If ever there was a list of people who understand and “get” China’s tech startup industry, Shoa-Kai Liu would very likely be at the top of it. One of the first investors of Renren, Liu has been in the industry since the early 2000s, and is now Senior Advisor at Cendana Capital, an investment management firm in San Francisco.
From the beginning, Liu recognises that the potential of growth in the mobile and internet user market in China presents unique opportunities and challenges for Chinese tech entrepreneurs. For instance, government regulations, local culture and users’ behaviour favour homegrown social media sites such as Sina Weibo, Tencent’s QQ, and of course China’s Facebook analogue, Renren.
According to Liu, Joseph Chen, the CEO and founder of Renren actually proposed three business plans during their regular meetings at the local McDonald’s back in 2001. He recounts: “The first was doing DSL optimisation. How successful can it be, given the rise of fibre optic communication technology?” The second wasn’t much better either, being a network security company. The third, though, had an interesting business model centring on internet users and mobile applications. Liu took an interest in this concept, and the rest is history.
One result of China’s unique market is that Chinese startups are unwilling to venture outside China. Some of the reasons are obvious. “You can make millions a year in China alone,” Liu says. Government control plays a part as well. “(China has) tight foreign currency control, (and it is) hard for money to move out of China,” he remarks.
Liu believes that the people factor is most important, however. “Many startups there have no skill-sets and capabilities to get out (of China),” he observes. In fact, according to him, most Chinese startups are too localised, imposing cultural and language barriers, which prevent them from expanding overseas.
Even so, Liu can’t help but notice that certain characteristics separate unsuccessful from successful founders. These are not limited to simply Chinese entrepreneurs, and can be applied to startup founders throughout the world. These characteristics are:
Integrity: Being in the Chinese startup scene for so many years, Liu has seen his fair share of less than scrupulous people. “Some of them will talk very nicely to you, and then when your back is turned, everything bad starts coming out.” As an example, he says of his experience with some Chinese software developers, “They lack discipline, and always look for shortcuts. They don’t even provide documentation (of their work).”
Capability: This may seem blindingly obvious to most people. After all, how high can the chance of success be when one doesn’t know what he’s doing? Liu thinks that this is not all, however. To him, capability and integrity are two sides of a coin. He puts it thus: “A person who has integrity but without capability doesn’t know how to do the job, while a person with capability but no integrity doesn’t know how to accomplish a job.”
Passion: The third characteristic Liu finds in successful founders is passion, particularly to carry on believing in their idea despite all odds. Citing the example of Renren, he recounts, “He (Joseph Chen) was very persistent. I rejected him, but he came again and again. Finally, I took a look at his idea and started investing (in Renren).”
Trust: Finally, Liu believes that both founders and investors need to trust each other. As he puts it, “You need to get their trust and you need them to trust you.” To foster trust, he recommends venture firms and angel investors work with startups during early stage funding. This gives more time for founders and investors to know each other, engendering trust and a healthy working relationship.
In the end, Liu’s investment philosophy can be summarised in a phrase: “Bet on people.” Without people, the best systems and ideas will forever remain on paper, never to be realised.