Interview with William Bao Bean

Via medium.com

William Bao Bean is one of the best known expat venture capitalists and start-up mentors in China. Born in the US and of Chinese and Scottish descent (hence the surname “Bean”), he swiftly gained a strong reputation as a research analyst then moved into venture capital. Currently operating as the General Partner at SOSV with its Chinaccelerator and MOX start-up accelerators, he is deeply knowledgeable about the intricacies and hazards typical of Chinese business. Business Tianjin spoke to him to discuss the trends, demands and pleasures of the start-up scene.

Why did you take up East Asian Studies (at Bowdoin College in Maine) rather than business?

I had a classical education in liberal arts. My father was an artist and my mother was a philosophy professor but since I decided to go into business instead, I never did a postgrad degree. I studied East Asian history and government because analysis of political thinking always interested me. In school I analysed what happened in the past and then over the last 22 years in tech I have been analysing what has been going on and what will go on, or what will happen in future. So in a sense it is quite similar. For me, research, international relations and covering global tech equities is just what is interesting. It isn’t hard work and is in fact a lot of fun.

When you were working at Deutsche in Hong Kong you quickly earned a reputation for picking winners in your research analyst role. What do you put that down to?

My boss at Bear Stearns in New York (I worked for him from 1997-2000) was a really good mentor. He didn’t tell us what to do, we got to work with him, see how it was done, then do it ourselves. You learned by doing. So the three years I spent working for him prepared me. After the first dotcom bubble burst, I went to Deutsche Bank and had six years of equity research experience by the time I got there. I had been covering tech for a long time, as long as anybody in Asia, as it was a new industry back then. The most important thing is when there is change in the margin and realising that something unexpected is happening. That’s when you get a big disconnect between what happens and what people think will happen and when you have the opportunity to make a big call on the stock. Now, the puzzle is constantly changing, so the key is to know which changes are important. And when that happens, you can get a very big change in the stock price because everyone is thinking one thing and then bang! Something else happens. I was constantly talking to people in the industry. Not just senior executives – the key is to talk to directors or vice presidents. One of the tricks I had was that I used to write research reports which industry people liked reading. Every three months I would release a report with all the industry numbers for all the different sectors in the Chinese Internet. Usually when people do these charts, they don’t put the actual numbers in. I put the values in so people could take my numbers and put them in their reports and ended up being quoted in everybody’s internal PowerPoint presentations. It also helped that I have a very strange name, as I’m half Scottish and half Chinese.

Were your studies helpful in understanding how business worked in Asia?

Whenever you read about a culture that’s not your own it’s useful, but living and working in that culture is much more important. It’s kind of like sex: there’s a big difference between doing it and reading about it in a book. There’s no substitute for being in the market. My goal was to get three contacts at each company I covered. If you’re going to do anything you need to have an unfair advantage and mine was that I had 6000 industry contacts who I spent a huge amount of time talking to.

Softbank China India saw you focusing on early stage investments in Tech, Media and Telecoms (TMT) companies. What drew you to early stage companies?

I had been doing equity analysis for 11 years and it was time for a change. I saw the Internet taking off, my clients were making giant piles of money and I decided it was time to go from the sell side to the buy side. The usual path is to go to a hedge fund, but instead I chose to go to early stage VC because my counterparts in the banking side received funding from Softbank. I formed Softbank China India with two partners. We got another US$50 million from Softbank, then another US$50 million from Cisco. Softbank China India was one of the very first regional early stage funds, which is difficult to do. Traditionally people are focused on a specific geography and perhaps we were ahead of our time. Many of the companies we invested in were just trying to do things the market wasn’t ready for. A lot of infrastructure just wasn’t ready. We tried to do a hardcore MMORPG from a hub in Singapore and aside from the infrastructure not being good enough to do it that way, the payment infrastructure wasn’t there in the countries that we went into. But now there’s a much bigger market.

What do you like about working with these early stagers?

