A: Of course, user growth rate in mobile has stagnated. But in terms of application, there are still lots of potential. Many apps are still growing its user base. New features and functions are still being explored.
Q: You mentioned AR and VR. Recently, U.S. start-up Magic Leap took a fall as it reportedly exaggerated the effects of its technologies. There appears to be growing skepticism of the sector. What’s your thinking?
A: I think VR is pretty far away from real commercialization. You need to have a hardware platform that can be easily used in order for applications to be run smoothly.
We are still in the early days of VR. I’m not convinced that the head-mount goggles will be the final form of the VR hardware platform. Maybe there is a genius somewhere who will come up with a completely surprising product that will redefine VR.
A: Over the long term, how important will the VR industry be? Some people say it will remain a marginal form of entertainment for a small portion of the population?
A: The computer technology always evolves around man-machine interface. Thirty years ago, having a mouse was revolutionary. The iPhone touch screen changed the whole mobile Internet industry. The man-machine interface will again change. It could be voice, VR or something else.
Q: Let’s move on to artificial intelligence. What’s your overview of the Chinese AI start-up scene?
A: I think the AI evolution is still in an early stage. We like mission specific products, such as voice recognition, image recognition and driver-less cars. These can actually be commercialized quickly.
We have invested in a factory automation and automated manufacturing company called Intelligent that we sold to a listed company about a year ago. We invested in Ubtech, a family service robot company, and a smart vacuum cleaner maker. Other areas we have are interested in include business intelligence, medical devices and education devices with AI capabilities built in.
We are not looking at general purpose artificial intelligence and robots, which we believe still have a long way to go.
Q: Are you finding good start-ups in the Internet-of-things (IoT) sector?
A: We have not invested in this area yet, but we are increasingly looking at products connected by sensors. I recently got to see a product, a small device that can be plugged into your computer or smartphone and displays air pollutant levels. This could eventually be connected to air conditioners or air purifier systems at home or office to better control our environment.
Q: Qiming is also an investor in a popular bike sharing start-up called Mobike. How was that investment decision made?
A: In my 16 year venture capital career, Mobike is the first Chinese company that turned an original idea into an absolutely unique product that no one else in the world has done before.
It’s essentially a smart bike enabled by a GPS-directed lock, allowing users to locate and unlock the bike, therefore removing the constraints of fixed bike stations. It’s really a great invention.
Q: But there are already many copycats in China, backed by venture funding and launching tens of thousands of bikes in big cities.
A: That’s very unfortunate. But none of those bikes are innovative. They are just regular bikes with a lock. It’s also sad for my fellow venture capitalists to back such start-ups without any innovation, I think.
Q: Do you find co-working space start-ups interesting?
A: I don’t know how many co-working start-ups are there in China, but it seems there is a co-working space on every block now. Anyone with any real estate space is turning it into co-working spaces.
I think the key for this type of company is to have the network effect. You really need to have many locations around the country to give users unparalleled benefits.
Q: Would you invest in this sector?
A: Not at this point. We think it’s too capital intensive. Also, there is not enough technology and innovation in it.
Q: How are you positioning yourself in the big data field?
A: I think big data is a productivity tool at the end of the day. Many of our mobile, Internet and e-commerce companies have already adopted big data technology in their decision making, from product design, user interface and distribution.
In China, companies like to do things in-house. They would rather hire people to develop their own algorithm and deep learning platform. Baidu, Tencent and Alibaba all employ hundreds of data scientists to develop their own capabilities.
So we believe a lot of innovation will come from these big companies, because they also have massive amount of data. Contrary to the U.S., we think a B2B big data technology providers will face more challenges in China. Therefore, we are very cautious about backing Chinese big data start-ups.
Q: How is your exit pipeline looking like now?
A: We just had a great year in 2016. Hexing Industrial Group, a smart meter company we invested, just completed an initial public offering in the A-share market last month. A week ago, another portfolio company, a Taiwanese clinical research company called Crown Bioscience International, listed in Taiwan. Then Meitu was listed today in Hong Kong. We have also exited via strategic sales as well.
Q: How long was Hexing in the queue for the A-share listing?
A: Three years. The stock price has gone up quite a bit, and we are happy about the after-IPO market performance. We have four companies in the queue for A-share market listing, including Gan & Lee Pharmaceutical. We are also constantly in discussion with strategic buyers about transactions for our portfolio companies.
Q: Do you expect 2017 will be a good year for exits too?
A: Absolutely. I think we are probably in one of the best times in venture capital history. The U.S. market is traditionally a great exit venue, but now we have the domestic stock exchanges, Hong Kong and other potential listing markets. The M&A space is very active, with large corporations, listed companies and many new players participating.
Q: Qiming recently raised a pair of U.S. dollar and RMB parallel funds. It’s important to be able to deploy capital in both currencies. But going forward, how will their importance in investing in China shift?
A: Two or three years ago, I will probably have said that RMB funds will become more important. But with the RMB’s depreciation and China’s continued opening up of its industries, we have found it’s increasingly easier to convince companies to accept both RMB and U.S. dollar investments to set up joint ventures as a company structure.
In the future, in non-restricted industries, such as software, medical equipment and pharmaceuticals, RMB and U.S. dollar will be on equal footing.
For start-ups, they will focus on an investor’s reputation and if it can add value. They will think less about currency, at least that’s what we hope.
About JP Gan:
JP Gan is managing partner of Qiming Venture Partners since 2006. He has over twenty years of experience in investment and finance, having led investments in Ctrip.com, Dianping, Jiayuan.com, Taomee and others. Gan was one of the founding members of Carlyle Group’s Asian venture capital business, and went on to serve as chief financial officer of Kongzhong Corporation before co-founding Qiming.