The Exchanges

Q So as you came out of school, how did you get started in the business world?

A After graduation from Nanjing University, and I actually joined the Bank of China headquarter, I was actually just a banking clerk doing bill collection, like a very simple thing, but I kind of did it very well, and then I, during my spare time, I was teaching my coworkers in English, because this is the Bank of China, they deal with a lot of foreign customers. I teach them English, but I just feel like, oh, I was not making a lot of progress. After three years, I did all the things I could do as a banking clerk, and I become the leader in the youth league. I got all the rewards I could have, but I was not making a lot of progress. I just said to myself, I need change my life. I don't know what is a change. I wanted to go to study abroad, but my parents didn't have enough money. But you know, the lucky thing happened is that one day the general manager of Bank of China come to me. Kathy, there's a great opportunity. We would like to nominate you to try. This is joint training program between the British government and Chinese government. We're going to train the CPA, UK CPA. It's called ACCA, but you need to sit in the exam. That exam is in English. I thought, wow, really? Because among all the nominated candidates, I was the only one who studied English. So I memorized the whole book. I memorized the whole book, and then did that entrance exam. I did pretty well. and that's an…

AI assessment note: “After graduation from Nanjing University, and I actually joined the Bank of China headquarter”

Q What types of companies do you think work for venture investing in China?

A I think in China, we still have a lot of category opportunity, i.e. you have, like, a really disruptive companies. If you look at the history, who really made money in the venture capital industry in China, it's basically internet, like online game, e-commerce, and then we have mobile internet, and you have all this kind of APP, like short video. So it's really around technology innovation. We call this as a chance, like, 10 times better. Like e-commerce is 10 times better than offline retailer. Why? Because you have selection, unlimited selection, like Bezos said in his 1997 annual letters. Retail is all about number one selection, number two, cheaper price, number three, fast delivery. So 10 times better, we call technology innovation. China, our portfolio may not be the first one who innovated. The US guy, like Amazon, they are the innovator of e-commerce. But in China, like JD's founder, Richard, He's doing e-commerce, but he's one step ahead than Amazon, because when JD started the business, when we give him the money, he did two things. Number one, he expand the category. Number two, he build the distribution center. Amazon didn't have distribution center, because you guys have, like, UPS and FedEx, but in China, we didn't have UPS and FedEx back then, so there's a lot of small guys doing delivery, and the service sucks. Like, 80% of customer complaint come from one thing…

AI assessment note: “who really made money in the venture capital industry in China, it's basically internet”

Q Have you run into situations where the success of some of your companies have created risk in the government eyes in terms of continuing to capture economic returns?

A You can see the anti-monopoly rule. I think there are always two sides of the coin. For example, the government said you cannot, this is an anti-monopoly, that means you cannot force the supplier to choose one among the two. This is not good news for Alibaba. It's very good news for JD. I'm the first investor of JD. I witnessed the JD, the whole growth episode. One of the big pain is that When this policy was not executed, Alibaba has this policy. Take side. Choose one among the two. So when JD had this big promotion day on its birthday, June the eighth, JD couldn't source a supplier from these merchants because Baba will call them. If you dare to list on JD, I will delist you on Baba. You know, Baba's market share has always been 70%. JD is like 20%. So JD cannot grow its category like fashion because Baba has such a domineering position, and they have this take one among the sideways one among the two. So this has been years, and then JD reported to the government. The government said, oh, ok, if you have complaint, show me the evidence. You need a merchant to testify for you. And no one dared to testify. No one. It was like, it's a fact. Everybody knew it, but no one dared to testify. So this is really unequal competition, but after government imposes no, no monopoly. Ever since it was implemented, JD has been going very nicely. JD's fashion is going. So it's bad for Baba. I…

AI assessment note: “You can see the anti-monopoly rule. I think there are always two sides of the coin.”

Q decided advantage. That's why customers call it miraculous, game-changing, and an awakening. If that's not how you would describe your investment management tech, request a demo at ridgeline.ai. And now, back to the show. So, you mentioned that you have this evergreen, twenty-eight-year life fund. How did you come to decide to raise capital in that way instead of a more traditional venture capital approach that has a shorter horizon?

A So for venture capital, I have a couple of the, number one is that there are not many great companies in this world, so the key is to hit the home run. Home run is that you invest in those great companies that's going to change the world. And home run, there are two things. One is frequency of the home run, i.e., each fund, how many home run can you have? That's frequency of the home run. The second essence is that the intensity of the home run. Each home run, how much money can you make? And I would say frequency of the home run, it depends on luck, whether you have catch this wave of technology. So far, we've been very lucky. We got a wave of internet. We got a mobile internet. Now we got AI. Maybe we'll have matter words. So that's luck. But I think intensity of a home run is more important because you can decide. Intensive home run is really affected by two things. Number one, how much equity you own this company or how much amount of money you put in. Either very big amount or very big equity, and then number of years of holding. So these are the two elements. Big equity, long-term hold. So I think the biggest mistake, if you ask me, is that we're not able to hold on to the winner because the fund has limited life. And the once and all solve this problem is just have this evergreen structure that enable us to hold on to a winner for a long, long time and really enjoy the p…

AI assessment note: “solve this problem is just have this evergreen structure that enable us to hold”

Q When you are looking at a company to potentially invest in, what's more important to you, the entrepreneur, the person, or the company, the industry?