I did two start-ups when I switched to venture capital. The first was an utter disaster but I learned a lot. The second one we got a buyout acquisition offer which we should have taken but didn’t. But the key with start-ups is that you can’t know how to do everything. There are sales, marketing, and fundraising people, the product person and usually a tech person. I am not a product person, but I do know how to sell things. I have been explaining bleeding edge technology to investors for the last 21 years. When I work with startups, I focus on strategy, partnerships, business models, customer acquisition, fundraising and pitching, and I fill up my team with a bunch of awesome people.

What are the trends you’re seeing in SOSV’s accelerator programs?

Everyone is investing in mobile right now. We find mobile apps that people love, help them make money and help them get hundreds of thousands, even millions of users. The problem is: without us it’s almost impossible for a mobile app to be profitable unless you are an investor in games and we don’t do games. So, one of the trends is that people do not invest that much in mobile till the later stage. The second trend is there is a very big focus on things like mobility, so artificial intelligence and machine learning are affecting a lot of different industries. We invest in companies in healthcare, mobility and finance and even e-commerce that take advantage of artificial intelligence and machine learning. So as we go across borders we focus on those areas. But if you are going across borders, you need to have an unfair advantage to even have a chance. If you are in China, if you have an exclusive relationship with an international supplier and you are bringing their product into China, that’s an unfair advantage, no one else can really do that. It might not seem super special, but having a unique product is an important differentiator in a big market like China.

Of all the investments you have led, which ones have done best? What names will be best known in future?

There’s a company called Bitmex which is a trading exchange where you have a derivative of any financial product in the world – the S&P500, any stock, any currencies. They’ve set it up so people can put money in via Bitcoin. Chinese people have cash, but they can’t buy Alibaba, Apple, or Tencent stocks, because all of those companies are listed offshore. But if they can take their RMB and turn it into Bitcoin without taking their money out of the country, they can now buy an Alibaba or a Tencent stock derivative. Bitmex started off with currency futures like Bitcoin dollars and ethereum dollars. Then the next thing they offered was ETFs, like S&P500 or China A-Share 50 ETF derivatives. Soon they will be offering single stock futures. This is open to anybody anywhere in the world. This is potentially massive. They’re already doing very well, with three and a half, four billion US dollars in trading volume a month.

What advice would you give to a founder getting ready to pitch to you?

The key is we are very data focused. We look at a lot of industries and a lot of different countries, so knowing your numbers and being able to talk about your data is essential. We don’t invest so much in ideas, we invest in people. They need to have what it takes to solve the problem which they want to solve. It’s important that they understand the metrics that drive their business because if they are not focused on numbers, we’re going to be lost when they go into another market. When you do that, you don’t know the language, you don’t know the consumers and you don’t know the business model. All you have at that point is numbers. Your customers are talking to you through numbers, through their interactions with your platform, products or services. So I would say know your numbers going in, know them cold. A CEO who doesn’t know what is going on in his company is not somebody who is investable.

How did you become a director with italki?

italki is a marketplace connecting students and teachers around the world, teaching 100 languages across 200 countries. They’re one of the companies that got me into investment because they solved a problem I was passionate about. They allow everyone to learn the language the way I did: I moved to Taiwan for two years and just hung out with people. But that’s not available to most people. If they want to hire somebody locally, a Chinese teacher in Manhattan costs around US$90 an hour. I went on the board and I went into debt to keep the company alive. I wouldn’t advise that but that’s what I did. They have up to 60 employees now, and have been experiencing positive cash flow for quite a while. They closed a strategic series A round last year and are really doing well. The great thing about being a board member is that you’re not in there grinding every day. One of the reasons they succeeded was because they just didn’t give up, though you need to pivot, change, correct and iterate. But if the problem is there and people have this problem, if you keep on working on it, over time there is a possibility that you will be able to solve it for people. And there’s usually a way to figure out how to make money from it.

How do you manage so many responsibilities?

