Tag: china

What Chinese investors are looking for in tech companies

Founders’ attitudes, market position and the opportunity to pivot are what Chinese investment firm CRCM looks for in an investment

What does one of the biggest Chinese backed investment funds look for in prospective companies? During their recent visit to Sydney China Rock Capital Management’s Venture Capital‘s Toby Zhang and Matt Lee spoke about the company’s investment philosophy.

“In general we invest in very early stage investments – we focus on seed to Series A,” says Zhang, one of the company’s partners. “At these stage of development we’re looking at a combination of talent, technology and market.”

“We like to bring these early technology companies to the markets like China and west coast US where we’re familiar, a lot of the companies partner with us because we can help overseas.”

Zhang and Lee were in Sydney for the announcement of their investment into a local VR video capture company, Humense, the fund’s first foray into Australia.

“When we first started CRCM we only invested in Chinese internet companies,” explained Zhang. “While we’re based in Silicon Valley we were looking at what’s going on in mainland China. We’ve launched three additional funds, all three of these are early stage and cross border. We not only invest in China but also in the US, Israel and now in Australia.

Understanding the founders

“We spend more than fifty percent of our time understanding the entrepreneurs and who’s behind the company. When we form a financial partnership it’s kind of like a marriage where getting a divorce is really difficult so you have to really understand the entrepreneurs.”

“Secondly we look for businesses which can easily pivot if they have to. A good example is a company we invested in recently called Music.ly. We were a fifth stage investor in Music.ly while they still  in Shanghai, we saw entrepreneurs who we knew from their previous jobs so we knew how talented they were and we were prepared to back them.”

“More importantly though was their business’ focus on social media particularly with the age group that the existing platforms were losing traction with.”

“Finally with technology we’re looking for companies that can create barriers early that allows them to outcompete their competitors.”

Humense’s volumetric capture relies on an array of cheap, commercially available cameras to collect the images, something that appeals to Zhang’s investment philosophy.

Opportunities for Virtual Reality

“We spent a lot of time looking at the VR space, particularly volumetric capture,” says Matt Lee who originally hails from Sydney. “we felt in Australia with the background of special effects and animation so we felt there was a strong talent base we could leverage.”

Toby Zhang sees the fund making more investments into the augmented and virtual reality sectors. “We think AR/VR is a global tech movement,” he says. “Although historically we’ve been mostly investing in Silicon Valley and China, we have been constantly looking for opportunities to get to know start-ups, entrepreneurs, and investors from all around the world.”

It’s notable the Chinese backed fund is now looking around the world for investment opportunities and focusing on VR and AR technologies.

That strategy makes sense as the barriers to entry fall and the tech industry’s focus moves beyond Silicon Valley and into new markets. Where the US investment funds go will be the big pointer of future opportunities.

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Huawei’s attempt to shape the cloud

For the last two days Chinese network equipment vendor Huawei has been holding its first Huawei connect conference in Shanghai.

There’s alway plenty to announce at these conferences and Huawei had consultancy partnerships with both Accenture and Infosys, their IoT strategy and their big push into cloud computing.

Ken Hu, the company’s current CEO, even had a new word – cloudification – to describe how business processes are going onto the cloud. Although during the segment on their relationship with SAP, the Huawei executives were at pains to emphasise that in their view most enterprises are a long way from going to a public cloud and will be hosting their own services for some time yet.

Despite the clumsy buzzwords, Huawei does have an interesting selling point in the market with its tie up with telcos giving it both a strong sales channel and a unique selling point. How well they execute with telecommunications companies that are notoriously poor at selling these services remains to be seen.

Huawei’s internet of things services are a similar proposition. Being close to the carriers means the company is well positioned to compete in the market, particularly in M2M applications, but again that closeness to telcos could be a hindrance.

The big message from Huawei Connect is that Chinese companies are genuine competitors to European and North American companies like Ericsson and Cisco, something illustrated on Tuesday when Tencent previewed their new head office in Shenzhen that will act as a live R&D lab for their IoT offerings.

Overall Huawei Connect was a good example of the Chinese government’s efforts to shift the nation’s economy up the value chain.

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Autodesk and the China manufacturing challenge

China’s focus on R&D is changing the country’s manufacturing outlook which has major consequences for the rest of the world.

At the recend Autodesk University event in Sydney I had the opportunity to talk with Pat Williams, the company’s senior vice president for Asia Pacific.

Williams’ beat covers all of Asia and he’s based out of Shanghai where he’s been based for the last eight years and prior to that he spent a decade in Japan.

Having spent so much time in North East Asia, and heading to the PRC the following week myself, it was interesting to hear Williams’ views on how industry is changing in China and ther country’s attitude to American software companies.

“There’s a lot of noise that gets made in China about their local IP and the local vendors and what I say is ‘the Chinese companies are competing in a global market and they are under the same competitive pressures as everybody else in the world so when they find a better tool they use it. Despite all the noise, business is quite good there.”

For the Chinese economy, the aging and increasingly expensive workforce presents a problem, something addressed by the China Manufacturing 2025 plan which sees the country increasingly competing in high tech sectors such as aerospace, telecommunications and biotech fields.

“China’s kind of an anomaly,” says Williams of the country’s immense growth rates. “From a government perspective there’s a lot of horsepower behind the things that they do – China 2025, their manufacturing initiative, you’ve got what they’ve been doing with Building Information Modelling (BIM) and our architectural tools.”

