Hurst Lin was working in tiny Newport, Vermont (population 4,200) as an engineer fresh out of Dartmouth after being sent there by northeastern U.S. phone company Nynex to fill in during a strike in the 1989. “I walked into town and everyone was saying, ‘Obviously, this guy is a scab; there are no Chinese people here,’” he recalled with a smile. Less than 2% of Vermont’s population is Asian even today. Looking to meet others, Lin regularly headed off in another unlikely direction for a native of balmy Taiwan: further north to an even colder Quebec.
That same interest in human connections two and a half decades later helped spur Lin, by then the co-founder of the China arm of Silicon Valley venture firm DCM, to invest $15 million for a 19% stake in a Beijing social media start-up, Kuaishou Technology. That decision in 2014 paid off big on Friday. Kuaishou closed up by 161% at HK$300 on its debut at the Hong Kong Stock Exchange, after raising $5.4 billion in the world’s largest tech IPO since Uber. The gain valued DCM’s current 7.6% stake in Kuaishou at $12.5 billion, representing an investment return of more than 2,000 times on DCM’s earliest purchase of shares, says 56-year-old Lin, a Kuaishou board member who ranked No. 7 on Forbes China’s annual list of the country’s top VC investors published in December. Other Kuaishou shareholders to profit from its listing include China Internet giant Tencent and cofounders Su Hua and Chen Yixiao– both already billionaires even before the IPO, along with funds associated with Morningside, Sequoia and Baidu, among others.
Kuaishou’s IPO surge, Lin said in a Zoom interview last week, underscores China’s success in an area where the U.S. has had relatively few big winners and China still has promise– mobile short-form video. “In the past, people in China looked to America because America was the start of everything,” Lin said. “Folks would think, ‘This is going on in America. Can we replicate it?’”
“But what is this thing called short video? The U.S. never really had a short mobile video,” and relied on PCs and TVs for computing and entertainment, Lin said. By contrast, China’s TV channels aren’t so exciting and the country boasts has the world’s largest number of mobile phone users. The mainland is dotted with crowded cities where home PC penetration is lower, and mobile e-commerce is more deeply connected to daily life. Though Mark Zuckerberg in 2017 had the insight that video would be a new paradigm, Lin said, he “didn’t quite realize that short video and mobile video is the trend.”
So where does Lin see investment potential today? One area is livestreaming via interactive mobile video that brings together e-commerce and the colorful world of Chinese entertainment. “I think China will continue to lead in this type of media industry trend for some time. Not because China is smarter; it’s because China kind of got a head start on the mobile phone and it’s easy to do electronic payments. America has to catch up to have that kind of interaction. If all of this infrastructure is there, it would be really kind of push America toward that, because it is a lot more fun to be able to have that kind of interaction.”
Lin caught the Internet and investment bug after he moved on from Newport and went to business school at Stanford. There, he met Jack Hong and Ben Tsiang and got the idea to set up a Chinese version of Yahoo. They set up Sinanet, which merged with Stone Rich Sight Information Technology, and formed what would become China’s most popular portal: Sina. Sina, with Lin as a chief operating officer
and co-founder, in 2000 became the first Nasdaq-listed China Internet company. Its stock shortly after fell from an IPO price of $17 to less than $1 as the U.S. stock market bubble burst.
Sina’s share collapse was humbling, he said. “I realized that all of the things I believed about myself and the team were false. It was just luck. Luck is better than good,” said Lin, who was the company’s chief operating officer. “Nevertheless, we were public and well known. We were a household name in China.” Sina
subsequently focused more on its own news content and online distribution. The stock went back up to more than $40 by 2004. In 2009, it launched a Twitter-like microblog called Weibo. Though it went nowhere early on, it was spun off from Sina and today has a Nasdaq market capitalization worth $11 billion. Sina is worth $2 billion.
As early as 2006, however, Lin was ready to leave Sina. He had years earlier at a class reunion run into Stanford classmate David Chao, who had become a partner at the Silicon Valley venture firm then known as Doll Capital Management. They reconnected again, and Chao offered to make Lin his general partner for China at the firm that had shortened its name to DCM. “I said, ‘Well, what’s your organization in China?’ and he said, ‘It will be you, and you can bring your driver and secretary if you want,’” Lin laughed. He accepted the modest offer. “I brought my driver from Sina and my partner’s secretary. That was it. So I’m called the co-founder of DCM China. That’s how it came about.” Underscoring China’s importance today, DCM expects about 70% of its latest $880 million pool of funds to be invested in the country. “Practically speaking, DCM has morphed into a China fund (company) with the ability to invest in the U.S. and Japan.” Other Lin-led successful investments by Lin include Vipshop and 58.com.
His first connection with Kuaishou arrived in 2014 when co-founders Su – the CEO — and Chen – the chief product officer — approached DCM. “They were doing this eight-second video view. I said, “You can’t put a commercial on it. The pre-roll would take longer than the actual content itself. Then I looked at the video. I said to myself, the people there look kind of young. How old are they?” Most were high school kids posting anything “that comes into their mind that they think is kind of funny.” Then, looking for validation, they spread it.
