(Yicai Global) April 20 -- There are too many swindlers in the blockchain sector, which is sizzling because "getting rich quickly has stimulated many investment institutions," said renowned Chinese investor Allen Zhu, managing director at GSR Ventures Management Co., in an exclusive interview with Yicai Global.
"There are too many fraudsters. They just make initial coin offerings under the cover of blockchain,” Zhu told Yicai Global.
Of the 46 newly-established investment institutions last year, nine focused on blockchain investments, per statistics of technology, media and telecom sector information platform ItJuZi.Com.
With investment institutions swarming into blockchain, the allure of getting rich quick has spurred many investors, especially those who missed out on traditional internet opportunities, who hope to cash in on blockchain, Zhu belives. Investment must, however, be clear about whether [the investment objective can] solve whatever problems and create value. Those who want to make quick money are mere speculators.”
Blockchain ‘Pain Points’ Are Imagined
After several rounds of discussions on blockchain in the investment community, Zhu was labeled a ‘classic internet’ investor (referring to all internet investments without blockchain technology). This comes from the 3 o’clock Blockchain group community on China’s popular WeChat messaging app. Internet plus, artificial intelligence, cloud computing, 3D printing, and driverless technologies are all considered classic in their view.
Zhu does not mind such a label. Investment should emphasize "pain points," but in current blockchain these are products of the imagination that do not exist in real life, he said.
Blockchain technology emphasizes decentralization and trust issues, Zhu continued, but in real life, especially in areas with advanced information technology, trust itself is not a problem.
For example, very few problems arise with bank and securities accounts, he said. Also, if it ensures accuracy through universal ledgers, a blockchain's storage and technology costs are very high and its efficiency is extremely low.
Blockchain and initial coin offerings were extremely hot when Zhu and his team members went to Silicon Valley in the US state of California last summer. He and his members visited several startup projects in the US but found them completely unreliable. "Their style of conversation was totally different from web entrepreneurs. They did not talk about technology but only about concepts. Except for emphasis on decentralization as trust, their ultimate business model was to make great fortunes overnight through ICOs.”
Blockchain technology is extremely limited in various application scenarios the outside world emphasizes because the theory itself is inherently problematic, Zhu frankly stated.
The reason internet giants, as represented by BAT [China’s top three internet firms Baidu Inc., Alibaba Holding Group Ltd. and Tencent Holdings Ltd.] invest in blockchain is more for technical precautions, because the cost of the investment is very low compared with the size of these companies, Zhu observed.
For now, the application scenarios that large companies have explored in this field may be very limited, Zhu said.
Cashed Out Entire Stake in Ofo
Zhu wields special influence in Chinese venture capital circles. His early investment in bike-sharing firm Beijing Bikelock Technology Co., which operates the Ofo brand, has cast him into both the limelight and controversy, and his every utterance grates on the sector’s nerves.
“I already sold out my entire stake in Ofo in December, part of which I sold to Alibaba, including board seat and one-vote veto and another small part went to Didi Chuxing,” Zhu candidly told Yicai Global.
“Shared bicycles’ early-stage investment was very large, but profitability will take a long time; this makes the bike-sharing industry highly dependent on capital. If more players vie in the market, their competition becomes very fierce and chaotic. The sector is basically controlled by the giants, determined by how they think,” Zhu said.
The shared-bicycle market in first-tier cities became saturated at the end of last year and it is impossible for operators to recoup costs by relying on rental income. If the major operators do not merge, they have already hit the market ceiling, Zhu noted.
If Ofo or Mobike had merged last year, their market valuation would have had two or three times more room for growth.
Competition Draws Market Boundaries
In addition to bike-sharing, Didi and the meal delivery giant Meituan Takeout division of local life information and trading and group-buying behemoth Meituan-Dianping are competing in the takeout and ride-hailing markets, whose colossus Didi Chuxing started a take-away service in Wuxi in China’s eastern Jiangsu province, and launched a crazy subsidy war with Meituan. At the same time, Meituan launched a car-hailing service in Nanjing and Shanghai to launch a price war to challenge Didi in this market.
Now that the government no longer wants to see vicious competition, the situation is not the same as it was a few years ago. Meituan invested heavily in subsidies by hiring many non-local drivers and vehicles.
"Meituan offered large incentives to woo those who do not usually take taxes, but customarily ride bicycles. However, the kind of drivers and customers it has attracted, and its efficiency are more important,” Zhu noted.
As for the phenomenon of take-out giants entering the ride-hailing market, while car-hailing giants break into the takeout market, the demarcation lines have become increasingly blurred, Zhu said, “The boundaries of China’s internet have always been unclear. For example, Tencent once wanted to enter the e-commerce business and Alibaba at one time wished to ply the gaming business. Competition delineates market boundaries, not what people think.”
Editor: Ben Armour