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Uncovering Unicorns: Highlights From My Fireside Chat at RISE Conference 2019

July 12, 2019

In conversation with Alec Macfarlane, Reuters Breakingviews Columnist

Alec: GGV has invested in over 300 companies and 50 of them are unicorns. What are the successful traits that these unicorns have in common?

Hans: Successful founders tend to be those who have thought about the problem that they want to solve for a long time and learn extremely quickly. Take Lei Jun, the Co-Founder and CEO of Xiaomi, for example. I met Lei Jun in 2007 when he was leaving Kingsoft. He was actively thinking about the mobile Internet, e-commerce, and social networking and studied every phone that was out in the market. These three elements became the core tenets of Xiaomi and Lei Jun had been thinking about them for three to four years before Xiaomi started. Knowing the industry and customers’ pain points to the extreme is crucial. Another important trait is leadership. Lei Jun got people he wanted to work with him to build something seemingly crazy at the time. He had close to one million fans on Weibo. That gave us confidence in his leadership.

Now, do we know which one will be the unicorn? Which ones are going to fail? No one knows. There were one or two months during Xiaomi’s journey that I thought they weren’t going to work out. Thus the founder’s faith in his or her mission is also very crucial. Investors never know which one will become the unicorn. If the founders and VCs are willing to consistently work hard the chance of success over time will be higher.

Alec: Are there red flags you look out for when listening to pitches? 

Hans: One red flag for us is when the founder only thinks about market size, but doesn't relate to the problems of the core user group. Another red flag would be when the founder doesn’t do enough due diligence on the industry or main competitors. A successful founder has to learn very quickly and think several steps ahead of their competitors to win. Thirdly, a founder who cannot recruit well is problematic as well, but we can help them with that. It takes a lot of wisdom and charisma to convince the first ten people to let go of what they have in order to join you on day one. When we realize that the founder has a great startup but doesn't have the charisma to convince smart people to work with them, we help them recruit. 

In short, the red flags we look for in founders are the ones who don’t know their customers and competitors, can’t recruit well, and don’t learn from their mistakes quick enough. 

Alec: As a VC, how does GGV help the founders create unicorns?

Hans: Through experiences with 15 unicorns, we see the patterns of success and thus can guide founders in the right direction. I always like to joke that I don't need to be the smartest guy in the room. I just need to have a lot of good data. Our biggest value add is being the coach or adviser to the founders to help them work through challenging issues using patterns we have seen from our past successes. We have insights and resources in specific sectors to share with founders. For example, in the micro-mobility sector, we have invested in Hello in China, Grab in Southeast Asia, Lime in the US, and Grin plus Yellow, called Grow, in Latin America. Through our network and expertise, we helped Didi become an investor in Grab so Didi could help Grab set up new centers in Beijing. 

We have a program at GGV called Founders and Leaders to train founders systematically. We recruit people from Facebook, from Airbnb, also one of my portfolios, to scale the startups in the right way. So by sharing the best practices from Silicon Valley, from China, from Southeast Asia, from Latin America, we work to be helpful to our founders in all aspects possible.

Alec: You are a global investor. What would you say is the next hotbed for unicorns?

Hans: Every region has its own hotbed. In China, consumer growth is slowing down. You already have 900 million users of mobile Internet. Now it’s more about what consumers do with the device that is already in their hands. We think that over the next five to ten years China’s SaaS and enterprise markets will emerge to leverage more productivity from smartphones. 

We also think that given the US-China situation, more Chinese tech companies will be homegrown. In turn, there will be a lot of new investments to make in China. In the US, we are seeing a lot of software being developed but we think there is a shortage, thus an opportunity to train new developers to build their own software solutions. We are seeing emerging markets like Latin America, Southeast Asia, and India learning from US and China and adapting to global conditions. There's no shortage of investment opportunities and there are many founders doing very interesting things.

Alec: What is the next trend to look for in search of future unicorns?

Hans: It’s hard to predict unicorns, but the concept that people should think about right now is a super app. Jixun, my partner at GGV, invested in Grab, originally a ride-hailing company, in 2014 in Series B when it was only valued at $40 million for pre-money valuation. Now, Grab is developing not just a ride-sharing business, but also a food business, delivery business, scooter business, and an amazing mobile wallet business. And this is why we invested in Grab -- it had the potential to become a super app. 

In Silicon Valley, people think about ‘focus, focus, focus’ all the time. People like to do one thing very well and one thing only. But we think that those days of focusing on one pain point are either over or not as favorable anymore. The customer in every region is very different and they all have multiple pain points waiting to be solved. So instead of thinking ‘how can I scale globally by solving the same pain point’, think ‘how do I come up with a super app that can address multiple pain points?’ This way, you can leverage the success in one category to the other and your users will never need to leave your app. We're seeing more and more super apps happening. If founders can execute super apps well in their respective regions, we think they have a higher chance of becoming so-called unicorns.

Alec: What is your advice for people who are thinking about starting companies?

Hans: I was a founder twice, received funding twice, so I understand dealing with the board can be hard. I think founders need to think about what they want to achieve in their lives before they start the company. Not everyone needs VC money. For those who want to scale and do take VC funding, then you have to contemplate the impact that you can make to the VC fund. If a company is not scalable and can’t have a big outcome, the fund is less likely to roll out its resources to help. As for us, the opportunity cost of resources can be very high.

I would encourage people not to start their own company at first. Join other companies that are growing fast and have raised three or four rounds of VC funding. You need to go through the cycle and get a firsthand glimpse of what it takes to scale a business to get ready for your own startup. Then, once you do start, you're better positioned to deal with obstacles along the way. Be very careful about what you engage yourself in because once you start doing it, you may get stuck for the next five to ten years. When you have 50 or 100 employees coming to work because of you, the pressure is very high. There is an immense sense of responsibility. So choose very carefully and be ready is the advice I will give to potential founders.