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Lessons for Returnee Chinese Founders: with Cherubic Ventures, Liulishuo (LAIX), Shimo Doc, and CCX Credit Technology

· The Boss Interview,Shimo,LAIX,CCX,Cherubic Ventures
From left to right: Adam Bao, Sai Mao, Bin Yu, Jie Wu

From left to right: Adam, Sai, Bin, Jie

Over the past 20 years, returnee Chinese (海归) have played a pivotal role in shaping China’s modern technology and venture capital landscape. As China rapidly closes the gap against the West, returnee Chinese may find it harder to differentiate based on advanced knowledge alone, and have concerns of not being “localized” (接地气) enough. Yet there remain numerous examples of returnee success, where the founders leverage their global expertise, network, and other resources to build up unicorn businesses. At a Beijing event, Cherubic Ventures Founding Partner Matt Cheng, Liulishuo CFO Bin Yu, Shimo Doc founder Jie Wu, and CCX Vice President Sai Mao share their experience and highlight key considerations for returnee founders, including: best practices, challenges and lessons learned, how can returnees differentiate and leverage their unique resources.

Translated and Edited by Yang He, Kira Tao

[Editor's note: this interview has been edited and condensed for clarity. The opinions expressed in this article are those of the speakers and do not represent that of their companies]

Adam Bao: With the education and great opportunities that you had overseas, why did you decide to come back to China?

Matt Cheng: I have been travelling between Asia and the United States since primary school, during which time I have developed a cross-cultural mindset. Cherubic has had the opportunity to work with many similar overseas returnees from the US, and we have been developing ventures locally together in China with the knowledge and techniques that they brought along. It is because of this reason that we decided to host a small sharing event, so that everyone can understand the challenges, opportunities and lessons learnt of starting new ventures from the overseas returnees.

Sai Mao: US immigration policies were strict at the time when I graduated. Meanwhile, I felt that there existed a glass ceiling in the workspace after two years on Wall Street, so I decided to come back and look for new opportunities. The future wasn’t quite clear at that moment; however, since I had experiences in Finance and Fintech appeared to be a booming industry in China, I took a step forward to try out for startups in the area and see what would happen next. That’s the mindset I had when I came back to China.

Bin Yu: I was working at KPMG US at the time. I came back because the Chinese capital market and startup environment was quite appealing to me, and also my family was moving back to China from the US. Actually I am a relatively risk-averse person, so I didn’t decide to found a company right away. But I have always been eager to help founders to achieve their goals.

Jie Wu: In the early 2010s, Baidu, Alibaba, and Tencent (BAT) had achieved great success in China, but there were few other good companies and products besides BAT at the time. Coming from a tech background, I figured I some access and resources to do a startup. My twin brother came back first with a great job offer, and then I came back too. After that I met up with many Chinese entrepreneurs, and I learned from them that time is money for Chinese startups. So, although I was thinking about staying in US longer and was one of the lucky few who got the H1B visa, I still decided to come back even though at the time I wasn’t quite sure exactly what I’d do. There appears to be a glass ceiling for Chinese in the US, and there were just so many exciting opportunities here in China.

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Cherubic Ventures Founding Partner Matt Cheng

Adam Bao: As a returnee, were there times when you felt like you had trouble assimilating into local Chinese culture?

Bin Yu: There are several aspects to this. First of all, it depends on which market is the product selling to. Although the last company I worked for sells to Amazon, Google and Facebook, the whole company hires Chinese employees. So the company needs to rebrand itself as a local company, and it needs to understand the Chinese market, branding and employees. Secondly, this “fitting into local culture” concept is sort of outdated nowadays. These years China has gone through a huge internationalization process – as an overseas returnee, probably others won’t force you to drink. When I was an auditor in the US, at most I would drink champagne or wine with my clients; back in 2003 when I just came back to China, we would need to bring on some coworkers who can handle a lot of liquor to meet up with our clients. These years we don’t really need to do that. Thirdly, returnees has their own advantages: they brought along innovations in products and technology, while many local startups innovates new business models. The real high-tech companies still are occupied by returnees. Both of them has their own advantages, as long as they understood their market.

Jie Wu: “Fitting into the local culture” is definitely important. Firstly, lot of returnees have communication issues with their local co-workers when they come back. They tend to weigh heavily the experience and knowledge that they obtained aboard, and would try to influence others with these ideas. But local co-workers would probably feel like these methods won’t work in China. It is important to build up clear communication and mutual understanding within a team.

And then, returnees generally do not have enough local connections to get in touch with the best people in the area and obtain the necessary information. A lot of Chinese people are having a hard time to create a startup in the United States – it is hard for them to expand their connections and from there seize the opportunities because they don’t have the local resources. And the same reason applies for the returnees in China. As a returnee, you need to understand how to leverage your advantages and bring values to your connections, and in return receive their help. When I just came back to China, I decided to fully make use of my network that I built when I was in college here. Indeed, I have limited time to get in touch with the opinion leaders and career leaders, but it is easier to build mutually beneficial connections with them if you are doing interesting projects and have the right mindset.

