(Yicai Global) July 3 -- Early stage investors should understand fully future trends and choose the right entrepreneurs, renowned Chinese venture capitalist Mi Qun told Yicai Global in an exclusive interview.

"Venture capitalists should not only have foresight but also have patience to help with the development of enterprises," said Mi, the founding partner of Speed Light China Partners. Mi was an early investor in Chinese unicorns Meituan-Dianping and Pinduoduo, both of which have revealed overseas listing plans in the past month.

Mi, who previously worked at Google, decided to invest in Dianping 11 years ago, despite a lack of profits and optimism among fellow VCs. However, Mi firmly believed in the value of Dianping as part of the development of the internet era. First he represented Google in funding Dianping and then again in 2009, he represented Speed Light China Partners as part of the company's C-round funding.

As an early-stage investor, Mi has invested in many well-known Chinese internet and high-tech unicorns, including Baidu, Dianping, Pinduoduo, Rong360, Zhongji Innolight, Lianluo Interactive Information Technology, Ganji and Thunder.

Pinduoduo's founder Huang Zheng "has a strong ability to learn as well as a mindset for growth and can deeply consider the aspect of strategy which is rare among entrepreneurs," Mi said.

Speaking to Yicai Global at Speed Light China Partners' office at Shanghai New World,  Mi shared the story behind Pinduoduo's development from the perspective of an investor.

A Restless Serial Entrepreneur

The e-commerce industry regards Pinduoduo as a new kind of business. Only founded three years ago, the startup has already become China's third-largest e-commerce platform following Alibaba Group and JD.Com. Its gross merchandise volume exceeds hundreds of billions of yuan and the platform boasts some three million users. It took JD and Taobao 10 years and five years, respectively, to reach this level.

It is not a coincidence that Mi invested in Pinduoduo. Actually, both Mi and Huang once worked at Google in the US. In 2004, Mi returned China to serve as Google's first China office chief representative for building its business in the country, while Huang returned in 2005 also remaining with the US search giant.

From Mi's perspective, Huang is very smart and humble while maintaining a low profile. At the beginning of 2004, Google set up a Chinese-Japanese-Korean Search Department. Although Huang was not a direct member of the team, as an engineer, he often came to Mi to discuss the product and market.

In 2007, Huang resigned from Google to pursue a path in entrepreneurship. "Huang was the first one to leave Google China for entrepreneurship, he always had ideas for exploring new things," Mi said. After ups and downs, Huang told Mi in 2015 that he wanted to set up a new company that was more valuable and influential to society.

As for potential investees, Mi prefers serial entrepreneurs, especially those who have the incentive to set up bigger companies by building on success. Unlike common entrepreneurs who always report good news instead of bad to investors, every time he met Huang, he always told him things that he felt were not good enough and his pains. Most of time, they discussed industrial and corporate strategies.

From Pinhaohuo to Pinduoduo

During his entrepreneurial experience, Huang noticed a US membership-based e-commerce startup called Jet.com which gained a following for low prices and extensive advertising based on dynamic real-time pricing approaches. Only a year after the startup was established, its new monthly users reached 400,000, and it was eventually acquired by Walmart in August 2016 for USD3.3 billion.

Huang highlight that Jet would face excessive costs on attracting new users of around USD100 for each one. Moreover, hardly any of the deals on the platform were profitable. Nevertheless, upon continuous reflection, Huang noticed it was feasible to solve the problem faced by Jet by leveraging the WeChat social network in the Chinese market.

Accordingly, he came up with fresh food platform Pinhaohuo. Using social platforms like WeChat Moments, users can invite friends to make group purchases, and the crowd-ordering would become available once the number of purchasers hit a certain figure. To control product quality, all the links including supply, storage, and logistics are undertaken by Pinhaohuo staff.

Sales at Pinhaohuo exploded in a short pace of time but the company's delivery became unable to keep up with demand. When users finally received their packages, some fruit had already turned bad. During this period, Huang even established an independent logistics company to address this problem. 

One of Pinhaohuo's core business models was to meet users' demand for quality commodities. Generally in daily life, consumers pick such products through shopping or by friends' recommendations. Such practices are hard for e-commerce giants to realize. On the other hand, such a model enables commodities to find proper purchasers through social network sharing, namely from commodities to purchasers.

Following Pinhaohuo, Pinduoduo emerged at the perfect moment. Based on the same social network crowd-ordering model, Pinduoduo adopted an extended product range from the mere vertical category of fresh food. Pinduoduo also transformed its model of self-built supply chain and self-support into partnerships with settled suppliers, as well as cooperation with third-party logistics companies.

Investment Means Choosing an Entrepreneur

Behind its rapid growth, Pinduoduo also encountered problems like counterfeits, delayed after-sales services, and slow logistics. Mi regards these problems as the growing pains for startups, with Taobao.com as no exception. After scaling up, all platforms would face same challenges, and should properly address them by centering on consumers' interests, and then continuously perfect their practices.

Pinduoduo growth was much faster than expected, Mi admitted. Lightspeed Venture Partners is even considering applying this model in the US.

After obtaining the investments from Tencent in its B-round, Pinduoduo received another USD3 billion from Tencent and Sequoia Capital in April this year.

Mi told Yicai Global, Pinduoduo had already reached a considerable scale in earlier stages without using Tencent's resources. The latest large-scale investment indicates Tencent's strong willingness to be the leading investor for the company, and the reason for Pinduoduo's accepting Tencent's investments is mainly based on strategic consideration. "WeChat is an overriding flow source for Pinduoduo, and it will grow faster through cooperation with Tencent."

Regarding external financing and whether entrepreneurs should choose strategic investment or financial investment, Mi holds the opinion that it depends on the company's business model and market orientation. It is necessary to conduct comprehensive evaluations to decide whether the strategic investment would damage the fairness of the platform. Besides, for models like bike-sharing that cost a lot, strategic investment has become a major choice for these companies during their middle and later periods of development.

Mi believes a business is eventually shaped by the entrepreneur, thus they should respect entrepreneurs' leadership and right of speech in an innovative company. On the other hand, investors should regard themselves as a business partner. With their own resources and experience, investors are supposed to help startups adjust their market orientation, boost the introduction of talent resources, and serve as a strong supporter for entrepreneurs.

Editor: William Clegg