Tao Zhang – The Meituan-Dianping Merge and the “Groupon War”

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 the investment analyst at GGV Capital and a former journalist.

Zara Zhang: On today’s show, we have Zhang Tao, the founder of Dianping. Tao is his first name, Zhang is his last name. Tao grew up in Shanghai, came to the US for college, holds an MBA from Wharton and had worked and studied in the US for 10 years when he went back to China in 2003 to start Dazhong Dianping, which literally means “people’s reviews” and is known as Dianping for short.

When I go back to China, Dianping is one of my most frequently-used apps. I rely on it to find good restaurants, massage parlors, karaoke places, make reservations, buy movie tickets etc. Actually, I only go to places with over 4 stars on Dianping.

Hans, you have known Tao for a long time. How did you two first meet each other?

Hans Tung: I first met Tao in, gosh, it’s been almost 10 years. Dianping was the most popular review site in Shanghai and Beijing. I remember Tao started his company a year before Yelp was funded and it was just interesting, in my previous job, to be lucky enough to be part of the investment team that was able to become a shareholder in Dianping.

So Tao built Dianping into an $8 billion company when it merged with its rival, Meituan in 2015. The company became the largest player in the Groupon, or group buying space, in China. Since then, Tao has moved to California and does enjoy investing on his own, both in the US and in China. The new company Meituan-Dianping is now worth $30 billion and is the fourth-most valuable startup in the world. It’s one of China’s newly minted tech giants, other than the BAT. Now people are talking about TMD, or Toutiao, Meituan and Didi. By the way, both Toutiao and Didi are GGV portfolio companies.

Hans Tung: Welcome to the show, Tao.

Tao Zhang: Glad to be here.

Hans Tung: As early as 2003, you started out doing restaurant reviews online. Back then, the Internet was still in its primitive stage in China, and even hadn’t started in the US. How did you decide that restaurant reviews, or putting restaurant information online was something you wanted to do, and do it in China, and it was worth leaving the US to go over to China for?

Tao Zhang: I went back to Shanghai after my MBA. Our original plan was I actually just wanted to do a startup, not exactly sure what to do yet, and I wanted to kind of copy some US models back to China, that was the original plan.

Hans Tung: Copy to China was a popular model back then.

Tao Zhang: That was 2003.

Hans Tung: That’s right.

Tao Zhang: But I realized all the smart Chinese over there already copied everything I could think of. So whatever, Yahoo!, eBay, you have Sina, you have Alibaba.

Zara Zhang: Google and Baidu?

Tao Zhang: Google wasn’t up yet, not yet. Google was just about that time.

Hans Tung: It had not IPO’d yet, but it was already in existence.

Tao Zhang: I have nothing to copy, so I have to figure out, what do I want to do? Now I was always a foodie. My father really loved food, my mom is a good cook, and also, I really believe in the Internet. So at that time, I think it was kind of like the bottom of the first Internet boom, but I think that there will be a second coming. So it’s Internet and also the food.

Another thing, I was kind of inspired by the Zagat reviews in the US, where I was a frequent user.

Hans Tung: Zagat’s Guide.

Tao Zhang: It was in paper form, and I thought it would make a lot more sense to do an online version, where it’s more interactive. So that’s kind of the idea I came up with. At that time, I wasn’t sure how it was going to grow. I was just kind of, just do it, me as a one-man show as a personal website, and see how it goes.

Zara Zhang: Why did you still believe in the Internet, even after the bubble burst?

Tao Zhang: So now everybody talks about this, it was a hype curve. You have the virtue of the first, you have the hype and then come down, and then really the solid growth. I read something about these back in business school about this phenomenon, so I thought the second circle wave was coming. And also, as a personal user of the Internet, I just believed in the potential. It is really something I use very often. I just can’t believe there would not be value coming out of it.

Zara Zhang: At that time, you had already lived and worked in the US for 10 years. Did you feel like you had challenges going back to China? The first thing you did was start a new company, which is not easy. So did you have any challenges adapting to the Chinese market and getting to know what was happening on the ground?

Tao Zhang: One challenge at that time was nobody believing in the Internet, especially in Shanghai. And then saying whoever does the Internet, it was all the crooks trying to kind of –

Hans Tung: Make money off of people who are lazy and not paying attention to what’s going on.

Tao Zhang: Right. So I was not popular and also, returnees at that time had still a lot of prestige in China, then doing something as insignificant as a startup, and also the Internet, so that was actually a lot of pressure.

Hans Tung: Right, especially doing this in Shanghai, where most of the startups were happening in Beijing.

Tao Zhang: So for the first couple of years, I tried to avoid all the MBA crowd over there. Then, people are going to ask, “What are you doing?” And they are going like Goldman Sachs and McKinsey, so I had to tell them what I was doing. That was some pressure on the ground.

Also, I think getting back to getting used to the Chinese culture in terms of even hiring people, because I had been away for 10 years. Recruiting people, and usually at the beginning, you only recruit your friends, right? But most of my friends were actually in the US, so that took some time to get a team together, and all these kinds of things. It was challenging.

Hans Tung: One of the things, I know when you were trying to raise money in 2005, 2006 a lot of investors were doubting; how big could the Dianping market be? Because the people who would actually read reviews live only in Beijing or Shanghai, primarily Maybe there are some in Hangzhou, some in Shenzhen, but there was a lot of doubt or uncertainty involving how big the Dianping market will grow. How did you overcome this uncertainty and still be able to raise money and grow the business over the next few years, between 2004 and 2005, to 2008 and 2009?

Tao Zhang: Yeah, we did our first review starting in 2004. I think at that time, the China Internet market is still very, very small and you don’t have a lot of VCs here, especially for the early-stage VC. It actually started at the end of 2004.

Hans Tung: Sequoia China.

Tao Zhang: Sequoia China. So they ended up investing in us, and we are actually one of their very first deals. So before that, I think the most challenging part was VCs at that time would look at you and say, “What’s your comparable model in the US?” So you can’t find any. Yelp started at the end of 2004.

Hans Tung: A year later.

Tao Zhang: When we were raising, Yelp was not started. So I think that’s the most challenging part. If you have a US model, they always say okay in China, it’s much easier.

Hans Tung: They are willing to believe that you can take off later, it just takes more time.

Tao Zhang: Things, of course, are very different right now, in a good way, I think. But at that time, that was just the market climate. So it ended up we took the money from Sequoia China, I think primarily. I knew Neal before that, he was in Ctrip. Ctrip has some similarity to what we were doing, both in the consumer sector, lifestyle things, and they always had a little bit of a review part to it, so he understood this business.

