Weblog with daily updates of the news on a frugal, fair and beautiful China, from the perspective of internet entrepreneur, new media advisor and president of the China Speakers Bureau Fons Tuinstra
The SOSV Chinaccelerator has been a successful Shanghai-based VC in China for a decade. Managing director William Bao Bean, explains to Russel Flannery of Forbes how they re-invented themselves and started to export their China strategy to other emerging economies as Orbit startups and stopped investing in China.
Forbes:
Flannery: What was behind the change with Chinaaccelerator and Orbit?
Bean: Orbit Startups is a rebranding and re-focusing of Chinaccelerator and MOX, which was another program based in Taiwan. Our parent organization SOSV is very much focused on a sustainability mission, which includes global emerging frontier markets where we can leverage our know-how and capital to drive economic independence. As part of sustainability, SOSV is also centered on health and climate, which of course also have lots of applications in emerging markets.
We’re a lot different than VCs that break up the world by geography, such as Europe or India. We think tech is global, and view the world in terms of vertical strengths. We all invest through our fund SOSV, but we have Orbit, which focuses on the Internet and software, HAX for hardware and IndieBio for biotech. We want the best innovation from all around the world. Often times, that’s in Silicon Valley or London, but sometimes it’s in Jakarta or Lagos.
Flannery: What happened in China?
Bean: By 2018 and 2019, Alibaba and Tencent controlled a lot of the startup ecosystem, which is why we diversified out of China. The Orbit program hasn’t invested in China in three years.
What we’re doing today is applying to startups outside of China what we learned during China’s incredible 20-year ramp up. We started in 2017-18 in Southeast Asia, and then India, Pakistan and Bangladesh. Two years ago it was sub-Saharan Africa, and then last year we had the Middle East and Latin America. So we’re bringing what we learned in China, Indonesia and India to global emerging markets and tech entrepreneurs eager to an economic transformation similar to what happened in China. A lot of what raised 800 million people out of poverty in China was driven by technology. We’re bringing the best practices, the tips and tricks, and the models that we learned in China to entrepreneurs all across the world…
Flannery: What’ve you applied from your China experience?
Bean: Digitizing mom and pop shops is a big area, and a common theme in Pakistan, Sub- Saharan Africa, the Middle East and Latin America. The challenge that you see across all of those regions is that they have many little shops — many with a history of three-four generations. There’s not much logistics, supply or financing. There’s a lot of walking, We’ve invested in Dastgyr in Pakistan, MarketForce in sub saharan africa, Suplio in Latin America. First, we fix their physical supply chain and cut middlemen. They get 30 to 70% more cash in their pocket at the end of every month.
After we fix their physical supply chain, there’s some real opportunities in digital services. The person in the local neighborhood knows the local community and customers have a sense of trust. And we’ve seen that in China and Indonesia. It’s the same opportunity. You bring technology that’s putting much more money into people’s pockets by bringing efficiency. It’s almost like water. It’s impossible to stop. In Pakistan, for instance, we invested in 24SEVEN , which is bringing digitalization to retail.
VC William Bao Bean, a general partner at SOSV (the most active global venture capital firm) explains how his global fund helps startups grow in Asia, with much attention to the pros and cons of working from Taiwan.
AP: SOSV invests in many verticals through its accelerators so there must be a lot of insights. Where do you see the next big trends? Are VCs transitioning to biotech or deep-tech?
