, like every good Chinese graduate student wants to make their parents proud.
Jane Sun: Yes, absolutely. But in my third year of business school at the University of Florida I interviewed with a Big Four accounting firm and they gave me an offer. So, I thought, oh, let me make some money to save enough money so I can go to the master degree. That’s why I started to work with KPMG Silicon Valley office right after I graduated from University of Florida. And then opportunity comes when my husband became the first CTO of Alibaba in 2000, and our board asked me to join Ctrip as the CFO of Ctrip. So, we moved our family back to China to take on these challenges.
Hans Tung: John went to Yahoo. Your husband went to Yahoo in Silicon Valley.
Jane Sun: Yeah.
Hans Tung: So, they brought you to Silicon Valley as well?
Jane Sun: Yeah.
Hans Tung: Was that your first exposure to internet.
Jane Sun: Yeah. We are very blessed for the opportunity because when we went to school the Cultural Revolution ended. And when we went to college Deng Xiaoping opened the door so both of us were able to go to the USA to study. When we finished the school Silicon Valley took off. John joined Yahoo when there was only 46 employees in the company. And then after four years we got a phone call with a very good friend of ours to invite him to join a very small company called Alibaba. And that friend is Jack Ma. John left Yahoo when the stock price was about $200 to $300 and joined a smaller company called Alibaba. I always feel both of us are very blessed for the opportunity. I feel a tremendous responsibility to bring up the next generation of the leadership and give them as good an opportunity as possible going forward.
Hans Tung: Right. But when he first suggest to you that he must go from a big company Yahoo, which was the star at that time, to join this little small company in Hangzhou, in the middle of nowhere, what was your immediate reaction?
Jane Sun: We have known Jack for a couple of years. So even before John joined Alibaba, whenever we came back to China John always talked to the engineers the Alibaba and tried to help out as much as possible. And we always see Jack as a very good friend of ours and tried to be helpful. And I remember one day John got a phone call from Jack and said, oh, you already finished your fourth year with Yahoo, and I got VC money. Softbank invested $20 million in Alibaba. You have to join us. John believed in the vision Jack had. Although I only had my first baby. She was born in March 2000, and John joined Alibaba in May 2000. But I thought to be a good wife I always should be very supportive of him, so he joined Alibaba. It was during a very difficult stage of Alibaba because Softbank invested $20 million in the company. But the company was growing so fast. So, when John joined, he told me Alibaba only had $5 million left in the bank.
Hans Tung: Spending a lot of money.
Jane Sun: Yeah. It has been a long way, and we are extremely proud of the achievements Alibaba team has achieved.
Zara Zhang: And how big was Ctrip when you joined, and what made you believe in the Ctrip vision?
Jane Sun: Yeah, I also asked myself. First of all, I asked three questions. First of all, should I invest my youth in the United States or in China. And at that time USA, the GDP growth rate was about 2% and China was growing anywhere between 8% to 10%. So, when the economy is growing so fast it presents a lot of opportunities for the young employees. When I joined Ctrip I became one of the youngest CFOs in the market. That’s the first question, should you remain to be in the USA, or do you want to go back to China. The second question is, if you want to invest in China which industry will give you a very good opportunity to grow. And I always tell myself, if I joined a tobacco company or alcohol company, the margin for these companies is very high, you can make a lot of money. But in a way it’s not very healthy. I try to tell myself that I need to join a company that is very healthy, very green, brings happiness to the people. I believe travel not only brings happiness to individuals, to families, let young kids learn, it also brings global peace when we travel around the world. I choose to invest my time, and energy and my youth in the travel industry. And the third question is, if you want to invest yourself in the travel industry, which company has the best opportunity to win. And when I talk to our team, I feel very strong that this company is very humble, down to earth, hardworking, and they have the best opportunity to win. So, these are the three things I considered when I decided to join Ctrip as the CFO of the company. It has been a very good track for me.