I’m a rather poor CEO, but I’ve had to learn how to be a better one because we’ve scaled up and now I have a team of 15. But the short answer is that it’s just not easy. We iterate and we are always changing: SOSV, MOX and Chinaccelerator are start-ups as well. We measure everything; we are constantly trying to improve. Just in the last week we restructured how MOX works and how it’s managed, again not the first time. It’s a constant struggle – that’s why they call it the start up grind. Everybody likes eating the sausage once it’s nice and neat in the package, but nobody likes to find out how the sausage is actually made.

 

Published in Business Tianjin

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Cormack’s Choice – A Book Roundup for 2017

Via The Economist

 

It’s the time of year to look back and see what were the best books of 2017. I’ll list all the books I’ve reviewed, then see who emerges as the best.

Lotus by Lijia Zhang – South China Morning Post

China’s Asian Dream by Tom Miller – South China Morning Post

The Kingdom of Women by Choo Waihong – South China Morning Post

Party Members by Arthur Meursault – Hong Kong Review of Books

Dear Friend, From My Life I Write To You in Your Life by Yiyun Li – South China Morning Post

The Wangs vs. The World by Jade ChangBusiness Tianjin

Remains of Life by Wu He – South China Morning Post

Alibaba: The House that Jack Ma Built by Duncan ClarkBusiness Tianjin

Everything Under The Heavens by Howard French – Hong Kong Review of Books

Rich People Problems by Kevin Kwan – South China Morning Post

The Language of Solitude by Jan-Philipp Sendker – South China Morning Post

Sour Heart by Jenny Zhang – South China Morning Post

The Souls of China by Ian JohnsonBusiness Tianjin

Shanghai Faithful by Jennifer Lin – Hong Kong Review of Books

Ma Huateng and Tencent by Leng HuBusiness Tianjin

Selfie by Will Storr – Hong Kong Review of Books

The Chinese Typewriter: A History by Thomas S. Mullaney – The Spectator

Wang Jianlin and Dalian Wanda by Zhou XuanBusiness Tianjin

Six Billion Consumers by Porter Erisman – South China Morning Post

Finding My Virginity by Richard Branson – South China Morning Post

The Standing Chandelier by Lionel Shriver – South China Morning Post

China’s World: What Does China Want? by Kerry Brown – LA Review of Books’ China Channel

The Only Story by Julian Barnes – South China Morning Post

 

That’s a total of 23 books. (I’m currently reading The China Conundrum by Yukon Huang and The War for China’s Wallet by Shaun Rein for a review in LARB China Channel, but this probably won’t be published this year). Breaking it down, there are seven by women, and sixteen by men. Nine are fiction (eight novels and one short story collection), fourteen are non-fiction (five memoirs, three biographies and six books on specific topics) – which isn’t surprising as my focus is largely on China.

Thoughts and comments:

Non-fiction

There’s been some excellent books. In terms of books on aspects of China, I most enjoyed China’s Asian Dream by Tom Miller, Everything Under The Heavens by Howard French and The Souls of China by Ian Johnson. The former pair both cover Chinese foreign policy – the Miller book in a shoe-leather-pounding exploration of the areas of the Belt and Road strategy, the French an overview of the history of China’s relations with its neighbours and its effects on China’s newly expansionary foreign policy. The Johnson book was, like the French, both a historical overview and a current-day exploration, in this case of people seeking religious affirmation in a country where religion is discouraged. All three were excellent.

In memoirs and biography, I really enjoyed Yiyun Li’s Dear Friend, From My Life I Write To You In My Life. It’s a book of precise poeticisms, exacting emotional qualification and unsparing, even tortured self-analysis. It’s maybe somewhat chilly but incredibly bracing.

I also very much enjoyed Selfie by Will Storr. It’s an examination of how the self has developed from Ancient Greece to the modern day, and how the modern narcissism has taken hold. It’s a wide rather than deep survey, with biographical interludes and pop psychology, but it’s written with verve and it really hits a nerve.

