Hans Y Combinator Presentation on Lessons from China for Global Entrepreneurs

Lessons from China for Global Entrepreneurs

Hans TungManaging Partner, GGV CapitalOctober 2017

q With investments in China and the U.S., we have gained a deep understanding of both markets withaccess to global resources

q Managing eight funds, $3.8 billion in total

q Over 240 portfolios, invested in 33 companies withover $1 billion market cap and 29 public companies

The GGV Advantage: One Team in Two Markets with Global Perspective

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Background on GGV, Hans Tung and 12 Unicorns

Experiences

E-Brands

E-Commerce

* Flipkart and Snapdeal are personal investments. GGV currently does not have any portfolio in India. 3

Data Replacing Oil and Credit as Most Valuable CommoditiesAnd the Rise of Internet in China

Highlighted:TechCompanies;RedText:Chinesecompanies;Source:CapitalIQ.Capitalizationsareinmillions.Dataasof8/18/2007and8/18/2017.4

Why China?

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China Surpassed the US as World’s no.1 Market on iOS App Stores

Source:AppAnnie6

400 million people moved to cities in one generation ≈ creating a new NYC every year, for 40 years

HangzhouHome to AlibabaNet talent inflow No. 1 in ChinaMany Silicon Valley returnees

Shanghai$400 billion GDP (≈GDP of Michigan/Washington state)24 million people (≈population of Texas)All in one generation (40 years)

1997

2017

1997

2017

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China is No. 1 and No. 2 in Internet Users and Online Consumption

World’sTop10Countriesbyno.ofInternetUsers World’sTop10CountriesbyOnlineConsumption(in$billions)

Source:CNNIC;InternetLiveStats;BCGAnalysis8

710M

460M

290M

140M

120M

100M

90M

70M

60M

60M

China Accounts for ~40% of Valuation of World’s Largest Internet-related Public Companies and Unicorns

*Naspershasamarketcapof$95billion(Naspersowns1/3ofTencent);Softbankhasamarketcapof$90billion(Softbankowned 32%ofAlibabain2016)Source:CrunchBase;BCGAnalysis;YahooFinanceNote:Sampleincludes63Chinesecompaniesand112Americancompanieswithvaluationsover$1billion

World’s 10 Largest Internet Companies by Market Cap(in $billions)

DistributionofUnicornsbyNumber

211inTotal

China is Home to Five of the World’s 10 LargestPublic Internet Companies (as of 2017)

DistributionofUnicornsbyValuation

TotalValuation:$796Bn

China is Currently Home to a Third of the World’s Unicorns; Their Valuations are 41% of All Unicorns

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No. of Millennials + Gen Z Users Online: 107M in US vs 390M in China

Source:China’sNationalCensusBureau,Otcom,BCGAnalysis

Age Distribution of Internet Users in China(2016)

Age Distribution of Internet Users in the US(2016)

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37%

54%

Totalno.ofInternetusers:290million Totalno.ofInternetusers:710million

Chinese Internet Users Congregate Around Fewer, More Complex “Super Apps”

Source:Google’sGlobalMobileResearch,China’sNationalCensusBureau,Localytics,eMarketer,BCGAnalysis

Average No. of Apps Installed per Person(2015)

% of Time Users Spent on Apps(2015)

Only15%ofappsinChinaareusedmorethan10x

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Takeaways

1) High >> low frequency, be a Portal/Entry Point(WeChat Pay vs. Apple Pay)

2) Multiple functionalities > Focus, be a “Super App” Quickly(WeChat vs. WhatsApp)

3) Verticalized start-ups pick a Super App ecosystem (Tencent, Alibaba, Baidu, Xiaomi…etc.) to join

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Case Study: Mobile Payment (WeChat Pay) = a “Super App” in China

Aspiring “Super App”s in CN Incentivized to Raise $ & Freemium Model to Blitzscale

Source:BCGAnalysis14

# of Years for App Penetration to Reach 50% Market Share in US vs China

Uber in China: A Success?

• Uberspentover$2Bn inChina7/2014-8/2016• After<24months,>30%oftotalUberridesadayworldwidearefromChinaalone• Uberobtained17.7%economicinterestinDidi+UberChinain8/2016=~$10Bnow?

3Months6Months

3Months6Months

3Months6Months9Months

3Months6Months9Months

3Months6Months9Months

9/2015Uber’sExponentialGrowthinChina

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1st(unofficial)meetingbetweenUberandDidiinSpring2013

Question:MaybeUbercouldhaveinvested$10M for15%economicinterestin2013?

China’s Urbanization Model: Driver of Transportation Revolution?