Another thing is, I remember Neal was telling me, we were only raising like 1.5 million. It’s just 1.5 million is not a lot of money, so I don’t know how it’s going to grow up. It’s just not that much money.

Hans Tung: It made it easier.

Tao Zhang: It’s not that much risk to take, yeah.

Hans Tung: But after you received money, the second round I think was led by Google, was it?

Tao Zhang: Right.

Hans Tung: And thereafter, because you continued to grow the business. Before you started a Groupon business in 2009, between 2004 and 2009, for those five years it was just a review business.

How difficult was it or how easy was it to grow that business in China, when most people who read reviews were primarily in the big cities?

Tao Zhang: It’s one thing to start a business when the market was down, so not a lot of Internet startups at that time. Actually, I think it’s the best time to start. You don’t have a lot of competition.

Hans Tung: No.

Tao Zhang: You have competition, but it’s not as strong. You can kind of take your time to really build a solid foundation. Of course you start with the big cities, the people, but you are gradually spreading to the second-tier cities. But what you have is a very strong community, and they are very devoted, so you have this great foundation to build out all of the things we laid out. That was great.

I won’t say it’s particularly difficult. I think it was a pretty great time during those years to do Dianping.

Hans Tung: Because Dianping by nature is a community, and it takes time to build a community.

Tao Zhang: Exactly. If you started Dianping now, I think it will be harder to build a great business, because there is so much money and you have a lot of copycats.

Hans Tung: You have a lot of people and the paid influencers, a lot of copycats. It wouldn’t be as authentic.

Tao Zhang: Whatever you are doing that way, the community will not be as strong if it is incentivized by money.

Hans Tung: That’s correct.

Tao Zhang: And it’s a local business, it takes longer. The community itself is hard, but to build a local business, you have to build it city by city. Each city probably takes about two to three years to have a very mature community. It does take that many years to really build up a website like Dianping, and we were fortunate at that time, we don’t have a lot of capital chasing around a lot of unnecessary competition, so we can do our job in a good way.

Hans Tung: One takeaway from that period is probably VCs, or big players, don’t think too much of your category, it’s actually a blessing.

Tao Zhang: It is, definitely, yeah.

Zara Zhang: So I think even today, even though you started Dianping before Yelp started, the easiest way to explain Dianping is still to say that it’s like a Yelp equivalent of China. But I still think there are a lot of differences in terms of the interface and functionalities. Could you explain to our audience, what are the different functionalities that Dianping offers that Yelp doesn’t have?

Tao Zhang: We have a lot more things. Besides reviews, we have the coupons so we do our own coupons, and we have the delivery. Also, you can book the movie tickets like Fandango does. So primarily I think Yelp, we both started as a review and community, and Dianping kind of branched further into the value chain. We do a lot more transactions related to business, and we engage with the merchant side more.

That’s kind of the primary difference between Dianping and Yelp.

Zara Zhang: Another difference I noticed on my last trip to China, was I think content is featured a lot better on Dianping than on Yelp. On Dianping, I can actually read top bakeries in Shanghai, where there are a lot of this influencer articles. That doesn’t exist on Yelp, and help me a lot with discovering new restaurants.

Tao Zhang: I mean, in terms of the actual features on the reviews site, there are some key difference. One is, besides the ratings, Yelp only gives the general ratings. We also give the category ratings, so we tell you how good the food, the décor, the service is, and also we give you average price. Yelp gives you only the dollar signs.

Personally, that was actually a product decision to make at the very beginning. It’s harder at the beginning to get users to give you more information, but at that time, I decided it’s better in the long run to have more detailed ratings, to get more info from the users. That would be more helpful for whoever is reading it.

So I think that’s a product decision we made at the beginning, and I feel especially in China, I guess, it’s a lot more useful to have more detailed information. Not just tell you it’s a four-star restaurant. Is it four stars because of the food or because of the décor? So I look at Yelp, and I always want more details. That’s one thing.

Another thing, I think that’s a local market difference. One of the most useful features at Dianping is about recommended dishes.

Zara Zhang: Yes.

Hans Tung: That’s very important. In Yelp, you have to look for a menu from the restaurant.

Zara Zhang: Yes, or look through all the pictures.

Hans Tung: You can go through all the pictures with the reviews. On Dianping, you don’t need to.

Tao Zhang: Coming from the China side, we Yelp and we see this restaurant is four-and-a-half stars, but why are they good? But I still cannot order, right? But I think particularly in China, everybody who has been to China knows the menu is like a book, right?

Hans Tung: Yes, too long. Just tell me the five dishes I need to order, the most popular.

Tao Zhang: And also, they pretty much provide all the dishes you can cook, but there are only three to five dishes that are really good. So if you see a restaurant has a very high rating, but when you order the wrong dish, you have a bad experience. So I think the recommendations in China, particularly is extremely important.

Hans Tung: It’s very popular, yes.

Tao Zhang: So I would say that’s a local difference. In the US, I think it’s important, but it’s less up to debate. I would still prefer to have more information.

Hans Tung: It seems like in the US, the restaurants are more focused on a particular style, particular things, so the menu is a bit more limited, whereas in China people think they can do everything, so every dish you can think of is inside. So even with Shanghainese cuisine, you may find other cuisine dishes in there. It’s easier for someone to just know, here are three or four or five dishes that are really good in this restaurant, and just order it.

Tao Zhang: Right. And other features like, for example, pictures, we actually did a lot more of the picture functions earlier, but Yelp I think is catching up. Recently we just launched short videos, so there are more multimedia things going on than what you can see in the US.

Hans Tung: The second key milestone for business development for Dianping was in 2009, 2010, when Groupon became the hottest phenomenon in the US in the consumer Internet space. In China, there was already Groupon before, but not in that same way. I remember as I was looking at what was happening in the US and seeing that in China there were startups trying to do Groupon on their own, from scratch, immediately I thought that you should be the most natural to extend that business into that, given that you had a strong base in the Dianping review business already.

So when my previous firm, as part of the team we asked you this question, it was interesting to see how you had a more nuanced answer. It wasn’t just, you are not about immediately going to a new, hot category. You actually thought through, what are the issues that could be conflicting that you need to solve, and what could be the synergy that could exist, but you need to work hard to make that happen. It just doesn’t happen automatically.

Can you go through some of your decision criteria to enter a new business, and what kind of framework do you use to help you to identify operational challenges that you need to solve to do well in the second business?

Tao Zhang: Around 2009 and 2010, there were actually two big trends we were facing. One is Groupon, as you just mentioned. Another is actually the mobile. So we are facing two potentially very big disruptions or opportunities, however you look at it. So we had been following Groupon for a while. Groupon started in 2008, so we were following that.

