Interviewed by Hans Tung and Zara Zhang.
GGV Capital’s Hans Tung and Zara Zhang interview Brad Bao, the co-founder and chairman of LimeBike, a fast-growing dockless bike sharing company in the US based in San Mateo, California. Founded in January 2017, LimeBike is currently in more than 50 different markets in the US, and have helped users with more than 2 million trips since it launched. Before founding LimeBike, Brad was an investor at Fosun Kinzon Capital, and previously helped launch and build up Tencent’s US operations as Tencent’s first employee outside of China. LimeBike is an example of a phenomenon known as “copy from China”—importing innovative business models from China into the US.
In this episode, we discuss Brad’s “pivot” from an investor searching for a bike-sharing deal to the founder of a bike-sharing company, why bike-sharing can work in the US, and why being cross-border is a crucial advantage in this space.
Zara Zhang: Hi everyone. This is Zara from GGV Capital. For those of you on the East Coast, I have some special news this week. Hans and I will be doing our second live show in Boston on Saturday, April 7th. We’ll be interviewing Yasheng Huang, Professor of Global Economics and Management at the MIT Sloan School of Management, who is a renowned economist and thought leader on U.S.-China relations.
We’ll also be joined by a special guest, our producer, Kaiser Kuo, the host of The Sinica Podcast and former Director of International Communications at Baidu. This event will be free and open to all. The show will begin at 7:00 p.m. on Saturday, April 7th, at MIT. Space is limited and the specific location will be included in the confirmation email.
Hans Tung: Welcome to our show brought to you by GGV Capital, and co-produced by The Sinica Podcast. On the show 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 is Hans Tung. I’m a managing partner at GGV Capital, and I’ve 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.
On the show today we have Brad Bao, co-founder and Chairman of LimeBike, bike a fast growing, dockless bike sharing company in the U.S., based in San Mateo. LimeBike was founded in January 2017, and is currently in more than 50 different markets in the U.S. It has helped users with more than 2 million trips since it launched with LimeBike’s mobile app. You can unlock his signature green bikes by scanning a QR code, and, it’s dockless, meaning you don’t need to worry about parking your bike at a dock. All bikes are tracked by GPS. In addition to traditional pedal bikes, it now also provides e-scooters and e-bikes to its users.
GGV participated in LimeBike Series B financing, which was announced in October 2017. Before founding LimeBike, Brad was an investor at Fosun Kinzon Capital. Before that, he helped launch and build up Tencent’s U.S. operations as Tencent’s first employee outside of China. Welcome to the show, Brad.
Brad Bao: Thank you for having me here.
Hans Tung: Brad please share with us the LimeBike story. We’d love to hear about it from your perspective, for the audience.
Brad Bao: So, where should I start? The company was funded, generally, but we started to look at a sector as VC’s, last July. That was the last sector we looked at for our fund 1. The first company we looked at was Mobike, just given the connections in-between. All that naturally extended to–.
Hans Tung: And Mobike is based in Beijing.
Brad Bao: Yes, that’s right. And it was a cross-border fund. You know, through my career, it’s always been cross-border investment, cross-border teams, cross-border opportunities. And when we looked at Mobike and ofo last July, they were just getting started launching in the market. They were relatively small, but we were amazed by the growth that they generated and by the social and health benefits they were able to provide to the cities.
Hans Tung: And previously you guys looked at DiDi as well as Kuaidi in China, and Uber and Lyft in the U.S. So you were aware of the ride-sharing panels in both markets.
Brad Bao: Exactly. We were very familiar with the transportation innovations and shared economy in general, both in the U.S. and in China. And while we were amazed by ofo and Mobikes progress in China, that valuation showed up too quickly. And also, we had some other concerns, in terms of like unique economics and the other issues that are associated with this model.
As a cross-border fund, we naturally extended our search into the U.S. as well as Europe and Japan. We found that the opportunity here in bike sharing could be even better, given the lack of public transportation and lack of competition. Six months into the data, we did all kinds of research, interviewed people and companies, from an investor perspective.
Hans Tung: From both the U.S. and Chinese market.
That’s right. Europe as well. We look up at the business model of dock-based solutions, in terms of why they didn’t work that well. And we looked for validation in terms of the market size and user demand. And we also looked at whether there’s opportunity and what kind of team would be necessary to pull this off. And we failed to find a good team to invest in. So my goal at the time was to be a happy investor sitting on the board, just like Hans does all the time.
Hans Tung: It’s an easier job.
Brad Bao: But in this case we failed to find one.
So while we were frustrated on that end, when we looked in the mirror, we found the perfect team. We’d been working on the cross-border aspect of everything. Before I founded the venture fund, I was at Tencent, which is a startup within a big company, as the first employee out of China. I built up the U.S. operation from the ground up. So I’d been doing all of that.
In addition, the team we were looking for had the capability to master the hardware design manufacture vertical integration of the hardware side from China, as well as the ability to really understand the user and the market here in the U.S., and the cross-border aspect is the key to success.
That’s the reason we started the company alone and assembled a team last September, incorporated the company in January. We launched the market in June as a pilot with 115 bikes, and the first major market launch was in July in Seattle. In the last four months, we did seven iterations on the hardware, you know, enormous iterations of the software, and then we launched in 17 cities and 10 schools during that time.
Zara Zhang: So there are a lot of people who are skeptical about why bike sharing would work in the U.S.. In China it’s not surprising that it works, because it has a huge population and a lot of cities with a lot of urban population. Not many people have cars, and there are a lot of traffic jams, so it’s natural that bikes would work. But in the U.S. people are more spread out. Many people live in the suburbs and own cars. So what made you think that this model can work in the U.S.?