Zara Zhang: What was it like to transition from CFO to COO and then CEO? What kind of lessons did you learn about how these leadership functions can work together well?
Jane Sun: When I was a CFO the company was very small but growing very fast. So, whatever that is not taken care of by our executive teams, I would just jump in and fix it. After a couple of years our board feels that I already was doing the COO’s position, so they promoted me to be the COO. And then three years ago when James talked to me, and he wanted me to take on more responsibility as the CEO of the company, I told him that we just finish two major deals. One with eLong, one with Qunar. And I thought our team needs to be stabilized, to finish the mergers and acquisitions before I took on the new responsibilities. I waited for one year, and then two years ago we made a very smooth transition to the CEO position. So, for me, my growth track is that when I’m in one position I already see what else needs to be done. And without the title I was already doing a lot of these things. So, for our young leadership team, my advice to them is always go beyond your title, go beyond your scope. Invest your time and energy in the next level, and then you will spin out. My title, my scope is never a limit on what I do. Whatever is good for the company I would just jump in and get it done.
Hans Tung: A lot of people outside of China have stereotypes of how Chinese women behave. And yet you were among the very first that runs a major Chinese Internet company, or a major Internet company worldwide, period. What kind of challenges did you have to overcome in order to become in such a position and do such a great job? What were the opportunities that you sought to prove yourself, to show that you can take on more?
Jane Sun: I think as a female leader I try to be authentic. I think females themselves has a lot of stress. You don’t have to act as a male to be successful. So, a couple of strengths we have is that, first of all, we always put the team first. Very willing to make a personal sacrifice in order for the team to be successful. And I think that’s a great strength when you become a high level executive in a company. The second thing is females are also very good with putting yourself in others’ shoes. When I’m in a negotiation I always try to see for this deal what we can bring to the other side. If I were the other side, what they would like to have. If you put yourself in other people’s shoes, it’s very good for you to make a deal that is win-win, rather than I kill you or you kill me type of one-sided deal. And the third thing I feel in female leaders that’s very strong is the communication and team building skills. So, a lot of times we’re very sensitive, we understand what the teams need instead of just focusing on one thing. We try to bring to the table a comprehensive solution so that both the teams, career paths, companies interests, shareholders interests, our customers interests are well taken care. I think female leaders have inherited strengths, and we have to use our strengths to be successful in the business world.
Zara Zhang: What is it like to run a public company listed in New York from China? What is your typical day like?
Jane Sun: The schedule is very demanding. Normally when I’m not travelling, I try to get to the office at around 7 to 7:30. I finish all my own work, and my direct report if I need to have one-on-one with my director for report, I normally invite them for a breakfast meeting at 8 o’clock. And from 9 my schedule is half an hour for meetings back to back, all the way until maybe 6 to 7 o’clock. And in the evening I try to pack up all the work papers I need to read and bring it home. If I’m not travelling I try to have dinner with my family. When the kids are young I try to help them with the homework. Now they are old enough so when I’m working they’re doing their homework. And from 9:00 to 12:00 am or 1 am I schedule my overseas phone calls with Europe, with the United States, with NASDAQ, etc. That’s how I try to balance my work and life.
Hans Tung: Do you work five days a week or more than that?
Jane Sun: More than that. I think in China a normal Internet company is 996, meaning from 9 o’clock to 9 o’clock times 6 days. Entrepreneurs, a lot of us is 7-11-7, so seven o’clock to 11 p.m., seven days non-stop.
Hans Tung: Some of our listeners like to ask the question, how can you be efficient when you work long hours? Implied in that question is that you can either be efficient or you’re inefficient and you have long hours. In your mind, how do such entrepreneurs can become both efficient and still work long hours?
Jane Sun: I think efficiency is very important, so I try to run a half marathon on the weekend, and every year my husband and I try to join two marathons a year. To be healthy is very important. The second thing is also to train your team so that they can be as efficient as you are. And the third thing is arrange your time very wisely. When I’m in a car I try to listen to a book. When I’m in the office I try to arrange the meeting so there is no moment wasted.
