Founded in April 2017, China Creation Ventures (CCV) is a Beijing based venture capital firm focused on telecoms, media, and technology (TMT).
Wei Zhou, its founder and managing partner, comes from an entrepreneur background himself, having been the CEO of Shanghai Hanbo Tech, a leading e-payment solution provider before becoming managing director for TMT at venture capital firm Kleiner Perkins Caufield & Byers (KPCB) China for 10 years.
Since its foundation, CCV has raised $440 million to invest in three funds: two US dollar-denominated and one denominated in reminbi. Among its early investments are Perfect Corp from Taiwan and an online audio platform, Ximalaya FM.
Last week it announced the closure of its latest $200 million fund focusing on the TMT sector in China.
In an exclusive interview with FinanceAsia, Wei set out his philosophy of prefering early-stage startups that have the potential to become large platforms — drawing many users to a single interface — with a positive social impact. In his previous role, he invested in one such business: JD.com. He also discussed how he handles entrepreneurs and manages key man risk and how the consumer market in China is getting younger and driving revenues.
Q You formed CCV in April 2017 after several years as managing partner for Kleiner Perkins Caufield & Byers (KPCB) China. What draws you to a company to invest in in the first place?
Our investment philosophy also is in line with KPCB’s strategy, that is, we are always looking for the next big thing; we truly believe VC should be invited in [at an] early stage. We normally like the platform player as they have the potential to be a huge winner. Once we understand there is the potential to be a huge giant and [it] can grow from a solid base, we look at the people in the company.
I do not like the very balanced companies, I prefer the companies that have something very, very special but also have areas that they are not so good at. The areas that they are no so good at, we can help them improve that area. We look at the space and which model has good potential, then we look at the entrepreneurs who have a very unique strong point which meets the requirement of this space and model.
Q With these small startups, how do you manage the key man risk at such an early stage?
That’s one of the most important things that we look at when we evaluate the company in the beginning. We have to understand the team as a whole, their structure and their dynamics with each other. In China startups mostly rely on the founder themselves, whereas in the US it is more of a team effort. We spend a lot of time with the founder themselves, and also how he connects with the team.
We always try to observe the communications between the founder and the rest of their core team. We have spent two days, for example, in a company’s offices just observing how the CEO communicates with the core team and the dynamics of the office. You have to spend a lot of time with the people, to truly understand the dynamics behind the team.
Q You have invested in Perfect Corp, a Taiwanese startup. Which locations will CCV look at to invest?
First of all, we are a Greater China area focused fund so its totally ok for us to invest in Taiwan or Hong Kong. We will invest in areas outside of the greater China area if there is a strong connection to China. Taiwan actually has a lot of connection to China, especially [on the] technology side, so we see no barriers for us to help open the Chinese market to them. It’s a good match.
Q What trends are you seeing in the TMT startup sector in China in particular that may provide the next breakout star?
We are seeing two trends at the moment which will benefit China startups, which we are focusing on. The first one is artificial intelligence (AI) and robotics. I think China is behind the USA on AI, there are some gaps that they need to spend more time on. The good thing about China for AI and robotics [is] the Chinese government: individual users' adoption rate from new technologies is so fast, they are willing to try anything new because they think that backing new technologies from local companies will be very good for their political careers.
The second trend that we are seeing is many people have not noticed that [the] consumer profile in China has changed drastically in the last year. We call them Zeta nation, people born in the 1990s, they really have the consumption power now. Online education for example, where there are many startups and many users, but until recently they were unwilling to pay for the services. But over the last one and a half years the online education startups have become so successful that they don’t even need VC money any more!
The subscription-based model for content consumption in China has taken off massively. One online company in just two days in December offered a slight discount for monthly membership for people to buy through a promotion and they received just over $28 million in those two days alone! So this is a clear clear signal that the younger generation are shifting the consumer spending habits. Their online behaviour is totally similar to that of the US and Japan now which means that from now many startups will be very profitable using this business model in China.
Q With the closing of your nearly $200 million fund last week, do you see yourselves as long-term investors in startups rather than the more short-term investment philosophy of private equity funds?
Every key member from our firm has great experience in VC financing, rather than PE financing. So for us we are in it for the long haul, to help them to grow up. That’s our passion. Our name in Chinese means we are your startup partners for a long time. We are here to stay.