Brad Bao: Yes, that’s a really good question. So as investors and also as entrepreneurs, we look for validation in terms of the market size whether there is a real user need, before we pull the trigger.
There are things that I think are not well-known outside of the industry that I’d like to share with the audience. First, the bike per capita ownership and sales in the U.S. is 4X than in China. China is a well-known as the kingdom of bicycles. But that was the story you had to look back like 14 or 15 years ago, to the late ’90s and early 2000s, no one really used bikes as transportation anymore. And if we use personal bike sales as a figure, annual sales in China is 26 million, compared to 1.4 billion population. Well, in the U.S. the annual sales is 22 million, but population is only 300 million.
Hans Tung: Very comparable but only one fifth of the population in China for bikes here.
Brad Bao: Yes. So your data per capita is four times the ownership. so the culture is there, the behavior is here, but that is not the right product or service. In China, without a bike share, no one uses bikes for transportation any more.
And number two, look at the population data in China. There’s 1.4 billion population, and roughly 800 million in rural areas. And here in the U.S., you know, 300 million population, with 40 million in rural areas. Most of them live either in big cities or small cities or towns or around them. So that gives a foundation of the addressable market, and you know that’s more a top down approach. We also did a bottom up approach. We looked at every single comparison, you know, the density, the populations without bikeshares.
Bikeshare is different from any other service. It doesn’t need to be 10 million people in a major city to have it. One of the highest performing market we have is South Bend, Indiana, which is the second city we launched, it’s only 100,000 population and the density is not that high and also the weather is not that good. There’s no biking culture at all. But with the right product and service, sometimes it has even more ridership than a city like Seattle.
That translates into two things. The last mile transportation challenge that we’re trying to solve is universal. Also, the transportation need for any destination in a city or small town, that’s there. And on top of that, the other interesting thing is that U.S. public transportation is very lacking compared to European or Asian cities. That gives more opportunity for the bike share to thrive. And there’s no alternative, compared to, let’s say, Seoul. It has 300 bus lines running, it has 15 metro lines to take you all over the place. Compare that to San Francisco–I don’t know how many bus lines, but we do know there’s a small number that are running across the city, and again, no alternatives.
And the other figure we also looked at was the dock-based solution, even though the experience was not great, with low availability and high price. In New York, the city bike might be able to generate 10 rides per bike per day in their peak season, and three rides per bike per day even in the cold winter. So the demand is there and also there is unmet demand there as well. And that’s the reason for us to believe there’s a great market there. Plus, we were fortunate in that case, because six months of due diligence for the investment turned into six months of well thought out preparation for a startup, a rare opportunity for preparation.
Hans Tung: Just to burrow into that question a little further, in China, before bike shares became a phenomenon, a lot of people doubted that bike share could work there. In China, you have the subway, you have high speed rail, you have ride share, already, so why do you need bike share on top of that? People haven’t ridden bikes for 20 or 30 years.
But I think one of the interesting uses here is that, since subway lines are being built out, in between the subway stations, if you want to from point A to point B, to go home or to work, it’s too short for ride share, but time is sensitive and walking takes too long. The bike share has become a common usage for that. That was for Mobike and ofo, which were number 1 and 2 in China for this kind of usage. Then our investment, GGV’s investment, in this category is Hellobike, went after tier 3 and tier 4 cities. In those cities, the subway system is not as built out, and people take a bike to run errands and so forth, where it’s not so far that you need a car, but short enough that a bike can get the job done without having to wait, as a rideshare takes time to get in those cities.
So in both, usage exists in China for very different reasons. In your experience in the U.S., what are the most common usage cases that you see that are working out well for you?
Brad Bao: Yes, I think in the U.S., from what we have seen in the market, the last mile challenge is universal. Anywhere there’s traffic, there’s density. And anywhere there’s traffic, bike is the best way to get around. When we look at transportation, there are three things that need to be in place if you want to have a viable transportation means.
Affordability is one of those, and it is a rather difficult thing. The bus line runs $2.50 and the city, on average, subsidizes another $8.00 a ride. Uber rides average $13. And if you drive your car, my last parking in San Francisco was $60, and the traffic, and the wait of getting in and out–either for Uber or for the garage. So affordability is what bike share can provide.
Availability is a whole other thing in that, you know, at peak time you are guaranteed you won’t be able to drive your car out of the garage. And then the accessibility, or the speed to get your transportation. And the flexibility of dockless bike shares is really easy.
Hans Tung: If we take Seattle and South Bend as examples, what are the most popular usage cases for each city, because they are so different?
Brad Bao: For Seattle, we see two. Commuters is still one of the big–
Hans Tung: Commuters, like from Bellevue to downtown Seattle, and vice versa?
Brad Bao: Mostly from the train and bus stations. I would say 30% to 40%. Since we have GPS on each of the bike, we’re looking at a heat map, and notice that the starting and end points are closest to the transit centers. Either it’s a light rail line or a bus stop. That’s similar to China.
Hans Tung: In the tier 1 and tier 2 cities where there’s no subway. Exactly.
Brad Bao: The second part for Seattle is really unique. We have really high usage on the weekends. People exercise on our bikes. The average ride is much longer. The longest ride we had was 56 miles. That takes about eight hours. And on average, for our users, the riding pattern is slightly different from China. In China, the average distance is 0.2 to 0.5 miles (200 to 800 meters), so very short. Where for our user, the average is more like 1.2 miles, and I think that reflects a lack of public transportation. And in cities like that, even for a three mile radius, bike is still faster than driving a car or waiting for Uber. That’s a different landscape than China, where you might take the Subway, you might take a bus, you might take a tuk-tuk. And a taxi ride in China is roughly $2.00.