A I think they're both very important. If you ask me, if you force me to choose one among which was more important, I would say the business is more important than the founders. I have seen a lot of very smart founder struggling in a mediocre business. They will never get it. But if you have a very great business, and the founder saw that business, their first mover, they will win. I think about founder, and the question is about what kind of founders are we looking for? I think we don't, particularly for early stage deal, you can have like a 100 reason don't invest, but you just need one reason to invest. If the founder have killer instinct, he can see what others cannot see. And that's enough. He may have a lot of shortcomings, like, oh, he's not a very good people manager, he has a very short temper, it doesn't matter. What matters is that whether he has killer instinct, he can see what others cannot. And that's the most important quality I'm looking for. For example, Mr. Zhong Wahaha, he went to Paris, he saw bottled water, and he immediately feel, oh, this is it, he will bring this to China. So he found that category, that's his killer instinct. He is a category creator, he's the first one who saw it. William Dean of NetEase, he is the first one who saw the opportunity of online gaming. He's the first one who did it. He spent three years, come up with the first product in th…

AI assessment note: “I would say the business is more important than the founders.”

Q What areas are you most excited about going forward?

A If you ask me to use one keyword, I would say AI. I think AI is changing a lot of industry. When I see AI, don't think about the technology. So it's the kind of application in every single industry. For example, we like outbound e-commerce. I think that's just purely AI-driven business. And we like electronic car and autonomous driving. That's AI-driven business. We like new brand, new retail. That's AI. Because AI is a new tool. For example, we have a company called Halara. They are doing online Lula Lemon. We have a company called Pet Pet. They are doing baby clothes. So what I mean is that why they have to do with AI, because if you look at the fashion business, you work very hard. At the end of the year, all your profit is in the inventory, because you don't know what the customer needs. You have to guess, forecast what customer needs. You don't know what is the best price. The right price. Secondly, they use A-B test to find the right price. Zara. How does Zara come up with a new price? How do you know what is the right price for a new SKU? You have so many SKU every day. Zara uses tests, like every new piece come up, they, they give five different price tag, and then they sell it to five different stores. After a while, they find whoever sells the best is their final price. And our engineer use A-B test, they always find the best price. And then they use Algorithm, conten…

AI assessment note: “If you ask me to use one keyword, I would say AI.”

Q So I'd love to hear a little bit about what is the environment like for finding opportunities in China?

A Oh, that's a very good question. Time change. The dynamic is a little bit different. When we first started Capital Today, we had this cold call strategy. A lot of deals, like, uh, 40% of a deal are sourced by cold call, because at that time, there's a lot of deal flow, and when we cold called the entrepreneur, they didn't even know what was venture capitalist. So we've been able to source it by cold call. We use this top-down strategy Decide what we like, and then we cold call top-twenty target, and then we compare the founder, compare the track record. So initially, there's a lot of cold call, and of course, we have network. And nowadays, there's a lot of money, and of course, I think the entrepreneur also become a lot better in terms of quality, because we have a lot of returnee, those well-educated, very smart people. They come back with creative ideas, with technology, and I think the quality of founder are getting much better. The availability of the founder also a lot more, but also a lot more money. So you got more capital and more entrepreneur. It's like almost every company fundraising, they have a small financial advisor. So it's very important for us to build a brand. So these days we have a good brand. So if the FA will find us, entrepreneur will find us, we still do call to call. If we want to find a company, we still do call to call. So, so we have a kind of strat…

AI assessment note: “nowadays, there's a lot of money... you got more capital and more entrepreneur.”

Q What's different about investing in China venture capital than say the United States?

A I have a lot of respect for the venture capitalists in the States, because they're really investing in the disruptive technology. So these are the game changers. They're the ones who changed the world. So there's a lot of zero to one type of technology innovation, disruption, and I think most of them in the USA, and that's something we envy. But in China, we have more like, oh, we learn from the US, but we kind of have this improvement Like, oh, we learned e-commerce, but we have JD learned from Amazon. I think the mobile internet thing, I think China is more advanced in terms of payment, in terms of short video, like, I think TikTok is take over the world. TikTok has eight hundred million DAU going very fast. Mostly we have, like, one to 10. We learn from the U.S., but we kind of, China market is big enough. We have scale. We have network effect. We have brand power. We can go international. So we have their one to 10. But I think in the future, I feel like we may have more zero to one thing. Right now we got more very smart people, like the top student. Everybody goes to the U.S. to study. Now they're coming back. I see that trend very obviously. And I also believe that we have a lot of cheap neighbors. We have like 203 hundred million farmers. Migrate to the city, they become the delivery boy, they become the massage, they become the waiter, waitress, the janitor, etc. So we…

AI assessment note: “there's a lot of zero to one type of technology innovation... Mostly we have, like, one to 10.”

