Kstart Podcast: Lessons from the rapid growth of Chinese startups

**Tuck Lye Koh** (0:04)
Hi, this is Tuck Lye Koh from Shunwei Capital. We are a venture firm from China, about five years old. To date, we manage about close to $2 billion in funds under management, and invested in close to 150 companies. I've made three trips to India, and what I've seen is actually very, very interesting. First of all, I think mobile internet is going to take off quite big in India. And then second, I've seen very promising entrepreneurs in India. I think Indian entrepreneurs have made very good product and technology. So I've been asked by Kalari to do this podcast about what India can learn from rapid scaling of Chinese startups. So I'll just go through a few pointers that I've prepared. I think first of all, the name of our firm is Shunwei, and it's a short form for a Chinese acronym, Shun Shi Wei. Trying to translate it in English, it essentially means how you leverage on a big trend to achieve greatness.
So I think about how do we scale a startup in general? To us, it's in our name that whatever business model that we invest in, it has to be leveraging on a big trend. So for example, right now in India, it has to be something related to mobile internet, and in China today, something related to internet of things. So it has to be leveraging on a big trend and a market that's huge enough. So that's a very important factor in scaling of Chinese startups that we look at. In China, most of the business models that we have seen, they are largely operationally driven, but technology enabled. So technology has played an important role in increasing the efficiency of our startups. So I think technology is important as a technology enabler. For example, a startup called Meituan, which some of you might be familiar with, it is the largest group bond equivalent in China. Back in Meituan's early days, when it was founded in maybe 2010 or 2011, there were hundreds or even thousands of companies in the same business model. So it was a very, very competitive space with lots of startups in the same business. And eventually, Meituan largely eliminated their competitors. And how they managed to do that, I think there are several reasons. One very important reason was that they were very, very efficient. Their operation was extremely efficient because of the use of mobile technology to help their team build their offline infrastructure. The other question that I was asked to address is how does financial strategy, how does capital efficiency help play a role in helping startups scale rapidly in a competitive market? I think in terms of capital efficiency, there are a few ways to look at this. In general, let's talk about fundraising first. The advice that we usually give to our startups is that raise money when you don't need it, and raise more when you can.
And we often tell our entrepreneurs not to be fixed up on valuation. The market will decide how much the valuation of the company will be. So I think in terms of fundraising, always try to raise money when you don't need it, and raise more money than you need.
I think in terms of capital efficiency, there are a few ways, other ways that we also encourage our startups to do. First of all, try to optimize your debt and working capital as much as possible. Leverage on your working capital, delay your payment, get longer credit terms. And if you're in the e-commerce business, inventory is important, but it's important for you to keep a very slim inventory. And for most of the companies that we invested in, we encourage them, at least for starters, try to focus on a more manageable set of inventory. Because the larger inventory you have, the larger working capital you require, and the more capital you require. The other thing that is important, I think in terms of capital efficiency, for almost every startup, at some point in time, you are going to have a few key competitors, and you could be fighting head on head with a key competitor. So at the right time, try to eliminate your competitor as soon as possible. Giving you an example, there are two startups in China. One of them is called five8.com, and the other one is called ganji.com.
Both of them have fought on head to head for the past 45 years, and each time they raise a huge amount of cash, it's followed by a huge amount of money spent on customer acquisition and advertisements. But recent one to two years, if you look at the startup space in China, the trend has been consolidation. For example, again, quoting Meituan as an example, Meituan merged with Dianping. And then in the travel space, we have a Ctrip and Quna, forming a very strong alliance. And then in the taxi hailing space with Db and Kuaiji merging, I think with the consolidation of your competitors, the results that we hope to achieve is that you focus your cash on your business itself rather than engage in unhealthy competition with your competitors.