Zara Zhang: Could you tell us about the Baby Tiger program at Ctrip to encourage internal initiatives? And how do you make sure your overarching goals as a company are effectively communicated to all your employees?
Jane Sun: As the company is growing bigger and bigger, we consistently think about what is the best way to energize the company. One initiative that we took is the Baby Tiger program. Basically, our employees are encouraged to bring new ideas, new business plans to us. And we’ll give them funding, personal resources, and then let them to innovate. For example, one of the employees he is very young, right now he is only 26 years old. And he is the CEO of Zhixing 知行火车票, which is a train business unit. He wants to use this business unit as an anchor and then add your ticket to it, add hotel business to it. He is only 26 years old. So, when we ask him how much money, how long he needs, he says, I need 2 million RMB, six months, six people to prove I’m successful or not. If not, you can close out. And it only took him one month to prove that the volume exceeded 10,000 per day. And last year they delivered $1 billion to the company. So very successful young people, very driven, smart and innovative. We want to encourage our young employees to step up and take on more responsibility.
Hans Tung: In the last 14 years since you have joined the company you have helped to increase the value of the company by more than 50X. You’re very successful and extremely articulate. What’s your drive? Why are you still working this hard and this efficiently six to seven days a week?
Jane Sun: A couple of things. I think first of all I have two young kids, and I think mothers are the best role models for their children. I cannot tell them to study hard, to be independent, and meanwhile I’m relying on my husband, not to work and watching TV. I think if you want your children to grow up and rely on themselves to be independent fathers and mothers are the best role models for them. Secondly, I think I’m so blessed for the opportunity as we discussed. My grandmother was very smart but during her age China was in the Second World War and they escaped from one city to another. And my mother is also very smart, she was a chemistry engineer. But they suffered from the Cultural Revolution. And when I went to school the Cultural Revolution ended. When I went to the college Deng Xiaoping opened the door. When I finish college in the United States Internet took off. And when the Internet bubble busted in the Silicon Valley China took off. So, every step we made we were extremely blessed. Our generation is extremely blessed. For me, every day I’m so grateful for my professors, for my parents, for Deng Xiaoping for everything we have. For me, the only way you can return these favors is working hard and create the opportunities for the new generation so they can be very successful. They can step on your shoulder and create a new enterprise that becomes 10X as big as today’s Ctrip.
Hans Tung: Right. So, you feel that this is your calling.
Jane Sun: Yeah.
Hans Tung: A strong sense of Shiminggan 使命感.
Jane Sun: Yeah.
Hans Tung: Ctrip has made many strategic investments into various startups in China and outside, including investing in the GGV portfolio Tujia, merging GGV portfolio Qunar, and many other companies in the travel space. You also invested in companies such as MakeMyTrip in India, as well as Boom Supersonic in the US. Can you talk about examples of synergies that you hope to achieve through these investments, and how did you decide that you want to make investments beyond China? And what do you look for in these startups when you are making investment in them?
Jane Sun: We hold very high standard for our acquisition target. There are three principles we adhere to. The first one is it needs to closely relate to the travel industry. There are lots of opportunities outside of travel, but we are very much focused on the travel industry. The second thing is we only are interested in making investment in the winners, number one or number two in each vertical. So hardly we make an investment in the number three in the industry. We invest in winners. And the third thing is, no matter how good a company is the valuation needs to make sense. It’s very difficult for us to make a move because you are looking for the number one, yet the price cannot be too ridiculous. If you look at our investment to Wing On, which is the number one travel agency in Hong Kong, it took us six years to finally close the deal. It was during the financial crisis when we took the opportunity and made the investment. If you look at our investment in Home Inn, again, it was during the financial crisis in 2008 and 2009 for us to do that. So, a lot of company, if they are so good, we need to be very patient. We need to be confident that we’ll be able to achieve one plus one equals five type of synergy, then we will make a move.
