Investment strategies during a downturn - William Bao Bean

William Bao Bean

William Bao Bean, Shanghai-based managing director of startup accelerator Chinaaccelerator, discusses his investment strategy as the world is in disarray because of the coronavirus, at Focus Wire. “When things are bad, no one really does anything, and when things are hot, everybody's investing,” Bean says.

Focus Wire:

William Bao Bean, a general partner at SOSV and the managing director of startup accelerator Chinaaccelerator, says that venture capital investors “often have a herd mentality.” 

“When things are bad, no one really does anything, and when things are hot, everybody's investing,” Bao Bean says. “The best time to generally invest is when things are bad and the best time to exit is when things are hot.” 

Although a global economic slowdown has an obvious impact on public equity investors, Bao Bean insists that earlier-stage investors are shielded due to a longer investment cycle over several years. 

“The first thing that happens during any sort of a crisis or economic downturn is things just slow down measurably and significantly,” he says. 

After years of growth and immense venture capital funding, China has experienced a funding slowdown - known as a “capital winter” - since late-2018. 

Hundreds of Chinese tech startups were forced to shutter operations in 2019. 

Bao Bean attributes this slowdown to the closures of underperforming venture capital funds and a drop in funding from the Chinese government. 

Despite a surge of global venture capital deals in 2019, Bao Bean says that funding has started to dip and attributes some of that to activity around the SoftBank Vision Fund. 

“The SoftBank Vision Fund deployed a huge amount of capital very rapidly and that threw off the numbers in terms of total investment because they deployed $100 billion over a couple of years,” says Bao Bean. 

“We also had some mega-rounds in 2018. That throws off the numbers.” 

With the outbreak of the COVID-19 coronavirus, Bao Bean anticipates that funding will slow down significantly. 

“The biggest thing to happen is the whole model of using money as a weapon and buying growth and mega-rounds and negative unit economics where you spend a dollar to make 50 cents - that is out the window. 

“Now it's prove your model first, then raise money.”

More at Focus Wire.

William Bao Bean is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

Are you looking for more strategy experts at the China Speakers Bureau? Do check out this list.  

Appetite for government VC´s might be costly - Victor Shih

Victor Shih

The central government is encouraging its downstream agencies to engage more in sponsored venture capital deals to stimulate innovation. That is not a guarantee for success, says financial expert Victor Shih in Bloomberg and might cost the tax payers a lot of money. 

Bloomberg:

Also on the list was the prevention of investment bubbles and illegal fundraising, major risks in a country where mom-and-pop investors tend to dominate stock market trading and often use their smartphones to invest more than US$1 trillion in personal savings. 

"It's very ambitious," said Victor Shih, a professor at the University of California, San Diego who focuses on Chinese politics and finance. 

"But down the road there might be very serious losses, and it's government money, so tax payers will take a loss," he said, referring to the country's broad ambitions for venture capital.

More in Bloomberg.

Victor Shih is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

Are you looking for more experts on innovation? Do check out this list.  

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Tax payer will suffer from government adventures as VC - Victor Shih

Victor Shih

China´s State Council, the state´s highest administrative body, has encouraged government agencies to act more as venture capitalists, it announced on Tuesday. A receipcy for disaster, says financial and political expert Victor Shih to Bloomberg, where the tax payers have to suffer from inavoidable disasters.

Bloomberg:

The government’s move deeper into venture capital comes with risks though. The impending influx of cash risks stoking a boom-and-bust cycle, similar to previous government-led efforts in solar and wind power. Public agencies may also come under pressure from officials to put money into the projects of friends or relatives, increasing the chances that taxpayers are hit with losses. 

“The biggest problem with these government venture and even so-called private equity is that like most things in China, it’s not concerned about profitability and economic efficiency,” said Victor Shih, a professor at the University of California, San Diego who focuses on Chinese politics and finance. “If these funds are funded by credit, they will end in disaster because no one will have any skin in the game, which will open these funds to abuse.”... 

The amount of state capital threatens to overwhelm the private firms. Chinese government-backed venture funds tripled their money under management in a single year to 2.2 trillion yuan ($330 billion) in 2015, according to consultancy Zero2IPO Group. 

The State Council in Tuesday’s document emphasized the need to prevent investment bubbles and thwart illegal fundraising, both major risks in a country where mom-and-pop investors tend to dominate stock market trading and often use their smartphones to invest more than $1 trillion in personal savings. “It’s very ambitious,” said Shih. “But down the road there might be very serious losses, and it’s government money, so tax payers will take a loss.”

More in Bloomberg.

Victor Shih is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

Are you looking for more experts on innovation at the China Speakers Bureau? Do check out this list.

Earlier this year we discussed with innovation expert William Bao Bean whether the government funding new projects was a smart idea. The best the government can do is getting out of the way, he says.

 

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