So that’s a different landscape and South Bend is very different too. And I can give you a better example, Dallas. Dallas is more spread out and everything is air-conditioned. When we launched it was 110 degrees out there. Yeah. But still, the first assessment, one of the team members said, “Nobody’s going to ride a bike. Nobody rides bikes.” The second team returned and said, “It’s a great market. Nobody rides now because there’s nothing available to them.”
So when we launched in Dallas, despite the high temperature, despite the car-centric culture, despite the city being so spread out, the utilization there is even higher than Seattle.
Hans Tung: What’s the usage in Dallas?
Brad Bao: At a high point, four rides per bike per day.
Hans Tung: And how long is the average distance, and what do they use it for?
Brad Bao: Actually, not much longer, still 1.1 to 1.2 miles. But the pattern is slightly different. It’s more like going to lunch and going to coffee shops and running errands. We can see that clearly from the time. In Seattle, we see that the highest point is about 5:30 p.m. and you know where they’re going, right?
Hans Tung: Right, commuting.
Brad Bao: And the second highest point is 8 to 8:30 a.m. That’s the commuters. But Dallas it’s lunchtime and about 2 p.m. and that’s the coffee time.
In South Bend, we see that the highest point is the game day, Saturdays. When there’s a game going on, we can see even six rides per bike per day, and that’s given that we only have limited supplies. We see interesting stories with people that want to keep the bike for themselves. It is a surprise, not enough bikes. Not like what happened in China. But we see that the rider might put a personal lock on or what not. The most creative one we’ve seen is that they took off the QR code and put it in their pocket. They still pay for it, but only they have the QR code. Users are creative.
So the pattern is slightly different but the challenges are universal in terms of data. And one difference we noticed from comparing China and U.S. cities is that when we say there are 20 million people in Beijing, every single one of that 20 million people is in Beijing–lives there, shops there, works there. U.S. cities, when we talk about the 800,000 residents in San Francisco, every day there are two to three million people from the suburbs in and out. And that is a very different thing, you know, comparing the U.S. and China markets.
Hans Tung: For South Bend, it’s about 100,000 in residence. During due diligence, we did a calculation, that there are 300 cities with at least 100,000 population. Most of the top 100 to 300, those 200 cities, have about 100,000 people.
Brad Bao: That’s right. And that’s how we look at it as well, and we look at the size of the metro area, as well as downtown, and we look at density. Those are the criteria we look at. But look at South Bend. Initially, we thought that South Bend would be saturated with 1,000 bikes. Now we think that at least 3,000 to 4,000 bikes will be needed there.
Hans Tung: So if you take away the presence of Notre Dame University and Saturday game days, which makes it more like a normal usage, what would be popular for a city like South Bend? Assuming that there’s no university factor, no Notre Dame.
Brad Bao: Yes, without Notre Dame, we still think the city, with enough saturation and availability, we’d still see three to four rides per day. that translates into a lot of commuters riding twice on a daily basis, perhaps going to a meeting then afterward going to lunch or coffee.
Hans Tung: So a combination of say, Dallas and Seattle.
Brad Bao: Yes, that’s right.
Zara Zhang: Can you talk about how you chose to expand into the cities that you’re in right now? You’re in Texas, Indiana and North Carolina. Why did you go into these places first?
Brad Bao: Well the first and foremost, is that is our strategy. You know we had a lot of discussions around it. I think the industry norm, for good or for bad, is to go to the city and fight the battle, you know, for better or worse. We chose a very different road. When we look at a market, we see ourselves being part of the city, part of the community. We want to be embedded in there, and want to work very closely with the cities. So we chose a route where we don’t go in without a permit or agreement with the city. That means whoever embraced technology and innovation the most and whoever supports us, is where we go first. We’re in discussion with almost all of the 300 or 500 cities that Hans mentioned, and roughly 1,200 universities. Some move faster, some move slower.
For some, the new model is a little bit foreign for them and they need to see successful cases. Some of them got a little scared of seeing the photos, you know, of bikes piling up in China. So that’s the public market education we’re doing. And meanwhile there are cities that are willing to step forward and understand the concept better. They have been closely communicating with cities in Asia or Europe. Many now set a goal for their city to have carbon emission zero by a certain year. They’re more likely to welcome us.
Hans Tung: As you scale so quickly in the U.S., what’s it like to rally your team to do that? Even the startups in Silicon Valley strive for a work-life balance. So how do you get your team to operate at such high efficiency for an extended period of time?
Brad Bao: You know, that’s a really good question. Ironically, Zara and I were talking about this, as the podcast is called the 996. I was scheduled for–well, I cannot really do Saturdays for our team. So we’re pretty much like a 9, 2, 5.5. That’s not 2 p.m., that’s 2 a.m., and 5 and a half days a week. Over the weekend, our operation team will probably do more work than some other teams. Since we are running a customer facing service 24/7, we cannot just leave it there.
There are a few things that make this possible. We have a mission and a vision for the company has been very clear, and naturally that drives us, the whole team, towards the goals. In addition, when we are recruiting people, we also pay attention to it. So my dream or ambition for this company is that we’ll be a long lasting, great company. That means in addition to a great product and services, we need to have a great culture, starting day one.