Actually, we made the decision that the first one we would tackle was actually the mobile. We got into mobile, we are one of the first big apps going to mobile in China, because at that time we were more afraid that mobile might disrupt us than the Groupon. I will expand on why later.

So for mobile, you always see the company kind of disrupted or destroyed with some kind of platform change. Facebook actually went through a similar change; they survived. But some companies survive, some don’t. We don’t know what mobile is going to do to us, but we know that mobile is critically important to us, because all the local businesses are partly mobile based. That’s why we kind of just focused a lot of resources on the mobile first, so we did an app first.

And Groupon, all we were thinking yeah, it’s the most natural thing for us to do, and to do a Groupon is actually not that easy.

Hans Tung: No it’s not.

Tao Zhang: You need an execution team, and you cannot do it overnight. Mobile can happen overnight. Somebody did some features we didn’t think of can overtake us. So within these two, we did the mobile first and then the Groupon, if we saw the competition pick up, we would just quickly followed. But if not, we will just do it in a later way.

Hans Tung: In mobile, how easy or difficult was it for you guys to switch from a PC site to mobile?

Tao Zhang: It turned out to be in the mobile, there was not strong competition. It came up eventually.

Hans Tung: Because you still were content driven, you still have content. It’s not easy to build on content.

Tao Zhang: It’s still scary, things at that time you cannot tell like Foursquare.

Hans Tung: That’s right, I remember that.

Tao Zhang: But it turned out to be okay. So I think for us, mindset-wise, because we have this mindset it’s always going to be mobile. So we tried it out with a mobile app. Before the iPhone we tried search through the WAP, SMS. So it wasn’t really a challenge to us in terms of the mindset, because the scary thing is that you have something the mindset is not right. So that’s okay.

But still, we had some challenges in terms of actually designing the products, how to really focus on what people want from the mobile perspective.

Hans Tung: Inside you may treat mobile as a key trend, a key challenge. From the outside as investors or consumers, the evolution you guys had from PC website to mobile seems very smooth, and people enjoy using your mobile product. So that’s why from the outside, it seems like whether to go into the Groupon business or not was a bigger challenge.

Tao Zhang: Yeah. Now I’ll talk about the Groupon business. So there is no doubt we have to go in. The Groupon, in a sense, it’s a kind of advertising. It’s paid advertising to give the consumer benefits, and the merchants get traffic. That’s exactly what we were doing with our other ad products.

So we had these coupons before, it’s just the difference is it’s non-paying.

Hans Tung: In 2006, 2007, that’s right.

Tao Zhang: So there was never a doubt we were going to get into Groupon. I think the challenge would be, in that sense, and we didn’t realize at the time –

Hans Tung: Cultural?

Tao Zhang: The normal perspective was it’s a very natural thing for us to do, and it shouldn’t be that difficult. We already have the users and are already doing the advertising. We have a relationship with merchants. But there are two things you didn’t realize at that time.

One is the people who are selling the Groupons are very different from the people who are selling the ads.

Hans Tung: That’s right.

Tao Zhang: Ads are more typical kind of ad teams like you would see Salesforce, Facebook or Google have. So you are selling a concept. You need certain kind of sales skills. But selling Groupon, it turns out it is actually not difficult to sell. It’s more kind of like on the ground –

Hans Tung: RD, BD approach.

Tao Zhang: BD approach.

Hans Tung: Feet on the street.

Tao Zhang: Feet on the street, so you don’t need people with very high sales skills. You need somebody who will really, really work very hard and also, in terms of the organization, for ads you need strong salespeople and the way to manage them is a bit hands off. Give them creativity and room. Also, you want to have this culture so they feel good about it.

But doing Groupon, and especially with all of this competition, actually you just need foot soldiers. It’s like a military –

Hans Tung: It’s like an army, a miniature army.

Tao Zhang: It’s an army and you need a general who really just pushes everything forward and you don’t care how skillful the salespeople are.

Hans Tung: Right, she’s saying kind of like Didi.

Tao Zhang: Later, Didi are like that, but at that time I think the Groupon is the first.

Hans Tung: Because you see, Baidu was different. Baidu was still selling ads, so their feet on the street and your feet on the street are different from them.

Tao Zhang: I would say I haven’t seen anything in the world like that.

Hans Tung: Alibaba is the closest, Alibaba.com.

Tao Zhang: In the world it is like that. It’s only in China and it only actually happened to be the perfect team to do that is from Alibaba. Alibaba, when they are selling B2B, their ads are like that.

Hans Tung: The Alibaba.com business, that’s right, not Taobao, not Tmall.

Tao Zhang: So that’s something I think we didn’t realize at that time. It looks like ads, but it’s not. Organizationally, it’s not really ad sales.

Hans Tung: How long did it take you to recognize that there is a pattern difference?

Tao Zhang: I think that took longer than we would like. We started Groupon in mid-2010, and I think we started to realize why we seem to have all the advantage and we should have crushed the competition already, but we still have a couple strong competitors, and they seem to be doing better, especially on the sales side than we did. So that takes a couple of years, that was a big challenge for us.

And also, another thing in China is very different. It is also about the geography of China, because you have certain coastal cities are very wealthy, to the level of the US cities, but you have a lot of cities inland that are very poor. So the US is more homogeneous.

Hans Tung: That’s right.

Tao Zhang: Then you see the people inland, they actually really like Groupon because it gives them discounts. But people in Shanghai, Beijing, they like it but not to that degree.

Hans Tung: No.

Tao Zhang: So in this culture, we are giving reviews, we are dealing with all these coastal cities, so you understand the needs are different.

Hans Tung: Of the users are different, right.

Tao Zhang: But I think it’s not to the current level yet. They are really very different and their demand is much higher than we would have expected.

Hans Tung: Demand from the inland cities.

Tao Zhang: The inland cities, the users, the demand for the Groupon is just so much higher than the demand for reviews.

Hans Tung: It’s very strong, right.

Tao Zhang: So that’s another thing I think the business is different. It looks similar at the beginning and from outside, not having done it. But what you do is actually, those are two key differences. It’s very different.

Hans Tung: Those are extremely important insights, because at a strategic level, it seems like it’s a natural extension of the business, but when you start executing and realize that, there are fundamental differences.

Zara Zhang: I find it really interesting that a lot of Chinese tech history is often described in war-related term. Like Alibaba’s B2B sales team, they call it “Ali tie jun 阿里铁军” or “Ali Iron Army.”

Hans Tung: Iron army, yes.

Zara Zhang: And a lot of their leaders are referred to as generals, and they have “wu xia 武侠” names.

Hans Tung: Kungfu and martial arts names.