Zara Zhang: Since Ctrip is a travel company the business is inherently global. In the Q4 of 2018 revenue generated from international business accounted for 30% to 35% of the company’s total revenue. What do you hope that number to be in five years and which region will you prioritize as you go global?
Jane Sun: In five years I hope the pie will be 50% domestic and 50% globally. We move to the global places very methodically. At the beginning we only do Chinese people travel within China. And the second step is Chinese people travel within the Greater China area. And the third step is Chinese people going to Asia, and then the rest of the world. We’re pretty much finished, the layout for Chinese people outbound. Now we’re looking at the foreign people travel to China, because our inventory in China is very strong, product offering is very comprehensive. And the last step probably will be foreign to foreign, so a foreign person travel to a foreign land. We will make our move very methodically every year to achieve the best successful rate.
Hans Tung: We all know China’s outbound travel market has been growing rapidly. In 2018 over 140 million Chinese people traveled overseas, and these collectively spent over $120 billion total. However inbound tourism in China is much smaller, with only 30 million tourists visiting China last year, and only a fifth of those are outside of Greater China. How important do you think is inbound tourism for Ctrip, and what kind of efforts does it make sense to help China become an easier destination for other people to come?
Jane Sun: I think China offers a great product offering for the foreign friends. We work very closely with the government to try to increase and attract the inbound customers. There are a couple of things we can do with the government. First of all, we need to make the visa application very simple. Have an app mobile maybe will be much better than having the foreign friends to lining up in the embassies in San Francisco or New York. That’s the first thing. The second thing is direct flights from San Francisco to China, from London to China. That’s also very important. The third thing is having a China welcome program so when people enter into China, we need to make sure there are English signs and people feel they are very welcomed. And I think if we focus on what would interest the foreign friends, we’ll be able to make a great move on inbound customers.
Zara Zhang: What is your advice to younger people with cross-cultural backgrounds who have lived across both the US and China just like yourself?
Jane Sun: I always tell my children that in order to be successful they need to look at, first of all, what they are passionate about. You can be a lawyer, you can be a hairdresser, but whatever you do you need to feel passionate and try to be the best in your vertical. “可以是律师，也可以是理发师”. Their passion is very important. The second thing is what they are good at. If you have a bilingual bicultural background that’s very rare. I think these kids will have very good opportunities working with multinationals, doing business in English speaking countries as well as Chinese speaking countries so that’s very good. The third one is they also need to ride on the wave. For example, right now Internet is very big, mobile is very big, AI is very big. These industries obviously will offer great job opportunities for the young people. But manufacturing probably is not as fast growing as the other. Mining industry is not as fast growing as the other. To ride on the wave is also very important for them.
Hans Tung: As you grow your international business the demand for talent that’s multicultural is also greater. What type of employees do you look for to help you do that?
Jane Sun: We try to look for, first of all, bilingual bicultural people. We have a Global Leadership Program hiring students who are from China originally, study, or live and work in Silicon Valley, New York, LA, or Europe, and are willing to come back again to work in China. I think these people will have a very good career path in Ctrip.
Hans Tung: And many of them are listeners of our 996 podcast. That’s why we encourage everyone who is interested to apply to work at Ctrip. Lastly I’ll ask you a bit more controversial question, which is that some of our listeners from Washington DC have made the claim that it’s not easy to find a Chinese company traded in the US a New York Stock Exchange or NASDAQ, that’s completely transparent, that can share even working papers of accounting with US regulators. This is a tricky touchy subject with the Chinese government as well. What’s the best way for a Chinese company that’s listed overseas to navigate through that?
