There are a lot of good entrepreneurs who have good ideas and technological abilities…but they’re not necessarily good managers
Many countries set ambitious goals, but China also has a reputation for getting big things done. Today, China has a new plan: to spur innovation and a national spirit of entrepreneurialism. But at least one other company also has bragging rights on this subject: Qiming.
The venture capital firm, co-founded by longtime AmCham Shanghai member Gary Rieschel, is behind such notable companies as Xiaomi, Dianping and Bilibili. JP Gan, one of Qiming’s managing partners, sat down with Insight to discuss current trends in China’s venture capital market. Gan debuted on Forbes’ Midas list for the first time this year as one of China’s top venture capitalists and has been on the top 10 list of CBN Weekly for several years. His 20-year career in finance and investment includes five years at the Carlyle Group and also a period as CFO at KongZhong Corporation, a wireless Internet technology company. He has also worked for Merrill Lynch and PwC.
What is Qiming’s overall mission?
We help young entrepreneurs to build great companies and at the same time generate substantial returns for our investors. That’s what we do.
How would you assess the venture capital scene in China today and what industries are you looking at?
The venture capital business has been growing dramatically since I became part of the business in 2000. In the first half of 2015, it hit a record high. I think it might have surpassed the U.S. I think this year there’s some correction, but overall it’s still happening.
Is the economic slowdown impacting Qiming and the wider venture capital scene?
We haven’t seen any negative impact just because of the sectors that we focus on [which are] Internet consumer technology, information technology and healthcare technology. More and more people are concentrating on research and development and on innovative technology to get ahead; so our sectors, to a certain extent, are booming. A lot of the traditional business people are selling their steel mills, selling their coal mines and shifting their capital into our sectors, trying to look for Internet, healthcare or IT opportunities. I think we have not seen any slowing down. And as I said, 2015 was a record year for us.
If somebody has a good idea for a new product or service does that also mean they will be a good CEO or executive?
Not always, and only time can tell. That’s something that we are very mindful about on a daily basis. There are a lot of good entrepreneurs who have good ideas and technological abilities, who can put the product together and who can get the initial traction, but they’re not necessarily good managers. Some people are naturally smart, and have great ability to work with people and grow with the organization, and some cannot. That’s part of our investment risk.
Are there any other qualities that you look for in a good entrepreneur?
Passion is very important. Passion to succeed and passion about the business he or she is in. A startup is a long, difficult and sometimes painful journey. People who are truly passionate about what they do are able to do it day in and day out for a long time and excel at it.
How deeply involved do you get in the companies in which you invest?
In general, we are involved at the board level but not day-to-day operations. Our job is to help the CEO to make good strategic decisions and be their advisor and sounding board.
Do you think China will produce a game-changing product that will change the world like the iPhone, Coke or Nike?
It depends on what you mean by changing the world. Xiaomi is making 60 million phones, some of them as cheap as US$80, and they are selling those phones in rural areas of China. They’re selling those phones in India, in Brazil, to give people who cannot afford an iPhone access to a smartphone and to the Internet. So that’s helping the world for sure.
The Chinese government is reportedly pouring billions into startups to encourage innovation. Does that make you happy or worried?
We are indifferent. We’ve always been focused on raising private capital from either U.S. or Chinese institutions. Our money does not directly come from government funding. And we try to be as neutral, as market-driven as possible. We very rarely go get government grants. If one of our companies is doing great research and that happens to meet with government thinking, that’s fine, we apply for a grant. But in general, we’re a market-driven venture capital firm.
But do you think the idea of giving people money to develop startup ideas will work?
It definitely has its merits. Both in the U.S. as well as in China, small and medium enterprises employ the vast majority of the population. So having a lot more smart, hard-working entrepreneurs running small and medium enterprises is good for the economy. If the government can help, it’s also probably good. But to a certain extent the better way is to use more market-driven measurements to lower income tax, lower VAT tax and reduce bureaucracy, and these probably will help more, but whatever it takes.
What do you look for in an idea that’s worth your investment and time?
The first thing is the overall market environment or the industry that we invest in. When Qiming chose to invest in China many years ago, I moved to Asia in 1999 and Gary moved to Shanghai in 2005. So we think China is a great place to invest as a venture capitalist because by definition venture capital needs growth and we have seen tremendous growth in China in the last few years. Double digit GDP growth for 30 years.
In the last 20 years, one is the Internet. The Internet went from narrowband to broadband Internet and then to mobile Internet. And in the past 10 years the smartphone has become a phenomenon. [It also] comes down to a specific company or its technology, whether it’s a smartphone technology or a mobile app. The third thing is entrepreneurship. My friends in America think entrepreneurship in China is widespread and everybody in China wants to be rich. There’s no lack of trying, so the entrepreneurship spirit is widespread here. We look for people who have passion for what they do and have the commitment and persistence and the technical know-how and execution capabilities.
How does a company like Qiming hear about investment opportunities?
We do both a top-down approach and bottom-up. We try to identify big trends early on, whether it’s smartphone penetration or younger people enjoying games. We focus on three primacy sectors, and one is what we call ‘intersumer’ – it’s a combination of Internet and consumer; two is healthcare, including healthcare service, healthcare technology, diagnostics equipment, pharmaceutical products; and three is IT and also environmental technology. Within each of the major areas, we’re constantly looking at new trends, new technology changes, new innovation. So when we do the top-down approach, every year we will identify a number of key sectors that we will be focusing on and then we will go look for either the first movers, the early movers or the market leaders in each of the areas.
You have experience in the United States. How does the U.S. compare to China when it comes to risk mitigation and deciding where to invest?
In the U.S. I think the overall judicial system is more transparent and more straightforward. But here we try to avoid getting into any judicial disputes, if you will, before we invest. People in our industries, in the technology industry, are in general honest, straightforward and genuine. We have invested in many so-called returnees, people who are educated overseas and work for multinationals and are returning to China. Those people tend to have very good ethics and are very straightforward. We are very careful about who we work with. We do a lot of due diligence before we get into an investment relationship.