WBB: Bio is deep-tech, hardware is deeptech, internet software is deep-tech. Deep-tech is leveraging cutting edge technology to drive a change. Technology can also be in a vat. Most of the cellular agriculture looks like brewing beer. You put culture and microbes in, you take something that’s like goo and turn it into something that changes the world. That’s what my partners are doing at IndieBio, our biotech platform. It’s extremely technical and I don’t understand most of it. One area where I’m very focused on is artificial intelligence. Almost every one of our companies is leveraging AI. They leverage data and algorithms to solve problems, improve services, personalize marketing and increase efficiency. Startups can do things now that 3-4 years ago would have required an army of people and months of time. How much does a candy bar phone cost right now? $5 USD. Android phones are like $50 USD. We’ve recently invested in a company that refurbishes Android phones. They’re selling them for $25 USD with a warranty and a certificate, bringing the cost down and the entry barrier down. We are also investing in blockchain to improve security, transparency and trust in areas like agriculture through our portfolio companies Scantrust and UNL. Coffee Exchange is helping the 20 million coffee farmers out there to make more money and enabling coffee drinkers to know who grew the beans. I think the next biggest trend is the next 4 billion people who don’t have the internet. That’s our tagline for the last five years at MOX. The amazing thing about the next 4 billion is that they’re now the next 3 billion people. Since we started MOX, almost 1 billion new people have connected to the internet and are using it regularly. That’s going to be one of the biggest revolutions — bringing technology, services, information and education to people who didn’t have it before. People think it’s strange when Google focuses on people who make about $1000-$1500 USD a month. When we first started, we focused on people who were making $250-$500 USD a month. Now, we focus on people who earn about $150 a month. Those are very different economic strategies. We’re helping people lease their own smartphones, change their lives through services like microloans even though their total monthly wage is only about $125-$150 USD. Is it going to get us superrich? Probably not. A lot of it is cliche but we are in a very lucky position to be improving lives day-to-day.
Shanghai-based VC William Bao Bean, general partner at SOSV, who is also the managing director of two SOSV accelerator programs—MOX and Chinaccelerator, explains how India is becoming the next bet for his startup accelerator after China, in an interview with Kr-Asia.
Kr-Asia:
We came to India during pre-internet times and we realized it was a bit early. In the first three years we invested in seven companies and last year alone we did 15 investments.
From 2016 to 2019 we made bets on the change that has come to India. We’ve seen it happen in China and the US. In the 90s I was in the US doing tech investment when the internet boom happened.
We’re focused on mobile-first, mobile-only, and don’t go after the 30 million rich people in India. We’re focused on the populace living in smaller towns, people who don’t really make that much money, and where technology has the opportunity to change their lives.
The companies we are working with, many of them had almost no revenue when we invested. For example, Coutloot, the e-commerce site we invested in, were barely selling anything, and now they’ve grown by something like 20 times in a year. It’s all the entrepreneurs’ efforts, not ours, but we are trying to be helpful with a slightly different perspective.
We’ve had some experience in mobile-first and mobile-only models in China. So, we come in and help entrepreneurs with this experience. The early-stage entrepreneurs, they don’t have the benefits like the big guys have of Chinese money or parachuting 50 engineers in from Silicon Valley. We are helping these entrepreneurs with the tips, tricks, tools, and strategies that all the big guys have.
I think the combination of timing, expertise, and approach that we bring, allows us to make quick investment decisions. Our companies first get traction, then they raise money, and not vice-versa. That’s one of the things that we help them with.
Kr: How involved are you with your portfolio companies in India?
WBB: The problem with the internet in India and not just India, but in many countries is the high customer acquisition costs.
We are not just about investing money; we help our companies lower their acquisition costs as close as possible to zero. We help our companies make more money and increase their lifetime value. We are able to lower customer acquisition costs because our companies cooperate with each other and they cross-promote each other. Our companies don’t have to pay for users, but they do get revenue share on the back end. We have got 56 million monthly active smartphone users and a lot of these are cross-promoting each other. That’s our first strategy.
People love our portfolio companies’ apps and they’re super sticky, but the problem is they don’t have a business model. So, we help them get a business model and increase their lifetime value. One of the main ways to monetize in India is e-commerce affiliates and financial services. We make it possible for them to start monetizing from e-commerce affiliates and microloans.
On one side you have free acquisition, on the other side, you have monetization, making customer acquisition costs decrease, and the lifetime value goes up. All these happen without raising money and without an entrepreneur giving away half of his or her company to a VC only to turn around and spend all that money on advertising.
We try and help the companies to get the positive unit economics where the lifetime value is above customer acquisition costs. We help them try and get the scale and when we do that a good number of them can go out and actually raise money at a proper valuation from a proper VC.