So we intentionally attempt to choose not necessarily the most qualified people, but those who are more aligned with our vision in the long run, and also those who have a passion for it. And we do have a lot of aspects to it. In addition to providing transportation to get around, but there’s also that we are green–we’re reducing traffic, we’re providing the health benefits to the users and the community.
So we naturally attract the people that are passionate about it and they see their working overtime the same as myself, that we’re working towards the greater goal. Also, for a fast-growing company, we want them to have a good work-life balance. We want them to be here for the long run, not exhausted after a year or two, so we promote a healthy lifestyle. Unofficially, in order to qualify to be a LimeBike team member, again, unofficially, we want them to be able to run a half-marathon or ride a bike 100 miles. (This is for interested members of the audience.)
Hans Tung: Wow. 100 miles.
Brad Bao: So that’s what we are promoting as a company. Live a healthy life, work on something you are really passionate about, and get a reward accordingly.
Zara Zhang: So you have a pretty bi-cultural team. You have team members in China and even many members of your team here are Chinese. When you’re building a team, how do you decide which departments should be staffed by Chinese members versus American members? For example I think your BD team has a lot of American members. And what are the disadvantages and advantages created by having a cross-border team?
Yes. First of all, the criteria are really set by what the role needs. If the role needs better understanding of the users of the market here or understanding of the political environment here, we need someone local. Regardless if they are American or Chinese.
On the other hand, to be on the engineering team, the role requires you to work closely with China. So, rather than put someone that’s not familiar with the culture, or has language challenges, I think it’s natural that we have Chinese engineers in China. We’re working with the app, working on the bike.
Hans Tung: And you need engineers in China because the bikes are designed and manufactured in China, right?
Brad Bao: So most of the hardware and related firmware are designed in China and all the software, especially the consumer facing ones, are designed here. That gives us the best of both worlds. We have strong hardware capabilities. Also, our software is entirely designed from the ground up for American users, in comparison to some other companies that try to localize them, and you see their character in there, and different behaviors. But that’s how we decide which kind of person is hired for each of the positions.
You know cross border teams, international or global teams are always a challenge. I’ve been managing that for many years. And by doing that, also looking to and learning from other corporations, even we can go back 100 years and look at traditional companies.
Hans Tung: Trading companies, for example.
Brad Bao: Yes, trading companies, consumer goods companies and later on the technology companies, shipping, whatever it is. So we do need to get over some of the hurdles, you know language being just the minimum one of them. there are the culture difference, there is the way of doing things and also how to align the team or to get a rally you know towards the same goal, is one of a challenge that we have. But I think that the same as the cross-border aspect of it, the challenge always comes with great reward, if you can overcome it. And the schedule we have is that literally the U.S. team hands it over to the China team at night, and they hand it over in daytime.
Hans Tung: …they worked on it during the daytime, and hand it over at their nighttime. Exactly.
Brad Bao: Yeah, that was a lot of advantage. And also, the vertical integration in terms of the hardware design manufacture together and functioning with the software here, that gave us a great advantage as well. So we were able to iterate our hardware so fast, and we’re able to iterate the software, and also link data in working closely with the hardware so fast.
Hans Tung: You have been doing cross-border activities and management for a long time. When did you come to the U.S. to work? And how long were you doing cross-border management before you started to work as a VC?
Brad Bao: I moved over in 2003, but that was for my MBA program. This is when I was in the Internet space. And the only place I wanted to be to learn and grow was Silicon Valley. I came here for two years here and within that two years, I already was at Internet Yahoo, which was a hot company at that time.
Hans Tung: Very hot. They invested in Alibaba in 2005. It was the peak of Yahoo.
Brad Bao: I was the only international student in the official MBA program. I was the only one that it kept for another six months after the intern program, working with some of the other intentional teams at that time. And then I joined Tencent upon graduation, a small, unknown company, upon graduation.
Hans Tung: Right exactly. When was that?
Brad Bao: 2005. Nobody knew about them. And small market cap. $700 million at that time. the stock price was about $4.
Hans Tung: $700 million in 2005, and $490 billion now. Amazing. Amazing growth in just 12 years.
Brad Bao: Yes. Even today, regarded as one of the best Internet companies.
Hans Tung: Anywhere in the world.
Brad Bao: So I joined the company, took one half pay. They didn’t have the structured to give options. Everybody thought I was crazy. I didn’t joint someone like Google, which went to IPO the same year. You know what excites me is working on the international aspect of it, and why I do believe that the global vision and the insights, plus the local knowledge would be very, very powerful. So that’s the thing that really attracted me, in taking that position at Tencent.
I was there for about eight years, and at the start I was the first employee outside of China. I built pretty much everything from the ground up until 2013, when I left to found Kinzon Capital. I was running Kinzon Capital for three or four years, then jumped myself back into the startup world.
Hans Tung: Any company that’s working the transportation space in the U.S., as well as in China, regulation is a huge part of that equation. As a co-founding team of primarily first generation immigrants, how do you work with the local government authority to see you as an ally, as someone who can provide solutions to their problem and win them over? And how were you able to do it so effectively in such a short period of time?
Brad Bao: First of all, the outer facing image of the company is really me and Toby as the founders. Other than that, outward facing is really the company. You know, how the company is structured, how the company is has been positioned, as well as who are the people representing the company. And that echoes what Zara said earlier, that our government relationship and BD team, not only they’re local persons but also they have tremendous backgrounds, either working in the government or with the government in the past. And they are the face for the company, for talking to the cities and the partners. And meanwhile, from company perspective, the company is born and bred in the U.S., registered here, headquartered here, U.S. investors. So everything is, it’s a 100% local company. It just happens to be that one or two founders are first generation immigrants.