They’ve really kind of spearheaded what we’ve been talking about on things like 3D printing of houses. China on its own is just this mushroom that’s happening.”

While the industrial shift in China and the rest of Asia is promising opportunities to companies like Autodesk, that change is affecting their workforce as well with the company announcing plans to lay off ten percent of their workforce earlier this year.

Those cutbacks are part of the adjustment to a new market reality says Williams, “it was part of right sizing the business.” He observed “we realised our margins were going to be compressed as we move to a subscription model.”

Autodesk’s shifts illustrate how the opportunities in the new economy don’t come without costs even for the companies that seem to be winners in a shifting marketplace.

In China, American companies are finding they have to a unique proposition – companies like Apple and Autodesk are good examples – and as the country moves its economy further up the value chain all foreign businesses are going to have to show how they add value.

Succeeding in a changing economy isn’t without uncertainty. And it certainly isn’t without risks.

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Uber’s grand experiment

Uber’s losses raise questions of how far the loss making business model pioneered by Amazon can be pushed

Yesterday reports emerged that the icon of the disruptive economy, ride sharing service Uber, lost 1.2 billion dollars in first six months of this year.

Those losses show disruption doesn’t come cheap, although settling the damaging and costly battle with China’s Didi Chuxing will help the company’s cash burn.

Despite on track to lose at least two billion dollars this year, the company still has a substantial war chest having raised $8.7 billion dollars in debt and equity raisings over the last eighteen months.

While impressive, that war chest will only last four year at current rates and, given Uber’s already sky high 60 billion dollar valuation and the increasingly hostile Silicon Valley fund raising environment, it will be a relief to investors that the China battle appears settled.

There remains though an ongoing weakness in Uber’s business however with the company reportedly spending hundreds of millions a year in subsidies to drivers in key markets. How sustainable their business is remains to be seen.

In many respects Uber is following the Amazon example of beating down competitors by selling products at deep losses thanks to its access to capital and investors’ tolerance for building marketshare.

As we’ve seen with Amazon, that tactic has been wonderfully effective both in retail and in providing cloud services. For customers and the economy though, the reduced choices in the marketplace may end up not being in their interests.

Uber is an interesting experiment in how far the Amazon model can be pushed, for cities and states dealing with a deeply disrupted taxi and city transport network the results of that experiment may be telling.

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China ramps up support for the tech sector

Faced with a transitioning economy, China looks to boost the tech sector

China’s President Xi pledges increased support for technology firms reports Reuters.

While that will be welcome for Chinese tech and manufacturing companies, the question is just how effective top down initiatives like this are in building a vibrant industry.

As the country’s debt balloons and state owned corporations find themselves trapped with legacy businesses and massive inventories, the pressure is on the PRC’s government to find new ways to stimulate the economy, this is a start but it’s hard not think the Politburo will have to find ways to boost small business investment and startups.

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Interesting times as the global steel glut bites

The global steel glut marks the start of interesting economic times

For all the talk of digital disruption, who would have thought the old fashioned steel industry would be the industry causing the greatest upheaval in today’s economy?

Globally the steel industry is in trouble. In China, the UK and Australia steelmakers are facing a painful time as chronic overcapacity bites.

Beyond the immediate domestic problems of having a major part of its manufacturing industry shut down, Australia faces an added problem as the nation’s economic policies were based on a never ending Chinese demand for iron ore and coal.

OECD “Excess Capacity in the Global Steel Industry" (2015)
OECD “Excess Capacity in the Global Steel Industry” (2015)

The impending collapse of Bohai steel shows the Chinese industrial boom is now in the past and the onus on Beijing’s rulers is to stimulate a domestic services economy.

For the UK, the collapse of their steel industry adds further uncertainty to a nation that’s already putting its global role at stake with the referendum to move out of the European Union.

Should Britain turn away from Europe, they will need to find some compelling reasons to be competitive in the global economy. Fantasies of some sort of Anglo-centric Commonwealth of Nations won’t be enough to sustain the Little Englanders and their high cost of living.

In fact, the British problems of high costs and decades of underinvestment are common across the English speaking world – although Canada, New Zealand and Australia are particularly at risk in the current economic climate given their dependency on commodities and Chinese markets.

That Chinese curse of may you live in interesting times is proving true again, we are about to enter a fascinating economic period. Our business and political leaders, along with our resilience, are about to be tested. The steel industry is the first test.

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Building the internet of rice cookers

Chinese smartphone manufacturer Xiaomi hopes an Internet of Things ecosystem can drive the company’s growth

Are domestic appliances the next wave of connected devices? Chinese smartphone manufacturer Xiaomi hopes so.

Xiaomi is best known for its cheap smartphones aimed at third world markets and the company’s move into connected kitchen devices marks an expansion into broader areas.

Smartphones being the centre of Xiaomi’s product offerings seems to be the common factor in the expanded range of devices, with the company hoping their ecosystem will be a compelling point of difference in a crowded market.

The idea the smartphone will be the centre of people’s connected lifestyles isn’t new but Xiaomi’s bet on low margin home appliances to drive smartphone sales and subscriptions to cloud services seems a brave move.

It may work however, the business models of tomorrow look improbable today.

 

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