Zara Zhang: Right. You lived through the “thousand-Groupon War” or “Qian tuan da zhan 千团大战” in the early 2010s. In 2011, China had over 5,000 Groupon-like companies, with an average of 10 new companies being started every day. And at that time, when the Chinese consumer went out to restaurants, they would be bombarded with promotions and discounts from all of these companies trying to grab their attention. What was your biggest takeaway from this ferocious war?

Hans Tung: Before you answer that question, to put it into context, before that battle, the online video websites in 2005 to 2008 went through a similar period, but it was about 100 video websites going against each other with some kind of funding. But for the Groupon business, it was over 1,000; 3,000 sites started doing Groupon within the first six months that this started to take off in China. So it was something that none of us ever had seen how fast and ferocious it became. Now you can answer the question.

Tao Zhang: We look at different angles. For the first part, the wars, the generals and people fighting, one is I think China is developing and the people are very hungry there. They’ve been very poor, so they want to get rich. So you have a lot of very hungry people who really want to achieve success, something you can imagine in a developed world. So that’s the general background.

Another thing also is I think all these “wu xia 武侠” generals, also you happen to have this Mr. Jack Ma and also Alibaba, he built it that way. It’s a combination. So without Jack Ma –

Hans Tung: It would be a different analogy.

Tao Zhang: It would be maybe a different analogy. Maybe you do not have so many generals and war and “wu xia 武侠”. I think it doesn’t make a difference. And it doesn’t make a difference in an environment which kind of fosters that. So that’s that.

With that background, generally I think in China you do business, and it’s like no rules. In the US, you have a lot of rules.

Hans Tung: Right, a lot of regulations.

Tao Zhang: US regulations, rules, for good or for bad.

Hans Tung: Compliance.

Tao Zhang: Compliance, in China it is basically you have laws, but people don’t really respect that, so basically you do whatever you want to do. Just do it first, ask for permission later. So that’s one thing.

Another thing is, people just copy each other. You don’t have very strong intellectual property rights.

Hans Tung: It’s hard to enforce them.

Tao Zhang: Historically, people don’t really respect intellectual, IP rights. For good and for bad also, I think. But yeah, I think there are too many IP lawyers and IP rights, not due to the formulation, I think it’s a balance. In China it is one stream, the US, another stream.

So anyway, whenever some good ideas come up, people just copy. You have a billion hungry, very talented, hard-working people and you see a good idea, you want to copy it. So any good ideas in China, you have hundreds of copycats. The video wars, and also online, the Groupon was the first was war that started offline, and then later you have Didi, now you have the bike sharing and delivery and all this. So this kind of brings the environment of copycats.

Hans Tung: The room for innovation is a lot less.

Tao Zhang: It’s more about execution.

Hans Tung: All about execution.

Tao Zhang: So in China, execution is critically important. If you have an idea, people want to copy you. So the idea actually is not that important. It’s more about how –

Zara Zhang: Speed.

Hans Tung: The speed of execution.

Tao Zhang: The speed and the execution. If you happen to be good or bad in the business, the Groupon or like Didi Kuaidi, you could build a very great business, a very big business. That’s a good thing. But the bad thing is, you can face a lot of competition. In some ways, there’s a lot of luck involved. As Didi became Didi, so it was good but also I think it was lucky. Same I think with bike share. So it’s luck, meaning do you get the right capital? And the right capital is important at the right time. Did you get the right people to support you? So that’s a lot of I think hard work, dedication, smarts, but also luck.

Hans Tung: You need all of them.

Tao Zhang: Only in China.

Hans Tung: Only in China.

Tao Zhang: But I think those things will be less in the future, that’s my view. So think about noise like hundreds of companies fighting for the same market sector. Even in China going forward, we won’t see that as much, probably.

Zara Zhang: Now as you fight this Thousand Groupon War and became involved in the food delivery better later on, which requires even more capital, the big boys, BAT, started getting involved. You had Tencent as an investor. Alibaba became an investor in Meituan, and Baidu started its own takeout business, Xiaodu. Some people these days say that Chinese startups are like pawns for these giants. They don’t control their own destiny.

It is a reality that many small startups today need to choose a camp or a zhandui (战队) from day one. You’re either in the Tencent camp or the Ali camp. But others argue that in the past, the giants just used to copy everyone and crush you, and at least now they’re willing to invest and give resources to help you grow.

So in your experience dealing with giants, what are your takeaways and recommendations for entrepreneurs?

Tao Zhang: So in China, it is pretty much like, especially Alibaba and Tencent, they kind of become the last mile of capital, in a way, because they have deep pockets. I think that actually has a lot to do with the pure traffic side. It’s about the capital side. So even now, a lot of VCs that invest in China they will look at, “So is one of the two guys going to come in to give you the capital to go forward?”

So in our case, the same thing. I think the capital of Tencent is a bigger consideration, and of course WeChat is a thing we consider, my helpers, but in the end, as you know, there is a much bigger difference. So I wouldn’t say the traffic. And other things are very important in terms of how successful the startup will be in China. It’s purely because they have deep pockets and they are willing to use those deep pockets to finance the companies. Then it becomes kind of like tricky psychology even among these Series A, Series B, Series C VCs, they will look at, okay well is Tencent coming at Series C, then I might invest more, because somebody is going to come in.

So I think this dynamic is pretty strong, especially nowadays in China, not as much as in the U.S. but you don’t see Google, Facebook, even Apple, there is so much money, but they are not deployed this way. Tencent and Ali are deploy capital in this way to build up this ecosystem of the startups.

Hans Tung: One could argue that Alibaba and Tencent are different. Alibaba tend not to give you traffic, but more deep pocket capital. With Tencent, at least with WeChat these days, it is possible for them to give you traffic to grow, and it is up to you whether you take advantage of traffic well or not, because they won’t just give you the traffic. They’ll give everyone a chance. Look at Píng Xíng Guó (平行国) in Shanghai. It runs solely on WeChat traffic, but they are better than other people at monetizing that traffic.

Tao Zhang: But that is not because they are invested by Tencent.

Hans Tung: No, it was not because of that.

Tao Zhang: Okay, so that’s a different story.

Hans Tung: There’s a difference.

Tao Zhang: Yeah, you grab from the WeChat traffic, but you do not necessarily have to take money from them.

Hans Tung: No, you don’t need to necessarily take money from them, that’s right.

Tao Zhang: Right, so the startup that takes money from Tencent or Ali, I think there are a lot of considerations, not purely because of traffic. Actually, I would advise companies if you think that Tencent, if you are deciding, do you want to take the money from the –

Hans Tung: Financial VC or strategic players.