Hans Tung: With very strong work ethics.
Brad Bao: Yeah, which is I think that Silicon Valley is not the issue.
Hans Tung: So you have a lot of experience in the past dealing with cross-border management and building teams that way. What do you see as the advantage that makes you guys compete so much better here in the U.S. because there’s not many transportation companies or bike share company that’s expanded as quickly as you guys. You’re probably the fastest transportation company ever in the history of transportation companies in the U.S. So how do you turn this cross-border angle knowledge and approach to your advantage and make that work?
I want to talk about this in two ways. One of them is really the vertical integrations. We’re in the transportation business and it involves hardware and software and the service layer. Myself, I’m–well, I’m not sure the audience knows about it.
Hans Tung: You were an engineer before?
Brad Bao: I’m not. I’m from Wenzhou. That’s an entrepreneur town in China. The production industry has been expanded from there, across the entire country. But my background is that I’ve been watching this ever since I was a kid. But China has been accumulating production capability in the last two to three decades.
Hans Tung: Right. It’s the manufacturing center of the world.
Brad Bao: In terms of like the high scale, and low cost, and high quality productions, but almost none of them has become a major brand or a global presence, just because they were limited.
I spent a lot of time thinking and looking at that. They’re missing two things: the brand that the user is resonating with and recognizing, and they’re missing channels. Those are the two things, but it’s really difficult for them to do. And it’s even challenging because there are customers which they’re relying on as the revenue source are those brands and channels, like Wal-Mart, like Costco, like all the brands, that they cannot easily go there and challenge their customers. So it’s kind of a baggage that they are carrying. ss us, with the cross-border aspect of it, first we’ve got all the insights of what’s working, what’s not working, and what could work, and what cannot be copied here. The bike itself started with 6,000 RNB, $1,000 bike–.
Hans Tung: Ridiculous.
Brad Bao: And gradually moved down to what they have today. And it also started with $40 cheap bikes and moved their way up to the middle ground. But we started in the middle ground, because we had learned. Because we had the capability to manage the cost, because our team had the insight and reputation on both sides. We’re able to recruit, we’re able to get high quality suppliers and partners to work with. And we have the ability, of course, raising funds and you know– thanks Hans, again, for being part of that. Those are the capabilities that help us speed up things a lot.
And when we look at the industry as to what that translates into, we are leveraging the production capability that China accumulated in the last two to three decades. But you know where the brand and channel comes from, we turned it directly into a service. Therefore, we created a brand from the service and therefore we own the channel or effectively there’s no channel and there’s no conflict. So that gave us the capability to read really fast and create products and service that really fits the market. And on the other hand, then it goes to another angle of it, that I’ve been doing research and study and learning extensively, about cross-borders. That is, in the last decade or two, we have yet to see another company in the U.S. company has made a big way in the Chinese market or Japanese market or Korean or Russian market, or even Taiwan market. And we’ve got to ask why. What has prevented that from happening? Languages and culture challenges have been talked about a lot on the soft side, but also there are things like decision making process. You know, with a culture difference so big, are the management teams making the right decisions? You know, elevating that decision enough and quickly enough. And then the incentivization. How do they incentivize the team?
Hans Tung: Can they take risk? Can they do something that’s different?
And the last thing, back to the manufacture part, is that every success has baggage that comes with it. In this case, that we mentioned, when you’re trying to localize a product that has been successful in a market, to be successful for a new market which has a very different culture, you know, that aspect of it. It will be much more difficult.
Brad Bao: Hans and I have talked about this. It’s just like, building a house is much easier than remodeling a house, and remodeling will take much longer. You could up spending more and still not be as good. That analogy applies to like eBay’s early days when you go to China. They insisted that they were global company, we’re very successful which is true, that we have to charge the sellers. Therefore there’s some company called Alibaba, with selling that’s free. Yeah. And that same thing applies again and again. Being a successful company, and going to market, USA and Europe are naturally connected better, and the cultures are similar. It’s easier to copy and move to Europe. So I think it’s got to be difficult for many of the other companies as well. Not to mention whether they get it as fast as we are, but just in general whether they can even be successful.
Zara Zhang: So in China one huge problem that we are seeing is that bike sharing companies have created a proliferation of bikes and they are just invading these public spaces in a lot of tiny cities. They’re now littered with colorful bikes everywhere from sidewalks to parking lots, building entrances, and some municipal governments have issued orders to ban bike sharing companies from releasing new bikes. Also, the dockless nature of your service means that people can practically dump them anywhere. So how do you prevent a similar problem from happening in the U.S.?
Brad Bao: Yeah there’s three ways to look at it. First, as a company, that’s one of the reasons why we set up the strategy to work closely with the city. The mission with LimeBike is to drive more bike usage as a transportation percentage of traffic, but also to make our city greener, healthier, and less traffic and less polluted. And part of it is the parking. So we work with the city very closely, and also we typically we deal with phasing. Instead of dumping 100,000 bikes overnight, we will do 1,000 bikes this month, and then gradually increase over time by using data, and demonstrate the need as well as our ability to hold onto our service level in terms of operations.
And from the user end, I think it’s more public education. We’re working with cities and other organizations to do that. It’s the same as if you have a rental car. You could theoretically park it anywhere just because it’s a rental. There’s no difference with a rental bike. It’s more about education and guidance.