Sai Mao: I am brought up with the traditional Chinese mindset, so I don’t have that problem in terms of communication, or fitting into the culture. Except drinking culture. I think understanding the situations here in China is important. As an example, in the United States, regulation comes later in the process; but in China, regulation happens in early stages, and you can only start to build when they have scrutinized everything. As in Internet-based Finance which is the area I am working on, it is important to communicate and build mutual understanding with the regulators. It is something that all returnees need to be aware of.

Bin Yu: Since we mentioned networking, I want to also mention that the breadth and depth of the connections that a company necessarily needs really depends on the stage that the company is in. If you are doing everything right and the company is growing, naturally you will attract talents and resources. But if you just came back to China and only had a small team of several people, then it won’t help even if you have a huge network, no one will care about a small seed like yours. It is important to know a good seed investor like Matt. Sometimes it is enough to have such a connection – Matt not only helped us access capital, but also introduced many resources to our company Liulishuo. In fact, I was introduced to the founder of Liulishuo by Matt to be the CFO.

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Adam Bao: Are there any particular difficulties that you have met when doing a startup

Jie Wu: There are so many I don’t even know where to start. For example, it was hard for me to build the startup team with the best talents in the industry, because I don’t have work experience here in China. Either I do not have the personal connections with these people, or they have already been at the top positions in companies. Even if they are looking for another job, they would hardly send out resumes and rather find opportunities through referrals by their friends. So it is important to have the right connections to these people. Meanwhile, I would encourage founders to spend more time on building mutual trust on potential connections. Company needs good reputation to attract talent, and it is hard for small companies to build that up.

Also, it is important for founders to make their priorities clear in terms of their needs. Do you need product people, tech people or designers? After figuring these out, the next step would be to keep contact with these people. When was acquired by Alibaba, their front-end director decided to look for another position. Luckily I have kept contact with him, and I invited him to our team. After that, his participation attracted many other talents to join my company.

Sai Mao: Do not blindly trust returnees with no work experience. It is likely that they are less efficient than some new grads from local colleges. Many returnees do not execute well because of their unreliable personal judgments.

Bin Yu: Founders will always face difficulties, even when the company goes public like Liulishuo. People say that birds of a feather flock together, and when looking for talents, you need to find similar people to build up the team. Also, look for quality investors. The investment industry have been developing so rapidly here in China that the scene has become quite complicated with an uneven look in terms of investor quality, so you need to study more about the investors. Right investors will ease your effort a lot. In terms of the legal issues, consult your CFO or lawyer friends who are more willing to help. It is important to be cautious when looking at issues like valuation adjustments and stock shares.

Adam Bao: What’s your opinion on competitions and influence from BAT (Baidu, Alibaba, Tencent)?

Bin Yu: BAT’s support is a double edged sword. In fact they contacted us before, but we decided to be independent and did not take their investments. There are also other industry leaders who are interested in us as well, such as New Oriental Education. Consider the fact that we have raised enough capital from previous series, it does not benefit us to join BAT’s portfolio as a supplement. However, another gaming company where I serve as the independent director has took Tencent’s investments, and now it is going public in the US. So it really depends on the industry area. If Liulishuo were to look for new strategic fundings, we might even consider Google or Apple as our investors to improve our technical capability. BAT is a plausible option for founders, and the founders always has the power to make the decision, whether they decide to join BAT or not.

Jie Wu: We’ve had a history with BAT ourselves. From our experiences, it is important to understand their strategies and directions. If it is strategically a match, they will likely to invest in your company. But it is also possible that they are building something similar internally and compete with you at the same time. Their investment strategies varies too – Tencent leans more towards minority investments, while Alibaba looks for strategic synergy and invest to control. All in all, you need to understand BAT’s preferences and their strengths in different industries. If those match your strategy and you can coordinate well with them, then you could consider to work with BAT. However, I do think that it is more suitable to wait for your company to grow and have a better strategic vision and then consider cooperation with BAT. The less information shared with them, the better. Your company is only worth the attention and value when it has its own core competency and moves fast enough.

Sai Mao: It really depends on the industry. Our choice of Cherubic over Baidu, including the rounds that happened after, are decided after serious consideration in many aspects. It is an art to choose the right investors.

Adam Bao: Liulishuo has just went public in the US. Could you share some experience and your opinions on that?

Bin Yu: IPO is like an adult ceremony. It is a milestone for a new beginning. Going public essentially puts your company under the spotlight – all your stakeholders, including investors, regulators and employees, are paying their undivided attention to it. So it is a must to prepare fully before going public, and it can happen early or late. Timing is also part of the consideration. You need to observe if the market has the potential. Some other details before IPO matters too – you need to find the right team to do your IPO, prepare the documents and materials, and guide the stock price.

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