Tao Zhang: Strategic, you will be very careful and also, don’t base your decision on because I can get traffic from Tencent, more often you will be disillusioned. But you might still want to get money from them for other reasons.

Hans Tung: For example?

Tao Zhang: For example, if you are a business that requires a lot of capital.

Hans Tung: Their deep pockets.

Tao Zhang: Then you want to eventually, probably not Series A, Series B because Series A early, long so you still want to be independent, because you want to have this option to choose better terms from either Tencent or Ali. But when you get to Series C, Series D, you probably want to get one of the guys involved, because that’s how the ecosystem works in China. They have the deep pockets.

Hans Tung: Beyond the deep pocket capital, is there any other reason to take money from Tencent or Alibaba that founders these days should consider?

Tao Zhang: I would say two things. One is the business, as I just mentioned, where you need a lot of capital. Another business is maybe you do have some synergy, right? So if you are doing gaming—

Hans Tung: Hard not to take Tencent money.

Tao Zhang: Tencent is probably good, right? And if you are doing more of an offline kind of e-commerce, happen to be like Ali’s field, but that’s tricky.

Hans Tung: That’s tricky, because they may compete.

Tao Zhang: So I would say, some business I think money and also the strategic values are involved, but some are not. Some are purely because of, you know, you look at Didi Kuaidi, why do they have to take money from these two guys? Because I think the money’s important and also strategic because they are willing to fund you so they can build their payments, right?

Hans Tung: That’s right.

Tao Zhang: They back the same thing. But you don’t have to take money from either two. Because you have a lot of deep pocket investors in China. Does Mobike really have to take it from them?

Hans Tung: I think in the case of Didi, they were trying to figure out how to work with WeChat and also learn from Tencent how to build better product. And like you, Didi did not start out with one of the cofounders having deep knowledge in product. So having worked with Tencent in how to solve a lot of the peak traffic, peak transaction, demand issues, how to deal with skill, was helpful for them to learn how to be able to do that.

So I think beyond the capital, beyond strategic fit, just improving your internal operation, whether it is on technology or on product, there are certain benefits of learning from people who have skill before. So that’s something I would consider.

But I agree with you, that these guys are not going to give you money just because they have money. They will give you money if you fit what they need you to do and the ridesharing war, both Alipay and WeChat pay need to have more users who will use their mobile payment solution. And when you take a ride, you need to choose a payment solution. Did didn’t have that then, so whoever invested in them will have a chance to build up the mobile payment customer base. And that’s why Didi was able to get money from Tencent and Kuaidi got money from Ali, because both strategics want to grow their mobile payment customer list through these two ridesharing apps.

Zara Zhang: So Tencent was an investor in Dianping. Why did you that that was a good idea?

Tao Zhang: So at that time it was a one, we still have hope for WeChat to bid. On paper, it looks like there’s a very good fit. We should get a lot of traffic from WeChat. So that was a big hope. I think WeChat still helps us a lot, but just not to the level where it changed the game.

And another thing I think is the capital, as I mentioned. A third thing is also, you kill competition.

Hans Tung: Right. Because if they don’t invest in you, they may invest in someone else.

Tao Zhang: Right, so those are the primary three considerations.

Hans Tung: Yeah, makes sense.

Zara Zhang: And when did you first learn that the Meituan and Dianping merger was going to be inevitable?

Tao Zhang: I would say we have been talking to Meituan actually for several years, me and Wang Xing. I mean even pretty seriously tried to merge together two years before that merger.

Hans Tung: So about 2013.

Tao Zhang: So I would say in this kind of business, if you have two or three players, even two players there, nobody is going to make money. So you have to be like a monopoly player.

Zara Zhang: Winner take all?

Tao Zhang: It has to be a winner take all.

Hans Tung: Otherwise both of you would lose, because you can’t get merchants to stick with you.

Tao Zhang: Right. Otherwise you are just going to keep requiring capital and nobody can make money. So I think in this kind of business, the only rational way is to merge. Unless you think you can kill the other guy. So I think that happened to Didi Kuaidi later.

Hans Tung: And before that it was 58 and Ganji (赶集).

Tao Zhang: 58 and Ganji (赶集), I would say less maybe, because they are more kind of advertising and they are not as transaction-based.

Hans Tung: That’s true, that’s fair.

Tao Zhang: So they can kind of co-exist. But to merge is better, and if you don’t merge, it is okay. But for us, or Didi Kuaidi, with 40 percent to 50 percent share, it is like equally matched competitors so it is going to be to the death. Both are going to die.

Hans Tung: Painful.

Tao Zhang: The only way is to merge together. I think for us, at least for the Groupon business characteristic. Our review business is different, but the Groupon business is. So it is always, I think both sides are looking at, okay, can we kill the other guy or are we kind of like evenly matched? So it’s always looking at this timing and stuff. So you know it is inevitable if both are decent competitors.

Zara Zhang: How did you choose the right time to do that?

Tao Zhang: The right time, I think as is often the case is, at least in our case, is an external kind of catalyst. In our case it was like, Meituan was doing the fundraising, and we were about to do the fundraising. So our fundraising lines are usually, you know, either fundraising or an IPO round, so usually a catalyst and then people start to see, do you really raise money or are there other alternatives? So I think a ton of catalysts is what made it happen.

Zara Zhang: Was there a lot of pressure from investors?

Tao Zhang: I mean rationally, you as an investor, it’s just like we look outside at Mobike and overall, it looks like they should merge, right?

Hans Tung: Right, in the bike-sharing world.

Tao Zhang: And a rational point of view or investor point of view, and we also happen to have investors that Sequoia has an interest in both sides, and Tencent is more of a strategic investor, so he looks at it strategically, not purely financially.

Hans Tung: That’s right.

Tao Zhang: So your investor base is also, these things are going to happen, but your investor base will kind of decide if it’s going to happen or not, are the interests aligned?

Hans Tung: So in hindsight, would you have wanted to raise your round sooner, in order to force a merger and a different outcome? It sounds like Meituan raised the money first.

Tao Zhang: Meituan didn’t raise the money. So Meituan was about to raise the money, so that’s why it happened, If it did raise the money, it was probably not going to happen.

Hans Tung: I see.

Tao Zhang: Then we all have more money to burn and then just wait for a couple of years. But eventually it might happen, but not at that time.

Hans Tung: Just wait a little longer, got it.

Zara Zhang: Did the outcome of the merger match up to your expectations?

Tao Zhang: Yeah. I mean it’s pretty much kind of what people expected, right? What we expected, how the merger was going to come up and how it is going to proceed, yeah.

Zara Zhang: So I wonder how difficult was it to integrate the two teams after the merger? Because the kind of people were different and the cultures were different.