And the third part is on the technology side, so we work on incentives, so we incentivize them to park more responsibility, as we work on the virtual parking stops or in-app guidance and notifications to help the user behave better.
Hans Tung: There are other startups here that are trying to do something similar. They saw the trends in china and trying to make it work here. Also, Mobike and ofo are looking at international expansion. How do you assess the strength and weaknesses of your peers and is there anyone out there that impresses you?
Brad Bao: Well, in terms of impressing us, it depends on which angle you look at. It could be good or it could be bad. Not so much. As a business or industry, healthy competition is always welcome. And we have seen that from the industry perspective or from a venture perspective, that every category will be expanded by the healthy competition. As long as every company feels that. And also much bigger effort, in terms of the public education, and all that. As long as each competitor goes in holding the same value. We need to see where we’re going, and compete by adding to the vision or value, and not extracting from it. But we will embrace and welcome all healthy competition. As long as we’re encouraging more users to ride a bike and repetitively do that, and reduce the traffic, we’re all for it.
Hans Tung: So who do you think will win the bike sharing war in China?
Brad Bao: It’s a little bit hard to say. I think in China the landscape is very different from the U.S. The unit economics will be challenging. So the emphasis on the success of the bike share will be different. Revenue does not support it. So you end up being the entry point or use acquisition channel or usage channel for other things, for example payment, for example advertising, or getting to ride share. In China that’s one of the biggest differences.
The second thing is, the bike share companies, in China, their hands are little tied by not being able to do mobile payment because that’s Alibaba and Tencent, and both are investors in this category. They cannot really do ride share, ofo cannot do that because DiDi is their investor. And the food ordering deliveries since there’s Meituan, there’s Ele.me and they also share the same investor.
Hans Tung: So you think the upside is more capped. Or the upside for imagination is capped.
Brad Bao: I think not necessarily upside will be capped, but options or choices will be very limited. In my days at Tencent, the most investments I made was gaming. And the reason is that they just sucked at advertising. And we are forced to be more innovative on the gaming side, the membership side, and things that hadn’t been done before on the Internet. So I think that’s a similar analogy applies here, that instead of a more natural, say hey, the bike share in China can’t do mobile payment or food deliveries. They are limited on those ends, but we could be more innovative with many other things.
Hans Tung: So two more questions: In China, as you mentioned, Tencent is an investor in the space, they back Mobike. DiDi is an investor in the space. They back ofo. And Alibaba is an investor in a smaller company, which may get rolled out in the future. Nothing has been announced yet, so I won’t speculate here.
Do you see, in the U.S., a bigger company coming in, sharing their traffic with a bike sharing company? Yes or no? If big companies don’t come into this space, because they view it as too far away from their core business, it seems that you, LimeBike could build a company that has people delivery, goods delivery, and other delivery things. Because you may have some advantage in cost structure that other people don’t have, that’s natural to a P2P network. Is the imagination of LimeBike here in the U.S. much bigger than it could be for a similar company in China, as a result?
Brad Bao: That’s what I believe and that’s what I hope for, to answer the second question first. Our hands are not tied. We could do the deliveries, we could expand to other service categories, we could even do mobile payments. There’s no predominant players in the space. And given the structure of the company, where you know cap structure or investors, we’re not tied to any one of them, either. That’s very different from china.
For the first question, my quick answer would be yes. Transportation is a matrix. There’s no one means of fitting all the needs of the user wants. At the end of the day, it’s either a partnership or work together, where you know some kind of company that offers them all. And then in this case–but I don’t think that it will be more the ride share company, you know will traffic user to us. I think it’s more likely the other way around.
Hans Tung: A lot of people think that either the U.S. bike share market is too small. Your natural exit is to sell to a Chinese guy that’s much bigger. But if you look at the history for someone like Meituan in China, they end up developing five, six, seven different businesses. Each kind of have synergy to each other. All aim to increase the purchase frequency of their consumers inside their app. The reason we invested in you, is we thought you could build something in multiple business lines, beyond just bike sharing, in the U.S.
Hans Tung: You and I have done VC before. Talk about having the ability to see data points from more than one market, how that helps you to think through your investment and operating strategy.
Brad Bao: I think that part is actually very valuable. When we think about the strategies that are data points or the breadth of our understanding of the industry, it is very helpful in terms of figuring out strategies that focus on the right things. And there are many companies in the past that are not entirely setting wrong strategy, but that aren’t focusing enough on the core things. Every single moment of a startup that we will be resource constrained. And every single moment, there are decisions that will make or break the company, and we need to make sure that we understand what they are and focus on it, and get it right. So the data points are very valuable in that sense.
And on the other hand, we describe it as enhancing our share of income of that. The cross-border insights help us to have a little crystal ball to see what happens in the future. And you know the best model has been validated really well in China, which hasn’t happened here and we are working on that. We see some early signs but it’s still far away from that. But our convention is coming from that, same as when DiDi started in China. Their convention is Uber. And same as Baidu started–Google, and as Alibaba started–eBay. There is the aspect in terms of like cross-border or global vision in the local execution.
So the data benefits a lot from that and also, as a matter of fact, in order to get that across to our entire team, last month we took the entire company to China. We spent a few days there to see what’s happening and what has been the end result in China in how users utilize them, how they are shifted their users behavior with the densities, availability, affordability and accessibility. And we invited the experts over there to share with our team, about their mistakes and what has been the best practices. So we’re, as a company, willing to even invest in the team by taking an entire company, having them put their job down, and go to China for a week.
