CEIBS Business Review: Michael Zhu on Tech Investment Opportunities
CEIBS Business Review (CBR) speaks with Michael Zhu, Managing Partner at Gobi Partners China on investment opportunities in the tech field. Michael boasts 16 years of investment experience, investing in companies such as Airwallex, WaveOptics, CloudWise, and Teambition among many other leading tech startups. He manages the Gobi Yingzhi and Zhiying RMB Funds with total assets of over RMB 750 M and the HK$1 B Hong Kong Alibaba Entrepreneurs Fund.
Read below for the translated excerpt:
CBR: As an early stage investor, what industries and sectors are you interested in?
Michael Zhu: Currently, the enterprise services and deep tech sectors — including AI and proptech — have our attention as they have great potential to be further developed, applied in more industries, and to scale for overseas expansion.
The market is now ripe with opportunities for enterprise solution providers in China. Take AliCloud for example, at the platform level it has become the backbone for other enterprise solution providers. Over the last three years, its compound growth rate has exceeded 100%, with its revenue exceeding RMB 24 B in the 2019 fiscal year.
CBR: Given the many sub-categories within the enterprise solutions domain, what has your experience been like and what are your strategies as an investor?
Michael Zhu: The “One Belt One Road” initiative has created a niche opportunity for fintech startups in Hong Kong to cater to the Chinese market. For companies that deal with cross-border transactions, the efficiency of USD conversion to RMB is crucial to their cash flow, hence the open market in Hong Kong presents a strategic market opportunity for local fintech startups. There is a forex platform whose valuation has increased by 100% since we invested in them two and half years ago, alongside a Hong Kong startup that specializes in factoring that is in a very unique market position because of the city’s distinct commercial setting.
One extraordinary feature about fintech is that it can be applied across industries. At Gobi Partners China, we take an analytical approach towards fintech companies’ business models as we consider investing. A company might present a “horizontal” market position where it can be applied across industries as a platform technology, or it may be a “vertical” model that leverages the unique characteristics of one specific industry, like the factoring business we have invested in. Having a clear vision of how a fintech company’s business model strategically and effectively caters to a market niche is key to investors.
CBR: And what are your views on tech startups’ potential and ability to expand overseas?
Michael Zhu: China has a natural advantage in AI development due to its large population which comes with a lot more complexity in its data set, allowing for smarter machines. The platform AI models developed in China are used in major cities but can also be applied in second and third-tier cities and has huge potential for it to be utilized in various urban settings globally.
With this advantage, it is crucial that China hones the technology to become a global leader in a specialized field like AI, as it would not be practical to merely rely on traditional businesses like property and import/export trades as the backbone of China’s economy.
CBR: How does investment give you a sense of purpose?
Michael Zhu: As an early-stage investor, we are at the forefront of technology. Very often, it takes years before the technology that we invest in become mainstream. This means we need to be open to new ideas and be very objective in our judgement. In fact, we are quite likely to fail if we make investment decisions based on personal preferences, as that is usually a retrospective judgement rather than a forward-looking view.
The interesting thing about the Chinese market is that almost every three to five-year window makes for a new generation. Though people’s age difference may only be a few years, their consumer behavior and lifestyle habits are vastly different. This is really exciting for early-stage investors as it presents a lot of innovation opportunities for us to dive into, whereas later-stage investors are more focused on mature industries which have a more retrospective approach.
VCs exist to solve problems by investing in entrepreneurs who have a solution. So aside from financial returns, we are helping talented entrepreneurs realize their dreams while making the world a better place which, needless to say, is very fulfilling.