Tao Zhang: It’s not easy. There are some similarities, but there are some differences. I won’t get into too many details, but yeah, I mean they are two companies that have over 10,000 people, it is not going to be the same, and especially you have a lot of redundancies. They are fighting the exact same war, and all the same generals.

Hans Tung: They are used to fighting with each other.

Tao Zhang: Yeah, and also each position has two generals there. So this integration was not going to be easy, but as difficult as we originally thought, the outcome I think is not as bad as we imagined. So it was okay. It was difficult, but not as bad.

Zara Zhang: What’s also interesting is that every time these mergers happen, a lot of highly capable executives would leave and start their own ventures, whether it’s a new VC firm or their own startups. And if you look at the alumni from the Meituan-Dianping merger who have since left the company, is there any one that jumps out at you or is doing something that you find very impressive?

Tao Zhang: Yeah. I mean for a merger like that, especially we have a lot of redundancies, I mean people are going to leave. And also, when a company becomes big, people are going to leave.

Hans Tung: It’s natural, but it’s good. It is good for the startup ecosystem.

Tao Zhang: Yeah, especially for VCs, right?

Hans Tung: That’s right, for people to invest in.

Tao Zhang: So quite a few people left and startups they do, so there are a couple of good ones. One recently was our former CO was doing this —

Hans Tung: Xingbianli.

Tao Zhang: Xingbianli, right, the new convenience stores, I think it has great potential and has a strong team in place. So I think there are several very good ones that will come out, yeah.

Hans Tung: Got it.

Zara Zhang: So the English name of the newly merged company is Internet Plus Holdings. What is your understanding of the phrase Internet Plus?

Tao Zhang: We named it Internet Plus, in Chinese at that time it was called “hu lian wang jia 互联网+”.

Hans Tung: “hu lian wang jia 互联网+”.

Tao Zhang: Yeah. And what we are doing is “hu lian wang jia 互联网+” is actually we wanted to do more like “jia hu lian wang +互联网”, it is more like online and offline merge trend. So the offline business was merging with the online business. I think the trend is still going strong in China, so that is why we named it this way.

Hans Tung: It’s interesting that your English name and Chinese name are different, that the English name is not a direct translation of the Chinese name.

Zara Zhang: Which is “xin mei da 新美大”.

Hans Tung: Right, because “xin mei da 新美大” is the new Meituan plus Dazhong in Dazhong Dianping, so I get the Chinese name, but it is interesting that the English name that was picked has to do with what the business of the new company is going to focus on, which are all things that are Internet Plus related.

Tao Zhang: Right.

Zara Zhang: So I think that also signals that the new company has a lot of ambitions beyond just food or restaurants, O2O, so actually it recently has expanded into many new areas. How closely do you follow the development of Meituan Dianping these days?

Hans Tung: And do you agree the moves they are making, the new ones, are good, as a material shareholder?

Tao Zhang: I think a lot of market forces are going to, we will see how it plays out. It’s never clear cut at the beginning, so we will see how it plays out. There are a lot of factors that will be involved in that.

Hans Tung: Yeah. We talk about the concept of super app a lot in our show, because it’s something that a Chinese company who wants to be independent all try to be. So we look at Meituan Dianping these days, the app is trying to become a super app as well now. They expanded into travel booking, it competes with another GGV portfolio, Ctrip, it expands into even ridesharing, it competes with Didi, yet another GGV portfolio and it is doing things that competes with Airbnb and TuJia, which are GGV portfolio, short vacation rentals in China. There is almost no end to what Wang Xin is doing with the new business.

At the same time, now that Alibaba is no longer a shareholder in Meituan, they just put more money into Ele.me and its own business in the related area. So it seems like even after this merger between Meituan and Dianping, the battle continues because Wei Cheng continues to move into new categories. Do you think that makes sense? And where is the boundary for Meituan to focus?

Tao Zhang: I mean for a company, where to set the boundary is always difficult, right? And a different leader will have a different view on that. It’s hard to say right or wrong at the beginning. We will see how things play out.

Zara Zhang: Do you think the company has a chance against these powerful competitors?

Tao Zhang: It’s impossible to win all the battles, right? So some of our major ones, you really need to keep and win as your home base. Some of these things are more optimistic, some are more defensive. So yeah, you cannot win against all.

Zara Zhang: In your mind, what are the battles that Meituan should win, and what are the ones that are not as important?

Tao Zhang: I mean, the home base you have to win, right? So otherwise you are fighting a war without a home base. So the home base has to be, the primary is still the food.

Hans Tung: Food and delivery.

Tao Zhang: The deliver is actually incredibly important right now. So that has to win and stabilize. Is that a winner take all market, or it can survive two players? It’s still hard to say.

Hans Tung: Preferably one player, if possible.

Tao Zhang: Prefer one player, but now it is more like two players.

Hans Tung: Yes.

Tao Zhang: Because of the dynamics, so can the market support two players without going to a bloody, never-ending price war? It’s possible.

Hans Tung: It takes some wisdom on both parts.

Tao Zhang: Definitely. So that’s one. And another even in terms of the food itself is actually, you need to go deep. Go into more integration with the merchants and make the position stronger.

Hans Tung: For example?

Tao Zhang: You know, the merchant systems and also.

Hans Tung: For cars or bookings.

Tao Zhang: Cars, right. And also you even can book directly, you can order dishes directly, all of this integration, like maybe the loyalty systems. So all these things need to be done to make–

Hans Tung: It would be amazing if there was a way to order from Dianping five dishes from five different restaurants, these are the five dishes you want, and somehow the delivery system works, you get one bill and the delivery comes in a very efficient manner.

Tao Zhang: Or even in a restaurant, you can just order directly from the app, instead of ordering from the menu.

Hans Tung: It’s in through the back end.

Tao Zhang: Order and pay, and then you get all this data and information and if you control the merchants systems, then you are really invincible. Right now it is still vulnerable. And also, so these two battles, the restaurant industry has to wins. That’s the market. The other ones, if you win these two, it is in competition. The other ones, it all really depends. Did Didi make a mistake? And was that new kind of way to do the taxi sharing? We’ll see.

But if nothing, just fight against each other, it is hard to disrupt incubators, especially people who are very well capitalized.

Hans Tung: Correct.

Tao Zhang: And actually has more money doing one category and we are doing all the categories, so it has to be something new. But you are getting, you be opportunistic, that’s also something you can sort of see. Some battles are won by the opponents making mistakes, so we will see.