Lin talked about Kuaishou’s approach with Weibo, which had just launched a new video service – Miaopai, and figured the two entrepreneurs might be onto something new. He asked Miaopai what its own definition of a short video was. “It was: ‘Nothing that isn’t long is short,’” Lin recalled. “I said, ‘How can it be?’ You go to Miaopai and you don’t have a definition of length? I looked around everywhere.” In America at the time, Lin observed, Twitter’s Vine wasn’t doing so well with its short video launch, and Instagram at the time was focused on photos. “There was nothing to compare Kuaishou to,” Lin felt.
Su and Chen convinced Lin that short videos would take off “because whoever creates (content) doesn’t have to beat their brains out thinking about what they should put in there. That was an insight. I said, ‘But who’s going to look at it?’” Kuaishou would keep users watching by serving up content that matched user preferences. “Suppose you like this video where this kid is drinking water out of his nose or into his nose, then you probably like kids that put two straws in their nose and do whatever. It’s kind of a guess. And that just took off. Nobody believed in it,” he said. “It took two years for Chinese in general to say, ‘This thing is kind of cool.’ It was a good time killer for people watching in the subways,” Lin said.
At roughly at the same time that a smartphone hardware breakthrough was helping Kuaishou, too. China’s Xiaomi – now one of the world’s top five smartphone suppliers — brought out a model with a camera that cost less than $100. By 2016, Kuaishou rival ByteDance, which today operates the globally popular short video platform TikTok, had also come to be.
Yet Kuaishou, which latched onto the niche earlier, has gone on to attract huge audiences in China. In the nine months ended Sept. 30, Kuaishou attracted 305 million daily average users and 769 million monthly average users of its apps and mini programs. Users on the popular platform spent an average of more than 86 minutes per day on the Kuaishou App and accessed the app more than 10 times a day, according to iResearch figures in the prospectus. Mobile internet users in China on average spent 4.35 hours online each day in 2019, compared to 2.90 hours in 2015, and are expected to spend 5.73 hours online each day by 2025, iResearch says. Approximately 29.7% of that time was spent on video-based social and entertainment platforms in 2019, which is expected to reach 36.3% by 2025. China’s early recovery from the worst of COVID-19 pandemic is fueling the return of GDP growth to pre-pandemic levels and user growth.
Among Kuaishou’s billionaires, Su – a former executive at Google China and Baidu – as of Friday held a more than 11% stake worth $19.2 billion; Chen – formerly with Hewlett-Packard – had a 9% stake worth $15.3 billion. Su, 38, was worth $4 billion on the 2020 Forbes China Rich List; Chen, 37, was worth $3 billion. Friday’s listing adds at least two other Kuaishou billionaires: Yin Xin — worth $3.3 billion — and Yang Yuanxi — worth $2.8 billion — also joined those ranks. Cornerstone investors buying shares in the IPO that quickly profited include funds associated with the Capital Group, Temasek, Invesco, Fidelity International, Blackrock, Boyu Capital, Morgan Stanley and the Abu Dhabi Investment Authority.
Part of the next leg of growth at Kuaishou will come from e-commerce tied to livestreaming, Lin believes. Americans have had TV and home shopping for decades following the success of businesses such as HSN and QVC, but Chinese today often watch shopping sites for the entertainment as well as products and services. Real-time interaction between consumer and hosts also differs greatly from the America’s old says. (See related story here.) “It’s not like TV shopping. TV shopping is push, push, push, push. This is more entertainment plus ecommerce,” Lin said.
“Now, is this going to be a huge big ecommerce thing? Is could be. It might not be. We don’t know yet. It will be very interesting for you to watch, when the so-called mobile version of TV shopping comes out. Because again, you’re on your phone. You can interact. It’s a lot more interactive than TV shopping,” Lin said.
As for his own overall approach to picking successful entrepreneurs and investments, Lin said: “The real truth in making money consistently is to never think about making money. I ask my entrepreneurs, ‘When you start your company, do you want to serve the money gods, or do you want to serve your customer. If you are starting your company to serve the money gods, then all day along you’re thinking about how to get money out of your customers pocket when they aren’t paying attention. You are thinking about this all of the time – gimmicks and promotions – to get money out of the customer’s pocket or the investor’s’ pocket, and they become very wary of you. But if you start you company because you want to serve people, then people will line up for your service.’”
And that is especially true in China, Lin said. “In China, what they will do is take 10 times what you charge, put it in your pocket, and say, ‘Will you let me cut in the line?’ They will try every way they can to get in front, because they know you are there to serve people, you have good word of mouth, and there is validation. They want to reserve you,” he said. “Chinese people have a have a habit: if you have something good, they will shovel money at you.”
What’s certain, he said, is “what has been done with Kuaishou is done. It can’t be repeated again. Nothing can be repeated because once everybody knows how you play your poker, you can’t repeat that same trick again. Everybody knows, you always play it this way, and then they will anticipate you.”
“The new thing will always catch you by surprise,” he said. “If this thing is in plain sight, most likely it is already been done. What I learned at Stanford and Silicon Valley is that the new new thing isn’t about private equity. Private equity is about doing something you already know, and doing it cheap and more efficient. VC is about placing a bet on things that people think is kind of stupid and would say, ‘If I were you, I wouldn’t put my money on it.’ VC is all about that. Then, out of 100 ideas that you try, one takes off.”
Like an eight-second video platform now worth $12.5 billion for DCM.
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