Jane Sun: I think China is growing so fast. The analogy I hear a professor used was very good. China is like Yao Ming when he was 10. When Yao Ming was 10, you look at him, he was already much taller than anybody else. So, if you expect teenager Yao Ming to behave like an adult it’s a little bit too difficult for him. But he is learning. China is learning. Chinese culture is a little bit more reserved than the American cultural. Little teeny kids in the United States learn how to do PPT, how to do presentation very well. In China when I was in law school in China, we haven’t done any presentations before. China needs to learn to be a global citizen very fast, because much is given, much is expected. As the second largest economy in the world, the government, the community, the schools, and enterprises likes Ctrip, all need to take on the responsibility to grow our young people, to grow our company to be able to manage the expectation well. But on the other hand, for the global places, they also need to learn China a little bit better. I saw millions of students from China are very interested in learning in the United States. If Trump issued a visa, I’m sure there will be more Chinese students going to study in the USA. Yet I saw very few students from the United States, Germany or UK coming to study in China. It has to be a mutual way. Chinese people need to invest more, understand the US rules and regulation, understand the culture in a western country. But the western countries also needs to invest a little bit more, try to understand the 2000 years of Confucius and the industry. Then I think a lot of misunderstanding will be eliminated. And I’m very blessed by the opportunity to have the opportunity to study in the law school in China, and also to study and work in the USA. And I’d very much like to be a good bridge for these two countries.
Zara Zhang: I think travel also plays a big role in enhancing that mutual understanding.
Jane Sun: Very much so. We just launched a new product today called Zhuangyou 壮游. Last summer my husband and I took our children to visit Italy. When we were in Rome we taught them about the Roman history, how two kids with the wolf started the city. And then we took them to the Santa Maria di Leuca the medieval town and we thought them about the reform in the religion. And then we went to Florence and we taught them about the Renaissance. When I come back the kids just learned so much along the way. The Confucius’ teaching is it is better to travel 10,000 miles than to read 10,000 books. When I came back I talked to our product team, and I thought there were so much education we can do along the way. So, we launched a product and we will have professors, experts in each destination. And before we send these children, we will let them read these books, and then let them touch it. When they come back, they can share their stories, what they see, the pictures, and I think they will never forget about it. And these kids will be such good global citizens rather than having only the view from China to the world. Now and they will know, wow, outside of China there are so many people similar to Chinese people yet so different. I’m very positive that travel will enhance the international exchange and promote global peace.
Hans Tung: Yes, we absolutely agree.
Zara Zhang: And now we’re down to the final round of quickfire questions. Who is the entrepreneur you admire the most and why?
Jane Sun: There are many people I admire. I think Bill Gates foremost. I think he built such a successful company, yet during his peak time he contributed so much to Africa, to the rest of the world. And I have very high admiration for him.
Zara Zhang: What’s something you read recently that you recommend?
Jane Sun: I enjoy reading a lot. There are many books I’d like to recommend. The classic book is From Good to Great and Built to Last, Jim Collins. And then leading enterprises, From Zero to One, exponential enterprises. And then a very good book I enjoy to read is The Better Angel of Our Nature, talking about the confidence that violence is decreasing and human race progresses.
Zara Zhang: What is your favorite travel destination?
Jane Sun: Oh, I have so many. For natural scene I love Africa. It’s just so beautiful. I think humans migrated from Africa. Africa’s wonderful. We climbed up the mountain Kilimanjaro in 2014. And in terms of history I love Egypt, and we just went to Israel, Jordan, and I think the history over there is so amazing. I highly recommend these places to our peer travelers.
Zara Zhang: What do you do for fun?
Jane Sun: I have many hobbies. Athletics. We ski in the winter, or we dive in the summer. On the weekends we run marathons. Anything that is fun and adventurous I’m very interested in.
Zara Zhang: Cool. Jane, that’s all we have for today and thank you so much for your time.
Hans Tung: We appreciate your time. Thank you.
Jane Sun: Thank you so much for having me.
Zara Zhang: Next you’re going to hear a short interview with our managing partner at Jixun Foo who led GGV’s investment in Qunar, an online travel company that merged with Ctrip in 2015, in a deal that was valued at close to $10 billion. Jixun Foo could you please tell us about how you first met Qunar and how you came to invest in them?