Fiction

Fiction is always a bit more hit-and-miss than non-fiction. I’m not sure if it is a genuine trend or just what I’m reviewing, but the Chinese diaspora seems to producing some good works in English. Jenny Zhang’s Sour Heart and Jade Chang’s The Wangs vs. The World were at the opposite ends of the spectrum. Zhang’s book was a collection of short stories that went where no other female writer I’ve ever read has, in revealing what adolescent girls get up to. It was fierce, brave, and even slightly dreamy. One to keep an eye on. Chang’s book was one about rich Asians (like Rich People Problems by Kevin Kwan) and their marvellous lifestyles, for which I had far less sympathy. Both were technically well-written but felt like money porn.

I also hugely enjoyed the Julian Barnes book. I’d been aware of him for years – he pops up in the letters by Philip Larkin and Kingsley Amis, and his friendship and falling-out with Martin Amis are well known  – but never bumped into his books. The Only Story shows him to be having a great Late Period.

Did Not Like

I’ve really only written two negative reviews the whole year. The Kingdom of Women by Choo Waihong had great promise, as a travelogue of a woman encountering a lost matriarchal tribe in China, but it was just badly written and edited. I know the author isn’t a professional, but you expect a bit more from something named Radio 2 Book of the Week. And I was frankly repelled by The Standing Chandelier by Lionel Shriver, which seemed lazy, thin and uninteresting (if competently written).

“The Souls of China” by Ian Johnson

The revival of religion in China has been a curious thing to observe. On the one hand, it seems to be an innate human drive, which will survive any repression; on the other, it has a useful function, providing moral instruction and fellow-feeling in a society dominated by commercial instincts, though it has yet to be allowed the freedoms allowed in the west. This ambivalence and ambiguity create an atmosphere that veers between hope and despair, depending on how far the followers want to push against the invisible lines of China’s inchoate freedoms.

Ian Johnson’s book therefore takes a dual tack. In its opening sections it recounts the history of religion and religiosity in China – the folk religions, Daoism, Buddhism, Islam and Christianity, up to the imposition of state atheism following the 1949 revolution. He then introduces a number of characters involved in various religious scenes around China – from Beijing to Chengdu – and explores their own religious conversion in the pursuit of a more meaningful life.

Not surprisingly, religion seems to strike people in one of two different ways. They are either searching for meaning, or they are searching for answers. Those Johnson talks – the founders of churches or leaders in reviving religious practices – are generally the latter, most of them having experienced some grim episode earlier in their lives. This spurs them to seek answers that the authorities either cannot or will not give. Their parishioners or followers are usually the former, seeking meaning in a world that seems to have gained no greater purpose for all the wealth that China has accumulated. “We thought we were unhappy because we were poor,” Johnson quotes an interviewee as saying. “But now a lot of us aren’t poor anymore, and yet were still unhappy. We realize that there’s something missing, and that’s a spiritual life.”

Religion, of course, satisfies several functions. Some of these are socially useful; its role in social ordering is one of its most profound and useful components. Johnson explains how, historically, folk religion in China was not a matter of specific rituals or practices, as with modern festivals from Easter to Diwali. Religion was “diffused” throughout society; it ordered the calendar, it gave a frame to the seasons, it explained what to do for births, deaths and marriages, but also for meals, friendship, work, and culture. It was the main pole holding aloft the tent of civilization. (Interestingly, JRR Tolkien also described the religion in The Lord of The Rings as “diffused” rather than institutionalized, understanding its anthropological importance in ordering and managing primitive societies). But China seems now lacking in such a broader guiding philosophy, a culture where money and power seem the only goals and where trust and empathy can be grievously lacking. Yet Johnson shows us that the hunger for a meaning greater than oneself is probably inherent, and China is in many cases turning to religion to provide the answers. We can only hope that this vast outpouring of longing comes to create a more civil society.

 

Published in Business Tianjin