Zara Zhang: So just a few years ago people were talking about C2C or copy to China. But now we’re hearing about the opposite, copy from China, where a lot of entrepreneurs are taking business models from China and applying it to the U.S.. And I think dockless bike sharing is an example of that. I’m wondering, what other examples of borrowing from China that you’ve seen recently?
Brad Bao: There are actually a lot, across different industries. I think it’s not really a general categorization, you know, copy word for word. To me, that’s a little bit too generalized. What I see is, each of the markets, because they develop unevenly, they foster different innovations. And in this case, even today what Silicon Valley’s leading all the way, in many cases, is core tech knowledge and business models. And those are things with still a lot of innovation coming from here. But for China, there are two or three aspects that I looked into the past decade or two decades. You know number one is really interesting. China leapfrogged from the landline. So the mobile environment and mobile economy is the most advanced in China, because of that. And the legacy here, that U.S. as the most advanced country, adoption of the mobile at the beginning was really slow, just because of the legacy that they carry. And that’s one thing.
And the second thing that wired a lot of innovations in the past in China is that advertising is not enough to support an industry. I think Hans and I probably see a lot, if you ask any startup “What’s your business model?” they will say advertising. 70% say advertising, right, is enough to support it–enough to support Facebook, Twitter, Google, you name it. The top seven or eight out of ten are based on advertising, and the other two are half based on advertising. Well in China, that category will never be big enough. There’s Baidu, yes, a little bit. You know there are a few more but other than that–
Hans Tung: Transaction, transaction, transaction.
Brad Bao: Right. Exactly right. Every company has to innovate. And you know by Alibaba or JD on the e-commerce side, and they’ve look at Tencent as virtual service and all the things. So that innovation is driven by the industry, and therefore Tencent came up with like membership with the avatars and with free-to-play games.
And then the third thing we’ll look at is exactly what bike share is. It’s the industry strength of the nation, and that’s production. It’s hardware, all those kind of things. It’s hard to see China will be like, we are much more advanced in making a smart watch. That may not be the DNA. They can make it really well without understanding of the design aspect of it, understanding that will be really difficult. But in this case it is the production or the industrial capability that becomes the core of the business. It’s the battle is not won by the one who has the best-looking bike design. It’s the ability to be scalable, high quality, and also maintain low cost. Good enough as a transportation, but it’s not necessary to be the Ferrari that you want to drive.
So in this case, this is a reflection of the strengths of the industry in China. So it’s not necessarily generalized as China is innovating, but China is innovating because of those reasons. And the U.S. is innovating. Because the institution here, because of the culture here, and all that. That’s how I see it. And some of the examples, like the free-to-play game, is one of them, ever since about 2006 or 2007, and that has gradually become a main trend.
Brad Bao: I gave a quick speech while at a conference, about like free-to-play and I was laughed at, in 2006. The comments I got were two things. One was, “Your company is cheap. Since you charge 10 cents for an item, so your company’s got 10 cents.” That’s a real comment. And the other was, “Your small company makes small games. We make $60 box, big games.
Hans Tung: Exactly and that’s the philosophy at that time, but after that, we’ve seen what happened. The Facebook games, the football games, the Zynga, you name it. That’s one of the big trends. And when we invested in it, people didn’t understand what we’re doing. Why you give that game away? Why does the game only last 5 minutes, instead of our session that lasts 8 hours. So that’s a very different mentality and that’s driven by the innovations from China as well.
And then, later on, there are again, Wish is another example. Wish is because they have the capability access into supply side. Data becomes an innovation. And musical.ly is on a community side. Community operation, community running. This is very different from the India American kind of like a typical Internet company as well. And that is a, you know, I would say it’s an innovation from China as well.
Hans Tung: I think also, talking to companies like Facebook or even cofounders of PayPal or Coinbase. Everybody’s looking at WeChat as a source of inspiration. How that impacts how they roll out mobile payment related services or improving their messaging platform to become more of an ecosystem rather than just a utility app. The smarter people in the Valley, who are more progressive in their thinking, are increasingly looking at best practices beyond just what’s in Silicon Valley.
Brad Bao: Silicon Valley, in its history, is more kind of a one trick pony. It’s a good thing, focus, right? But meanwhile you do see that every company does one thing really well, but doesn’t go beyond that. And then you know I had a little bit hard time, you know, early days trying to describe what Tencent is.
Hans Tung: Yeah, because it’s a variety of things.
Brad Bao: Yeah we’re like Facebook plus AOL plus Yahoo Messenger plus Yahoo’s News plus Blizzard on the gaming side plus blah-blah. The same today if someone wants to describe Meituan today. Meituan is Yelp plus Postmates plus Groupon plus a lot of different things. But they all center around a core value of the user, what they can do to make the user’s life better on a daily basis. And that’s how we tend to look at things as well. That bike share will be the foundation and the connection for us with the users, but it will help them enhance their lives going forward from there.
Zara Zhang: So let’s go to the final part of this podcast, which is a quickfire round of questions. The first one is an entrepreneur that you admire the most and why.
Brad Bao: Well first is maybe a little bit controversial to the tech world. It’s Warren Buffett. I think that he holds onto his values. He’s shown integrity in terms of his whole life and career, and really not only analyzed the world that he should be investing in, but also supported entrepreneurs. That was the inspiration on which I founded Venture Fund to begin with.
Hans Tung: Next question, something you read recently that touched you personally, a lot.