Jixun Foo: It’s kind of a long story. I first met Fritz back in 2005, 2006 at a China Wall hotel. A lot of us have our meetings in China Wall back then.
Hans Tung: That’s right.
Jixun Foo: So, I met Fritz Demopoulos back in 2005-2006. He was carrying his briefcase and telling me about this metasearch play and travel search. I thought it was an interesting story, but I wasn’t paying a lot of attention because at that time Baidu just went public. I thought that, hey, search is search. There’s a big search company already just gone out, a couple billion dollars at that time. Why would there be a marketplace for a vertical search? So, I wasn’t paying a lot of attention to it until they did their series A, they did their series B. I still have questions on the value of a vertical or metasearch. But during the process I got to know CC, Zhuang, the co-founder. I also got to know Fritz and the two of them really well. It was over a three to four-year period. And by 2007 and 2008 I saw that they were doing something quite right actually. Because how flight information got democratized because it’s digitized, and tickets became e-tickets versus physical tickets. That was an opportunity at that time for them to actually help consumers acquire the cheaper possible tickets. That was back in 2007-2008. My first meeting with Fritz was in 2005-2006, and when I saw that their search for flight actually started to take off. And the whole momentum, because of the change in the market as well back in 2007-2008 if you recall it was the whole financial crisis, actually consumer becomes more price sensitive. Qunar got quite a bit of a boost in terms of their growth. One, because of the market. Two, because of the digitization of the tickets.
Hans Tung: I can offer another perspective where Qunar is in my entire portfolio a deal that I missed. And I can tell you why I missed it. Like Jixun I also met the company in 2005, I met the team, but back then there were only two websites in China to travel. One is eLong and the other one is Ctrip. So why do you need a price comparison website? It didn’t even work most of the time when you had two sites to look for everything. And, for instance, even though he’s a old China hen he’s still not local back then. And you worry that if a CEO is from outside of China can it really localize and really embed into all the SMBs that companies that sell tickets in China as travel agents. And then thirdly, the Chinese government and Chinese SOEs in travel sector move very slowly. When would the airline have e-ticket. It seemed like it would take a long time and they don’t move that fast. Those were three things that most people saw and passed. I think what Jixun did well was that, as the sector was changing, China’s government and the major airlines in China were issuing e-tickets much faster than anybody thought was possible. And then more travel agents were getting online and want to be online. And that depends on the travel sites with all the price information. During the financial crisis a competitor to Qunar was acquired by a foreign company so Qunar was left alone to be able to focus on dominating the China market and not be distracted. So, I think Jixun made a right call to make an investment but at that time the VC passed a deal, not seeing how the conditions to say no have actually changed, and therefore you need to go back because this actually could be a big opportunity.
Jixun Foo: Right. Despite the investment that I made there was an overhang on the question on Fritz and CC together, can they truly grow a company from 60 people, to a few hundred, to a few thousand. So as the organizational complexity grows can they, as a combination of a foreigner versus a local, can they really run the organization. I think that question continues to be there. And I think the other underlying thing for me which later brought to the involvement on Baidu, was that the metasearch service in itself is actually a fairly thin layer in terms of the value, because you are providing a verticalized comparison engine for a very specific sector. On the front end you still have Baidu which is the global search engine. And now you have the OTAs that are laying below.
So, you are really playing the arbitrage between the robust search and the OTAs. And that value is always a little bit of that overhang for me. As the company evolved into 2011, I realized by that time that something has to happen. Because if you look at what happened very close to that, Kayak and SideStep post-merger was also sold to Priceline. We knew at some point that the value of this company can be capped. And so, the one thing I have to do is to figure out how to make the company great. We actually started a conversation with Baidu, and Ctrip, and so on. The involvement of Baidu into the company was strategically important because it effectively made Qunar starting in 2011 the de facto gateway for all travel search. That positioning helps us to transform itself beyond just a metasearch play to an OTA play. And therefore in 2011 through 2013, prior to its IPO, Qunar went on this crusade to go from flight, to hotel, to other multiple travel services, transforming itself to become more of an OTA platform rather than just a media platform.
