This is one of the articles belonging to e27’s Meet the VC series, where we chat with venture capitalists in the startup space to find out more about how they do what they do. This is Part 1 of a two-part interview.
If applying for funding for your startup is akin to applying for college, William Bao Bean is the street savvy, on-the-ball admissions officer you want to have vouching for your startup and opening the doors into the programme. The programme being Chinaccelerator, China’s longest-running, mentorship-heavy accelerator in Shanghai.
William Bao Bean is one of five partners at SOSV, an early-stage VC firm that runs Chinaccelerator. The US$250 million venture fund he says, puts “our money where our mouth is,” investing between US$50,000 to US$5 million in over 120 programmes a year. The five partners each run an accelerator, which is global by sector.
“We have a different model, so we don’t compete with anyone. We partner with a lot of local accelerators,” says Bao Bean.
How is the SOSV model different? Top accelerators like Tech Stars split city by city. Y Combinator is strictly Silicon Valley-based and 500 Startups is also based in Silicon Valley, though it has microfunds placed around the world.
The SOSV model
SOSV consists of software-centric Chinaccelerator in Shanghai, hardware accelerators Hax in Shenzhen and Hax Boost in San Francisco, biotech accelerator Indie Bio in San Francisco and Ireland and food business accelerator Food-X in New York.
“The idea is to bring the best companies from around the world to China [for Chinaaccelerator]. If they want to go global, they come to us. We pull from each of the markets, because Asia is where it’s at,” says Bao Bean.
This help is a lifebuoy for foreign startups trying to navigate the murky market of China, where giants Baidu, Alibaba, Xiaomi and Tencent are staking claims in every industry.
Chinaccelerator recognises the challenges startups face and leverages ecosystems such as WeChat.
“We have 26 companies using WeChat to lower customer acquisition cost. Everyone else is paying for users. In the US, you raise VC money and you buy engineers. In China, you raise VC money and you pay for marketing. With WeChat, you get quality content. Not only do they get users, they are monetising users,” says Bao Bean.
The CV behind Bao Bean, abbr.
At one point in Bao Bean’s career, he wanted to work for the US government. So when he left liberal arts-centred Bowdoin College in 1995, he packed his bags and moved from Maine to Taiwan for a year-long internship with the US Commerce Department.
“That experience kind of cured me of the desire to work for the US government,” laughs the astute straight shooter, who grew up in New Jersey and is now based in Shanghai.
e27 chats more with the startup guru on China’s market and more. Here are the edited excerpts.
So what happened after you realised you no longer wanted to work for the US government?
Back then, there were only three ways to get a work permit in Taiwan: Teach, work for the government, or work at an investment bank.
So after working in the government, I became a tech analyst for Sinopac Securities in Taipei, introducing international investors to Taiwan-listed companies. This was in 1996, when tech was just taking off. I did a year there. It was exciting, but not, ultimately, where to figure out how to be a stock analyst.
I weaseled my way to Bear Stearns in 1997, and, from there, I kind of learned how to become a stock analyst, covering connected consumers, digital home. Some of it was analog; i.e. home gateways, interactive television.
I got hired at Bank of America in 2000, where I wrote a 350-page paper about the digital home. Bill Gates read it!
That’s pretty cool. How did you learn that?
Microsoft told me, they ordered two boxes of it. Anyway, the entire Internet world then exploded. The first bubble was crazy. I came back out to Asia with Deutsche Bank covering basically what become the digital home.
I covered China telecom equipment. I was the first analyst to cover ZTE. I covered UT Starcom, got a lot of people into it, got them out before they crashed.
In 2004, I started covering China’s Internet. Back then, the total market cap for the entire China Internet sector was like US$3 billion — microcap stock— it was the early days and there was good growth. Within two and a half years, it went to US$18 billion.
I started covering Tencent when it was around HK$6 (US$0.77) a share. I think the stock price now is something around HK$150. I saw it go from [jump], but I wasn’t allowed to buy, because I was on the sell side.
I wanted to switch to the buy side and put that money to work. You can either go hedge fund or VC. So, I went VC. I don’t know if this was the right decision!
What are the hesitations with being on the buy side, as a VC?
With hedge funds, you’re trading hour by hour. At the end of every minute you know where you are. VCs don’t know whether they f**ked up for like five years. So there’s a big difference! VCs don’t get paid that much either!
Did you do anything to direct the transition?
I’ll tell you something crazy. Between the end of 2007 and 2008, I liquidated every stock I had. Because my thought was, you have to focus. I wanted to do VC and I had no experience, I never operated or invested, so I had to focus. I took my money out of stocks and put them all into angel funds.
[Talk about good timing: 2007 to 2008 was the peak of the equity market before the Global Financial Crisis; Lehman collapsed in September 2008.]
Right now I have 39 angel investments and 16 VC investments. I see. . . I can’t even add right now . . . 55 different ways to f**k up! [laughs] All the SOSV investments are my investments, based on the structure.
So, yeah, so SoftBank was our client at Deutsche Bank, and they wanted to do something in India. My colleague and I started SoftBank China & India.
I ran China, it was a US$105-million fund [all together]. We were the third in China and the second regional one. We invested in some good companies and had some exits, but we didn’t do a second fund. I just did one fund there for four years before switching over to Singtel Innov8, where I ran China, focusing on early stage.
Singtel Innov8 was global, about a US$250-million dollar fund.
Let’s chat SOSV.
It’s a US$250-million fund. The GP puts up half the money — this is unheard of anywhere in the world — the people in the fund put up the money.
Our MD is putting up most of it because I don’t have that much money [laughs]. Usually it’s 1-3 per cent, and here it’s 50 per cent.
So, you’re stopping over in Hong Kong [en route to Israel and Australia]. What are your thoughts on the startup scene here?
We come shopping in Hong Kong [for startups]! That must be a campaign, come shopping in Hong Kong. [laughs]
The local programs and accelerators here are awesome, but we help them go out. We’re partners with Cyberport. Hong Kong is penalised because it’s a really small market, but China has a large local market.
In Hong Kong you have to go global from Day One, or else you’re f**ed.
What startups in Chinaccelerator are from Hong Kong?
In this last batch, we have two companies. Snapask, which has a serious global presence — Hong Kong, Taiwan, Shanghai. The other startup from Hong Kong is BitMex, which is a team on fire. I’ve never seen growth like that.
[Snapask is an app that provides students with immediate help from a real tutor. BitMex creates a derivative denominated in Bitcoin where currency controls don’t apply. Chinese investors can’t buy Alibaba stock for example, because it’s listed on the NYSE and denominated in USD. The average Mrs Wong can’t change RMB into USD and buy something outside China, due to currency controls, BitMex solves this.]
Foreign companies have what I call an unfair advantage in two sectors.
Stay tuned for Part 2, where the conversation with Bao Bean continues on how foreign startups can thrive in China.