Hans Tung: I have known both you and Wei Cheng separately for a long time, and both of you are very smart in your own right. What do think is going through Wei Cheng’s head as he keeps expanding into new categories to fight? Is he worried about that if he doesn’t do it, that somehow whatever he has will be attacked, and therefore he needs to do it? Or is it something deeper, meaning that he knows that the mass market users on his platform just have a multitude of needs and he needs to make sure if they always remember to order different kinds of transactions on the Meituan app platform. What do you think is driving his thinking?

Tao Zhang: You know him a long time. What do you think?

Hans Tung: Listen to you! You’ve competed against him for a longer period of time. What do you think?

Tao Zhang: I think it’s a combination of factors. There are a lot of factors.

Hans Tung: For example?

Tao Zhang: For example, I mean Wei Cheng believes the boundary of the company less, but that’s always a balance. So people believe in him more. Some people believe more, some people believe less. So Wei Cheng believes in the boundary of the company less than most people.

And also, I think Wei Cheng has a lot of confidence in what he can do, maybe more than other people. So you find a component like a Didi, you need a lot of confidence to do that. So I mean, there is a combination of factors. I know he wants to be bigger, so there are too many things going through his mind. People make decisions and usually, in the end, I think you just know what is a good call.

Hans Tung: Right, it’s a good call.

Tao Zhang: And it’s a big market, it is very tempting and attractive.

Zara Zhang: I think one lesson is that how you judge a good leader is partly by whether they know the right boundaries and what battles they should fight and what they shouldn’t.

Tao Zhang: But you only know it afterwards.

Hans Tung: Afterwards.

Zara Zhang: Right, but the ability to make that judgment is very, very important.

Tao Zhang: Because there’s no absolute straight lines, we had the boundaries.

Hans Tung: I think 10 years ago, I don’t think any one of us imagined that Tencent and Ali would be as big as they are today and in as many businesses as they’re in today. So it is very hard to figure out what the natural boundary is.

Tao Zhang: But even now you look at Ali, you still have to say, did Ali do the right boundary or not? So maybe Ali is right or maybe Ali is wrong?

Hans Tung: How so, explain.

Tao Zhang: I think it’s right.

Hans Tung: Yeah, do all the things from cloud to ecommerce to offline new retail.

Tao Zhang: And entertainment. Too many, a lot of things.

Hans Tung: A lot of things. Fintech, insurance, payment.

Tao Zhang: Ali does more things than even Amazon.

Hans Tung: Yes, they do more than Amazon.

Tao Zhang: Then the business school thought here is usually focus.

Hans Tung: In the US it is focused.

Tao Zhang: So Amazon started doing the cloud is not using a standard textbook, and doing the video and a lot of things. Amazon is hugely admired and is doing a lot of things right.

Hans Tung: And Ali does more than Amazon does.

Tao Zhang: But Ali does a lot more than Amazon does. So then you start to really challenge the people, the standard business school thought. But again, the question is also, is it because they do it this way, is it still the right way or is it just because he is Jeff Bezos and he’s Jack Ma? Is it the right way, or is it just the people can do it.

Hans Tung: Right, so is it the people or the market allows for such opportunity as well?

Tao Zhang: Or maybe nowadays, the market changed a bit. All the tech online, they have so many resources in terms of the capital, the talent and the way they can leverage you, whatever they have, the user base. So they can do that easier than before. So I think that is a tough, even for business schools.

Hans Tung: Yes, it is.

Tao Zhang: What we see now is not what we learned 12 years ago.

Hans Tung: No, not at all.

Tao Zhang: People see that conglomerate, people don’t like it. Amazon is an example. But I think the question, It is still hard to say. It is a combination of reasons. Jeff Bezos is one of a kind.

Hans Tung: Mark Zuckerberg, Jack Ma, Pony Ma, they are all one of a kind.

Tao Zhang: But I would say Mark Zuckerberg less. He’s not like a—

Hans Tung: He’s young. There’s more time. No one thought that he would buy Oculus.

Tao Zhang: Facebook is still, I think are still pretty focused. That’s still a pretty standard business school thing.

Hans Tung: For now.

Tao Zhang: For now, yeah. And even Google does a lot of things, but structure-wise, you have this Alphabet, so it is very clear the management is still very focused, and you have these moon shots, and they are organized in a very clear way,

Hans Tung: But that’s a recent phenomenon that happened in the last year or two.

Tao Zhang: Before it was Alphabet, so you have Google and Alphabet. Before you have —

Hans Tung: A few years ago it was one, and then they separated the two, which makes sense.

Tao Zhang: Yeah, when they had one they a very clear, it is Google. The corporate structure is very clear.

Hans Tung: Yes, it is much clearer now than before.

Tao Zhang: This is a regular business, this is something I experiment. This is kind of different from what Amazon does.

Hans Tung: That’s true, yes. But Amazon, they are more focused on the experiments. So whatever they experiment on at Amazon, it ends up being a sizable business.

Tao Zhang: So Tencent is pretty focused, right? Their primary business is close with what their core strategy is. You look at with the WeChat, QQ, you have the user base. Then with the user base, the most natural thing is you have the gaming, you have payment, you have the content. So whenever they want to go to other business unrelated, they do it through the investments.

So I would say Tencent, Amazon is different.

Hans Tung: Amazon and Ali are different.

Tao Zhang: Ali is even more diverse.

Hans Tung: Even more extreme. But those two are outliers, that’s fair.

Zara Zhang: So Tao, now that you’ve moved back to the US for a year-and-a-half now and you go back and forth between the US and China and meet entrepreneurs in both places, I wonder what strikes you as the biggest difference between the ecosystem and the kind of entrepreneurs you see in these two countries?

Tao Zhang: What struck me is that the kinds of businesses are usually quite different. In China, there are more operational-related business, like a business model related business.

Hans Tung: Business model, execution.

Tao Zhang: Execution. So you tend to have the founder there. They may not be the smartest, they are very hardworking. They are very hardworking. They have the fire in their eyes. So we need to work very, very hard, even by the Silicon Valley standard.

So here, the founders I think they tend to be more tech, so more kind of sexy tech business. So it’s different. I think the kind of business they do is different. I know the founders to make it succeed are different.

Zara Zhang: Do you think there is a higher chance for startups to succeed here in the US, or does China have a higher success rate for startups? And I’m curious to hear the answer from both Tao and Hans.

Tao Zhang: You have 1,000 Groupon copycats, right? So China is endeavoring, and you have a lot of people who don’t make it. But also, I think you have a lot of people who want to do it. So entrepreneurship in general, I think is very, I would say even much higher in China.

Hans Tung: Than it is here.

Tao Zhang: Everybody wants to be an entrepreneur, and they will do all kinds of business. And then for China, all these traditional businesses, are really not very well run compared to the US. They actually provide a lot of opportunities.