Tokyo(8Mrides/day)

Beijing2005 Beijing2015(9Mrides/day)

NewYork(5.7Mrides/day)

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High Speed Rail (120-180 mph) = Backbone of Economic Growth & Ecommerce Boom

China1978Mileage:

51,800km(32,000miles)Currentmileage:

124,000km(77,000miles)

US1860(beforeCivilWar)mileage:48,300km(30,000miles)

Now:225,000km(140,000miles)

Japan1950mileage:

19,800km(12,300miles)Currentmileage:

27,300km(17,000miles)

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Hub & Spoke: High Speed Rail + Subways Rides & Bike Sharing

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Alibaba’s Sales on 2016 “Singles Day” (11.11), China’s Black Friday: $18 Bn > Black Friday + Cyber Monday

2005:Yahooinvested1Bndollars+YahooChinaandowned40%2015:afterIPO,Yahoo's20perstakeisworth40Bndollars>Yahoo'smarketcap

$3.34B $3.45B $17.8B

BlackFriday2016(US) CyberMonday2016(US) 11/11SinglesDay2016(China)

TotalSalesinaSingleShoppingEvent($Billions)

(Online+offline)

Millennials are the New Mass Market

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How Will Your Business Go Global?Case Study: Airbnb

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"Chinesetouristsrepresentthefastest-growingusergrouponAirbnb"(Bloomberg,June2015)

“AirbnbwillquadrupleitsChinatechteaminBeijing.” (Bloomberg, August 2017)

"Chinesemillennialsaredrivingthisgrowth,giventheirgeneraldesirefordifferentexperiences,ratherthanthetypicalpackagetour.Theywanttobedifferent— theyarealwayslookingforuniqueexperiences."(BellaLing,HeadofCommunicationsinAirbnbChina,July2016)

Airbnb’splatformwithinWeChatSource:SheffieldWang,2017

Who Are the Key Players in China?

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The Big Three: “BAT” vs. “FANG”

MarketCap 2016Revenue

B $82billion $10billion

A $449billion $23billion($68billioninGMV)

T $407billion $19.5billion

F $497billion $28billion

A $476billion $135billion

N $79billion $8billion

G $646billion $90billion

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Alibaba’s Market Cap is Approaching Amazon’s

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Valuation Gap Between Leading Chinese and US Internet Players Narrowing2005 vs 2017

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China’s “40 Under 40” in Internet

ZHANG YimingFounder of Toutiao

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Jean LIU and CHENG WeiPresident and CEO of Didi

39 and 34

WANG XingCEO of Meituan

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HU WeiweiFounder of Mobike

35

Frank WANGFounder of DJI

37

SU HuaFounder of Kuaishou

34

WU XinhongFounder of Meitu

36

Louis YANG and Alex ZHUCo-Founders of Musical.ly

36 and 39

DAI WeiFounder of ofo

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26

Miranda QU and Charlwin MAOCo-founders of Xiaohongshu (Red)

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Cindy MIFounder of VIPKid

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Lessons from China for Global Entrepreneurs

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UberBlack was great but niche…until UberX.What is your UberX?

Source:TheNumbersBehindUber'sExplodingDriverForce,ForbesArticlebyBrianSolomon28

The Fastest-Growing Brands: Mass Market & Fast Fashion (Not Luxury Goods)

Brand PriceRange

$60-7000

$4400

$130-1460

$30-7300

$17-174

$5-322

FoundingYear

1837

1854

1913

1921

1963

1969

1975

1980

1981 $45-300

$8-145

$1-90

MarketCap

$38billion

$76billion

$8.5billion

$14billion

$9billion

$109billion

$1.2billion

$37billion

$37billion

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Rise of the Rest: a $1M/Month Zip Code for Wish

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Go Global. It’s Worth It.

$21 Tn

$18.6 Tn

$8.7 Tn

$4.9 Tn

$4 Tn$3.7 Tn$3.1 Tn$3 Tn

$2.8 Tn

$2.7 Tn

2016 GDP 2050 GDP

$58 Tn

$44 Tn

$34 Tn

$10.5 Tn$7.5 Tn

$7.1 Tn

$6.9 Tn

$6.8 Tn

$6.1 Tn

$5.4 Tn

CAGR

3%

4.9%

1.7%

3.8%2.6%

1.9%

5.7%

0.94%

1.25%

1.95%

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Reaching Global Mass Market Consumers is the Secret to Becoming a Unicorn

Serve the 99 Percent (e.g. America’s Heartland)

Experience is the Product, Curation is Key

Millennials without Borders

Go Global

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Want more on China? We have a newsletter.

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Thank you.

Hans TungManaging Partner, GGV [email protected] and 996.ggvc.com