At the China Finance Summit 2019, Gobi Partners China’ Managing Partner Michael Zhu shared on deep tech investment strategies. Below is a translated excerpt from his speech:
Gobi Partners was founded in 2002, and in the last 17 years we have been a close witness of China’s tech revolution. In its overall development, the high volume of traffic and demographic dividend has been a key driver of growth where startups have been able to innovate and thrive provided that they are able to leverage and position themselves accordingly.
This year, we see a dramatic shift in the finance and startup markets as a result of the trade war and culmination of China’s tech journey, and find ourselves in a very interesting point in time. While the usage and development of mobile devices have grown rapidly, we have seen negative growth for the first time in the last decade. There has also been a dramatic drop in the total amount of funds raised in the capital market, recording a 50% drop compared to the amount raised by this time last year. As for the IPO market, while companies have rushed to get listed, we have not seen the stocks perform strongly either.
Having said that, China never lacks in opportunities. Even in the midst of the trade war, 5G carries huge implications for the market. This does mean however, that Chinese enterprises must remain as strong leaders in innovation and be willing to invest in developing foundational platform technologies.
When it comes to investing in deep tech, in the midst of numerous considerations, here are four key ones:
1. Making an impact.
China’s population has undergone a significant shift where there is now a shortage of cheap labor and has in turn driven enterprises to automate. Having said that, as investors, we need to recognize that not all tech startups are ripe for investment and must study in depth how disruptive and value-adding the technology is going to be, especially in terms of applications.
2. Timing, timing, timing.
Do not forget that while we have been witnessing massive leaps in technological developments, R&D takes time, and investment is a commitment. If the platform technology being developed is too far from being able to be applied in use cases, how far is it also from monetization?
3. Leveraging resources.
Operations require resources. What are the ones available to the team and where are they weak? Think supply chain and leveraging strategic partnerships.
4. Working as a team.
If there is no capability to drive go-to-market strategies, the startup simply remains as a lab. Do not take the complement of the team lightly.