That’s a very important transformational change that allow it to grow from a $500-$600 million valuation company when Baidu first got involved or invested, to post IPO $3-$4 billion company. That was the second milestone. Obviously as a company further evolved and went to this huge battle with Ctrip, the eventual merger with Ctrip was inevitable given how intensive the competition was. And that is facilitated by both Baidu and ourselves, the investors, in association with the management teams.
Zara Zhang: So, before they became a real OTA it was more differentiated from Ctrip in terms of product?
Jixun Foo: Right. But you can think of the relationship kind of like Baidu versus Alibaba or Taobao. Because if you are the metasearch and one is the OTA, at some point the conflict will be there if you become the dominant player and the other is the dominant OTA player. While they are playing a different role in the value chain they are competing for value. That competition got intense, so we have to take certain sides. We took side with Baidu earlier, and then we did the merger later with Ctrip.
Hans Tung: Just to put that into perspective. Like Jixun said, when he got Baidu to invest in Qunar, Qunar valuate was between $500 million and $600 million. Kayak in the US didn’t have any investment from Google or any search engine. It was sold to Priceline, the number one OTA in the US, actually in the world outside of China, for $2 billion. Kayak was a global company sold for $2 billion, and Qunar was only $500 million to $600 million in China, as a China only player, doing exactly the same thing but with Baidu’s involvement, it ends up increasing the valuation of the company by teaming up with a number one search engine in China to become $3 billion to $4 billion. So huge important deal to change the valuation and complexion of the landscape in China, in this area.
Jixun Foo: That’s right. To Hans’ point as an investor and partner to entrepreneurs, the entrepreneurs drive their business on a day to day operationally. They understand the landscape quite well, they develop the strategy and execute on it, but for the most part I think what investors have is that we have this global landscape, particularly our team here at GGV. So, we understand a lot of the dynamics that’s going on the ground, looking into that future, where do we create value. The creation of value is not just for ourselves. The creation of value is also for the entrepreneurs. And oftentimes we hope that we could offer a value-added advice and hopefully positioning the company for greater success.
Zara Zhang: Could you talk about the role that you played in the Ctrip-Qunar merger, and how long did it take and what were the biggest challenges?
Jixun Foo: Well, it took a long time. I had long conversations with all sides including Ctrip, Baidu, Qunar. for lack of a better way to describe it it was pretty intense. We have to realize one thing right. The complexity comes from the fact that you have two companies, two managements that have fought over a few years, and many years. There is a missing element which is trust. And so, it’s tough. How do you establish understanding and trust of what the eventual, not so much just in the value of the acquisition, relative value for both or one, it’s also the fact what’s the eventual management going to look like? That transitional management, that’s the big part of the conversation. In fact, I spent so much more time talking through that and going through every single options and that takes a lot of time, because there’s emotions involved, and entrepreneurs and managers need time to digest a lot of these options and conversation. But having said that, I think it took time to come to terms, and typically if I reflect on some of the positives I’ve done including Tudou 土豆, Youku 优酷, etc., most of these deal easily take six months to one year. That’s the kind of timeframe you have to be prepared for.
Hans Tung: How are you so patient through this process? Because it’s easy to have objections, easy to have people say, no, or not right now. How do you get people to eventually say, yes? And how do you come up with a method to slice the pie so that everybody feel they’ve got something that’s either tolerable, or acceptable, or something that’s worth moving forward?