Q Talk me through, as you went through your career at Peregrine, how did you evolve to launching an early venture capital fund?

A I worked for Peregrine for three years. I was very lucky. I kind of see how Mr. Zong built a number one brand with Wahaha. So after Peregrine went bankrupt, I joined Bering. At Bering, I worked there for seven years, and during that seven years, I invested a number of companies who become the richest man in China. So I kind of feel like I wanted to start my own business after working in the industry 10 years. Three years at Peregrine, seven years at the I kind of want to start my own business. So at that time, I have already built a decent track record. I have invested three guys who become the richest man in China. We're early investor, like one of very kind of mind changing investment is a company called NetEase. NetEase is a company I kind of made all the mistakes I could make in one company, but luckily we still made some money. After NetEase, I become very strong person, internally very strong. I went through the all kind of cycle. This is a company where the first investor, when I called NetEase founder, it was a small company with another employee all in a kind of a dormitory. When I called William Dean, the founder, he told me, he said, Cassie, I own a hundred percent of the company. I said, I don't want to manage people. I want to be a happy CTO. Could you please hire a CEO for me? I said, well, he was like a 28 years old. I was like a 30 years old. Oh yeah, I'm going …

AI assessment note: “So after Peregrine went bankrupt, I joined Bering... I wanted to start my own business”

Q And what was the venture capital market like in China at the time?

A At that time, it's still quite early, because like I said, 1995 was like a really the first batch of venture capital that was emerged. I was lucky enough to be one of those. Most of the funds are like a Asia fund, Pan-Asia fund and global fund, and they have started to have their Asia team, mainly in Hong Kong, not even in China, most of them, and they have the IC committee sitting in New York or Silicon Valley or London, Most of the firm are like that. Very big name, China fund. You don't even have a China fund. So I'm kind of the first few company who started the China fund. I think I made a very important decision when I started Capital Today. I wanted to be hundred percent independent. I found every GP who got a sponsor after one or two tranches, they go independent. I said, why don't I just go independent at the first goal? It means that maybe it takes longer to do fundraising, Maybe the fund size is smaller, but this is the fund that I can have complete discretion to decide its strategy in the future. Because by that time, I have already 10 years experience. I kind of knew what works. I learned so much from Wahaha, the founder. I learned something called about power of branding, and I also knew something called power of compounding because we made a lot of money by long-term hold. So when I started Capital Today, We had this meeting in the East Mountain where I lay out th…

AI assessment note: “At that time, it's still quite early, because like I said, 1995 was like a really”

Q So as you went through your schooling, how did that take you on the path of your career?

A When I was a little girl, I was a very naughty girl. I didn't work very hard. I was, like, playing shoots during school time, and I was, like, there's, like, a 50 students in one class, and I was, like, very much in the middle. And I remember one day, and this teacher, Mrs. Gao, she come to my home. She reported on me. She said, oh, your daughter always talk during class, talk to this and talk to that, and eat snack food during class. And most importantly, she escaped, like, a chemistry class the whole afternoon. And play, go to the river to get some fish. And my dad was so angry, and he asked me not to play with other kids, naughty kids. So I kind of was isolated and studied at home. And initially, when I studied at home, I was like, one textbook on the top and a novel at the bottom. When I had the footstep on my dad, I would switch the book. So I played that kind of game for a little while. But then suddenly, one thing sort of inspired me. I remember very clearly, I didn't know I was a good student. And the one thing really changed me. That was a little encouragement, because then my dad found this coach, sort of tutor, private tutor, and then the teacher gave me a lot of encouragement, and that thing changed my life, and suddenly I found, wow, study was so fun, and I learned so much from chemistry, and then we got this private tutor in physics, and then I become suddenly a v…

AI assessment note: “then the teacher gave me a lot of encouragement, and that thing changed my life”

Q What happens when you decide to hold one that you think will be a winner, but things change?

A First of all, we look at the traits of our big winners. They all have something in common. Number one is that the time, they have a very big time, total addressable market. If you look at our big home run, one is JD, is e-commerce, right? And second is Meituan. It's also service e-commerce, and then e-phone, pharmacy chain, and then we have Boss Direct recruiting, and then we have the VIP shop. So this company, All have one thing in common is that they have a very large addressable market, and secondly, the product, a solution, they're really much better, 10 times better, and certainly, they kind of, it's a must-have, it's not like a, it's, oh, it's a must-have, or maybe have. I think it has to be a must-have, and typically, we look at a few key data. Number one, customer cohort. This is more important. One thing about e-commerce, and it's very good, but you need to spend a lot of money acquiring the customer. You cannot rely on acquiring customer, new customer, because the media is going to be a monopoly. Media is monopoly, and they use bidding system, so acquisition cost of new customer is getting higher and higher and higher. So you need to rely on old customer, repeat order. You have to check frequency. Basically, you have to check cohort. Cohort is a very important thing. So do they repeat the customer? One thing we check at JD, every time I give JD five times bridge loan,…

AI assessment note: “First of all, we look at the traits of our big winners.”