Brad Bao: I read a lot and also very broadly across all different things. I’ve touched quite a bit on a lot of philosophy level, on the science level, and all different things. I want to say two books really touched me. One is called Man’s Search for the Light, talking about really what a human being can sustain, and why they can sustain, and the hope aspect and what they can believe. And also supports them to try all means to get what has meaning to them. So that’s on a philosophical level. How the venture capitalist can work so hard that we don’t need to, honestly speaking. Yes, why. You know we’re working so hard, why have we devoted ourselves into this? Why we do things that are not necessary for financial returns. That is one book that I would say touched me quite a bit.
And the book is not necessarily touched from the emotion side, but more from entrepreneur side. It’s a book probably everyone who has read about. It’s Good to Great. I’ve been doing start up quite a bit. I started in high school. I counted at one time. I think LimeBike is the seventh startup I’ve had. Some of them failed, some had moderate success, pays for the tuition or my vacations. Some have been really good. Upon reading that book, it gives a new meaning to creating a company. That is about how we see entrepreneurs doing things that are, you know, just making financial returns. Are they really just in it for the social impact? Are they here to help a group of young people to advance their career? Are they pushing the world forward? And the answer is really that it’s a combination of all. And then it becomes in a way a religious belief. And that’s what I have. Business is the best charity, the best way to contribute. Not only to friends and family, but to the society, to our employees. And in order to do that, a lot of things need to be taken into consideration. How do we set up a company at–I call it a three F. What’s the right Fundamentals, the right Foundations, and what’s the right Forecast.
The Fundamental is the vision, what is the problem we’re solving? Fundamentally, are we trying to do something that’s valuable? Are we trying to solve the real things? Foundation, can we have the right setup for this to be realized. If we have the wrong investors, if we have the wrong incentive structure, if we have the wrong investors, incentive structures and culture, it will not work. Regardless of how great the industry is, regardless of what we’re trying to accomplish.
And last F is the Focus, and I think it is more as a company. No matter how big the company is, as big as you know Google or Facebook or Tencent, the resources are limited, and we should focus on not only winning the battles we need to, but also that it’s a responsible way for the employees and team, that their time is worth it. There are many companies where the employees have a good life but their time is wasted. They’re not learning, they’re not growing, they’re contributing.
Zara Zhang: So next question is what is something you believe in that most people may not?
Hans Tung: That’s the last question.
Brad Bao: Yeah. Actually a lot. A lot of things I believe in that other people may not. There are things I don’t believe. I don’t believe in social norms, that’s one thing. Anyone looking into the history enough, and looking into what happens in human society enough, knows a lot of social norms were crafted for the era we’re in. Many were not true in the past and may not hold true in the future.
And that’s the one thing I’m believe in that a lot of people don’t know may not necessarily. Every day you will encounter arguments that this is not right in the political environment, in the business environment.
Hans Tung: You believe that social norm doesn’t have any intrinsic value. It works for a certain period in time. Doesn’t mean that it has a value beyond a particular period.
Brad Bao: I think that even in the society we live in, some of them do not even have value today. Inherently, people get used to it, and they will just keep on doing the same thing all day without thinking what’s behind it. I think that’s one thing.
Hans Tung: That’s a very big one. Makes sense.
Brad Bao: The other thing that I kind of like I to think about as an optimistic entrepreneur, I do believe in kind of long term value, that a lot of people say they do, but in reality, if you look at their actions, they don’t. They take shortcuts that values a lot more in terms of the short-term advantage you can gain. So I think it’s a little bit controversial. You ask anyone, nobody will admit it. You have to judge it from how they do things. That’s a reason why I mentioned Warren Buffett, is the long-term values and also the fundamentals of those values. You know some will say everyone will say we value that, but according to action, not really. We’ve seen that enough.
Hans Tung: And a third example, of something you believe in, other people don’t.
Brad Bao: This is a little bit difficult to explain, but I do believe in diversity, the value of diversity and how that creates additional value– some are immediately. Could it be seeable, where you can point to it? Some is intangible and also takes time, and in the human history, we can even go to the time when the human walks out of the woods and becomes human. And diversity plays a significant role there. Any society in history that’s being isolated and the society is not embracing the diversity part of it, is pretty much gone. That is something that I believe in, but not necessarily everyone believes it. And that is something that from the history perspective, we see the results, and from an evolution perspective we know the reasons, and from the reality perspective that we can already tell what’s adding value.
And at some point, diversity also means uncomfortableness. That means that humans are engineered with DNA in a way that you feel uncomfortable with things that you are unfamiliar with or unknown to you. But the most scary, it’s not from the monster, it’s from the unknown. And that because of uncomfortableness, there are people who will not embrace diversity enough. But if you believe in diversity then you will be more embracing and tolerant of some differences, and look at the bigger value. But it’s not easy.
Zara Zhang: Well, thank you so much for being here with us. We can’t wait to see LimeBike grow.
Brad Bao: Thank you. Great to be here.
Hans Tung: It was fun to have this conversation. And we have a lot of similar values and it makes it easy to work together as partners. So we’re very fortunate to have a chance to be part of your journey. Thank you.
Hans Tung: 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 $3.8 billion in capital under management across eight funds. GGV invests in globally minded entrepreneurs, in consumer Internet, e-commerce frontier tech, and enterprise. GGV has invested in over 280 companies with 29 IPOs and 22 unicorns. Portfolio companies include Airbnb, Alibaba, Ctrip, DiDi Chuxing, Domo, HashiCorp, HelloBike, Houzz, Keep, Slack, Square, Toutiao, Wish, XiaoHongShu, Weiwei and others. Find out more at GGVC.com.
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