Jixun Foo: Perhaps the patience is inevitable because you have to live with it. And it’s not something that you need that patients for that matter. You have to be appreciative of all the energy, emotion, the sweat, the tears that entrepreneurs put into building these companies. It is not easy. And so, we naturally have to appreciate and empathize with those emotions. That’s very important. Number one. Number two, I think having said that entrepreneurs are also rational. There’s a rational part of them, understanding the value of those outcomes. Numbers do make a difference, rationalizing through those numbers. And also, typically there is a premium for the exit party. And so how do you rationalize through those premium for both the buy and sell side to come to terms with and have some sort of a settlement on it. I think that process, the number process is also important, because it’s a full realization of value to the team. Obviously if I acquire the buy side, the buy side typically get the upside on the future value, whereas the sell side gets the value that is premium today, a premium to the current value. There’s a bit of a working model if you will and rationalization to the economics of it. And typically for entrepreneurs, they’re quite rational. At the end of the day they work hard, and they have sweat and tears behind it, and that earn can be a meaningful reward for them.
Zara Zhang: I’m curious because you said that because that conversation between Ctrip and Qunar became so intense it became inevitable for them to merge. Is this a China specific phenomenon, because in the US there are also a lot of intense competitions but there doesn’t seem to be as much mergers of rivals?
Jixun Foo: Yeah. I think maybe the competition in the US is not as intense as in China. Zara, you’ve been here in China over a few years and you’ve seen how intense competition is and how ruthless. The more ruthless they are they fight more intensely. If you look at Uber versus Lyft, and you compare that versus DiDi versus Kuaidi, it’s a different level of intensity.
Zara Zhang: Sometimes in China there are literal fights like between delivery man of takeout companies.
Jixun Foo: It’s fairly intense. And given that, it further drives the necessity to actually come to terms on a steady state. What is that steady state? The steady state in some cases, if you look at some markets, in some cases as they come to terms, whether it is the online video landscape, there’s still compared to competition. Or if you look at the food takeout landscape like Ele.me versus Meituan, it comes to a steady state where they stop the intensity and they start raising take rate. So, there are certain times when it does come to a steady state and certain mergers cannot happen for various reasons. But otherwise whether investors continue to fund it, and they need capital, the need for capital actually drives a big part of the merger conversation.
Hans Tung: You also see the founders getting diluted every time they raise more money. If their board doesn’t top up with more refresher, because the battle is so intense and it’s hard to figure out who’s going to win, then it makes it harder for the founder to keep on raising money. And because the type of competition is so intense that you know the other guy is not going away so you do you really want to do this for another two-three years or do you want to figure out a way to resolve this. After you go 9-9-6, 9 a.m. to 9 p.m. 6 days a week, or sometimes double 7, you work all the time seven days a week, and you do that for three or four years you’re like, I don’t want to do this anymore. Because the other guy’s not going away, I have to raise a lot more money, and I’ll get diluted more, and life is not going to get any better for the next three or four years versus what just happened the last three or four years. So, you’re much more willing to figure out a way to get out of this stalemate.
Jixun Foo: I think you’re absolutely right. That’s the kind of conversation oftentimes we have to have with the entrepreneurs, kind of rationalizing to the options ahead of them. The risk versus the reward, the downside versus the upside. Like I said, I think entrepreneurs there’s an emotional part of them where there’s a conviction and drive that make them who they are, but at the same time there’s a very rational part of them that understands some of this risk-reward equation.
Zara Zhang: So, with that that’s all we have for this episode. And thanks, Jixun, for your time.
Jixun Foo: Thank you.
Hans Tung: Thank you. Thanks for listening to this episode.
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 $6.2 billion in capital under management across thirteen funds, GGV invests in consumer, new retail, social, Internet, enterprise cloud and frontier tech. GGV has invested in over 290 companies with more than 45 companies valued at over a billion dollars. Portfolio companies include Airbnb, Alibaba, Ctrip, Didi Chuxing, Domo, Hashicorp, Hellobike, Houzz, Keep, Slack, Square, Toutiao, Wish, Xiaohongshu, YY and others. Find out more at ggvc.com. We also highly recommend joining our listeners’ WeChat group and Slack channel, where we regularly share insights, events and job opportunities related to tech in China. Join these groups at 996.ggvc.com/community
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