Hans Tung: For Internet to disrupt.

Tao Zhang: So I would say China, you can see a lot of opportunities.

Hans Tung: Of making it.

Tao Zhang: Of making it. But also, there are so many people who want to make it, I think the success rate is not that high as well.

Hans Tung: There’s a bigger pool. But in terms of the number of outcomes that make it big, do you see more here or do you see more in China? Just absolute number of companies making it and doing well.

Tao Zhang: I think going in the future, I would say pretty even. Now we still have more in the US than in China, right? But China is catching up fast, into the unicorns and stuff.

Hans Tung: I’m actually more pessimistic for the US. I see there are more coming out of China in the next five to 10 years. Because here you have people who are doing interesting, cool stuff. They’re doing it because they love it. They don’t care about whether it makes peak financial success or not.

Tao Zhang: But at the end of the day, the business becomes really, really big. Is it all kind of, in the end, it is the industries, they are disrupting industry. So there are just so many more industries that can be disrupted in China so as far as that regard, I think China will have a lot of really huge companies coming out.

Hans Tung: That’s what I think as well.

Tao Zhang: It might just be a little bit linked to Internet, or it could be just a traditional business, maybe like IKEA.

Hans Tung: IKEA of China.

Tao Zhang: IKEA of China and I also like to invest in companies that want to do like a Pandora of China. Another company I invest in, they do like Chipotle of China. So all of these business can grow up in China, not necessarily just Silicon Valley businesses, in that regard.

But technology always can make big companies, how to say it. The US, now you are like a blockchain. I don’t know if you guys follow blockchain.

Hans Tung: We are investing in blockchain, yes.

Tao Zhang: So blockchain, I would say now maybe it is kind of like –

Hans Tung: We are investing in Coinbase. Coinbase is doing well.

Tao Zhang: Coinbase is going to be a very big company, right?

Hans Tung: Yes.

Tao Zhang: And also the founder, the Ripple is already like what? There are 70 something different coins that are different right? It is like the top 10, 20 at least richest people in the US already. And blockchain, I mean all these ICOs could be like a bubble and crazy in the short run, but in the long run, the blockchain, it’s hard to say. It is something you didn’t see two years ago, like even a year ago it doesn’t get it into your imagination, right?

Hans Tung: That’s right.

Tao Zhang: So I would say in the US, because it is like a deep tech, high tech, it is hard to say.

Hans Tung: It’s just different. Very different.

Tao Zhang: In China, you see a lot of traditional, more traditional kind of industry disruption businesses, and they are not really related to tech, but they utilize tech—

Hans Tung: To serve its purpose.

Tao Zhang: It’s a more sophisticated management, modern management to compete with the guys to become very big. In the US, you will not see that.

Hans Tung: No. Unless you have the cool tech, you do not have any chance at all.

Tao Zhang: You might see another Coinbase later, who knows. Yeah, maybe quantum computing, you just don’t know, right? Yeah. So different.

Hans Tung: Sounds good.

Zara Zhang: For the last part of the podcast, we will ask a standard set of questions that we pose to every speaker. The first one is, who is the entrepreneur you admire the most and why?

Tao Zhang: Now it is Bezos, Jeff Bezos. The reason is it is very hard for a person who can do both execution and innovation.

Hans Tung: Right, and he seems to be able to do both.

Tao Zhang: At the company level.

Hans Tung: That’s right.

Tao Zhang: He’s one of the few people who can do both.

Hans Tung: Yes.

Zara Zhang: What’s the best and worst decision that you’ve ever made?

Tao Zhang: The best one is we took Dianping from a review community business and getting into the transaction side of the business, meaning integrating with the merchants and build the ground force up. That has actually helped the business grow much faster and bigger.

Hans Tung: So that’s a good decision.

Tao Zhang: That’s a good decision.

Hans Tung: What’s the worst decision you ever made?

Tao Zhang: In hindsight, we talked earlier, we have been talking many times for the merger, for two years, so we probably should have done it earlier. Then we could have capitalized more opportunities. It was a sad two years. We all, I raised two rounds, he raised another two rounds. So there was a lot of dilution, and all of this capital we actually just gave to consumers, like a subsidy to consumers. And we also missed, we did not have enough focus on delivery, so we still have competitors going on there. And if we had done it earlier, we might have even at that time, to do the taxi business like a Didi, we would have had a much higher chance to succeed.

So I think in those two years we burned a lot of capital, did a lot of dilutions, but you also miss a lot of opportunities. Probably we should have done it earlier, for both of us.

Hans Tung: Very good insight.

Zara Zhang: Did you read anything recently that made you think a lot?

Tao Zhang: Yeah, the book I just finished actually yesterday was called Globalization Paradox.

Hans Tung: Yes.

Tao Zhang: Have you read it?

Hans Tung: I know it, but I have not read it.

Tao Zhang: I strongly recommend it. And most of it is like coming from a free market view. You think of the free market and globalization is always good.

Hans Tung: Always good.

Tao Zhang: Any kind of protection is bad.

Hans Tung: Is bad.

Tao Zhang: The book will change your mind. Also, it is really, I think kind of eye-opening to think from another perspective. Actually, it makes a lot of sense. It also kind of explains why China grows so well. I look at China as, we do have a lot of protections but in the US I see a lot of protections too.

So in a way, if it is a country fully free, it is actually not going to work.

Hans Tung: Dangerous.

Tao Zhang: It is very dangerous.

Hans Tung: Very vulnerable.

Tao Zhang: You need some kind of protection, so industry is strong enough so it can compete.

Hans Tung: That’s right.

Tao Zhang: If we just let industry just compete with global when it is still an infant, you cannot let a child compete with adults. And also about the capital flow, China has a heavily controlled currency, which I saw as that’s necessary but it is not inspiring. But now I look at the book—

Hans Tung: It makes sense. You protect yourself.

Tao Zhang: Yeah, you should do it. But a lot of countries get burned because they don’t protect their currency, like the Asian crisis or Latin American crisis. And also, another thing is, I’m not a Trump supporter, but that book kind of makes you think why. So globalization does cause dislocations and as a country, we really need to do something about it. So it’s interesting. And there are some stats that are interesting, actually the more developed the country, actually the bigger the government. Very interesting.

Another thing is that the more globalized the economy of the country, the bigger the government, and there is a rationale for it, at least to him. So it is not always right, but it gives you some thoughts, especially from the liberal part.

Hans Tung: We both have a liberal tradition, so things like that makes you think harder.

Tao Zhang: Right.

Zara Zhang: Thank you so much for being here with us.

Hans Tung: That was great. Thank you.

Tao Zhang: Yeah, great to be here. Thank you.