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  • Jonathan View (Eng)

    China Unicorns between 2014 and 2020 (Part IV)

    Even a pig will fly,  when it is hit by a tornado!  7 min read Hi, I am Jonathan Hayashi. After graduating from University of Rochester with double degrees in Optical Engineering and Financial Economics, I worked in one of the top 3 investment banks in Japan, SMBC Nikko. Later on, I joined one of the largest VC firms in Japan, SBI, and took charge of growth stage investments in Blockchain, Fintech, and AI Sector. I joined Cornerstone Ventures in 2020. Part I, Part II, Part III, and Pat IV: For the full list of all the Chinese companies that became unicorns between 2014 and 2020, please go to Part I. For the analysis of famously failed vertical EC startups, please go to Part II. For the analysis on why having too much funding early on is actually a bad thing, please go to Part III. This article, which would be Part IV, will look into the reasons and impact of group thinking physiology in China, a.k.a the “standing at the center of a whirlwind”.   Background: In the startup scene in China, there is a popular slang called “風口”, which means “the center of a whirlwind”. Who said it first?  Most people believe it’s the founder of Xiaomi, Lei Jun. The Financial Times reporter translated Mr. Lei’s quote into English as below: Even a pig will fly when it is hit by a tornado. Other media, such as Business Insider, translated it in the following way: Even a pig can fly if it stands at the center of a whirlwind.  This quote is rather famous in China. But most people don’t know, however, that Mr. Lei actually took a page out from Eugene Kleiner, the co-founder of Kleiner Perkins Caufield＆Byers: In a strong wind, even turkeys can fly. What does it mean nowadays? Nowadays, people refer to “an industry at the center of  whirlwind” as “an industry where the companies can get massive funding from VCs”. It’s similar to “buzzword”, but contains a stronger implication of “lots of VC fundings”.   Examples of Centers of Whirlwind at Chinese tech-startup scene:   Industry Number of VC backed companies Amount of funding (USD Billion) Blockchain (區塊鏈) 400+ 27.00 New energy car (新能源造車) 60＋ 25.50 Fresh Food Retail (生鮮零售) 56 23.55 Ride Hailing (網約車) 10+ 21.10 Car Sharing (共享汽車) 10+ 12.00 Short Video App (短視頻) 10+ 11.80 Food Delivery (外賣) 10+ 10.00 Group Buying (團購/千團大戰) 5300 10.00 Bike sharing (共享單車) 70+ 9.00 P2P Lending (P2P 網貸) 300+ 7.50 AI (人工智能) 1,000+ 7.50 Second-hand car EC (二手車電商) 30+ 4.50 Co Living (長租公寓) 30+ 3.99 E-Learning (線上教育) 148 2.15 Co Working (共享辦公空間) 10+ 1.43 Live streaming (直播) 30+ 1.09 Self Checkout (無人超市) 126 0.65 Community group buying (社區團購) 10+ 0.30 E-Cigarette (電子煙) 35+ 0.15 Note: The numbers above are collected from public information and might not be accurate.   Why are Chinese investors sucked into Centers of Whirlwind: Because it takes lots of money to change users’ behavior to adopt new things, and every investor knows that one single investor doesn’t have enough funding to do so. Because VC has FOMO (Fear-Of-Missing-Out), as the opportunity cost of missing out a good investment is much larger than the loss of a bad investment. Because there’s a lot of “dumb money” in the startup scene in China. People who don’t have any investment thesis or process and probably don’t really understand the risk in startup investments, feel comfortable falling into group thinking. Because when a theme becomes the center of whirlwind, the fundraising rounds of the related startups are usually oversubscribed, so the investors can’t really slow down and conduct their due diligence, but rather they need to give a yes-or-no answer within a short period of time window.  Because, afterall, there were indeed some sustainability successful and profitable companies coming out on the other side of these centers of whirlwinds, like Didi from Ride Hailing, Meituan from Group Buying. Because even if the startups eventually failed, the early investors can still make money. Sequoia China is known for investing in multiple competitors in the same race and many of its portfolio didn’t become the winner in the race, but only less than 10% of its investments ended with zero return. Most of the time, it either facilitated consolidation among its portfolio, or sold its stake to other investors before the capital market lost interest in the startups. Learned lesson to be applied to entrepreneurs in other markets: No matter what, a decent due diligence is a must. It’s beneficial for both sides. For investors, this process helps them to step back, pull away from the group thinking, and figure out their own insights. For startups, they can have meaningful discussion and get valuable feedback from investors. Optimize the amount of funding to raise and the capital allocation plan Some businesses, like bike sharing for example, have the potential to be a profitable business. However, they could be ruined due to malignant competition over advertisement, cashback/discount, and excess supply. And these are fueled by excess funding. Grow fast, but still keep an eye on PMF, Unit Economy, and Profitability Having PMF in one city, doesn’t mean you can find the PMF in another city doing exactly the same thing It’s okay to lose money, but at least make sure you have a positive Unit Economy. Be prepared for a time when suddenly you are no more in the center of the whirlwind anymore, understand if you have the capability to turn a profit, and know what cost you can reduce. Like our Facebook page for more upcoming articles! The Future Is Unwritten.

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  • Jonathan View (Eng)

    China Unicorns between 2014 and 2020 (Part III)

    The Tragedies of Extravagant Funding and Immature Scaling 7 min read Hi, I am Jonathan Hayashi. After graduating from University of Rochester with double degrees in Optical Engineering and Financial Economics, I worked in one of the top 3 investment banks in Japan, SMBC Nikko. Later on, I joined one of the largest VC firms in Japan, SBI, and took charge of growth stage investments in Blockchain, Fintech, and AI Sector. I joined Cornerstone Ventures in 2020. China Unicorns Part I, Part II, Part III: For the full list of all the Chinese companies that became unicorns between 2014 and 2020, please go to Part I. For the analysis of famously failed vertical EC startups, please go to Part II. For this article, which would be Part III of this series, we will look into the examples of a counter-intuitive fact for most entrepreneurs: having too much funding early on is actually a bad thing! 8 China Unicorns failed with abundant funding: Addressing a common point of view: I have met many people in the startup scene who say the same thing about China: “There are tons of dumb money in China”; “Chinese VCs keep investing tons of money into buzzwords and trends”; “It takes too much capital to compete in China market, as all startups are burning tons of money to compete.” First of all, I think those observations about the China startup scene is, quite accurate.  Second of all, however, those observations do not only apply to China, but also apply to markets where capital for private companies is abundant.  Look at US: Isn’t Quibi shutting down 6 months after it raised $1.8B and went live? Look at Japan: Was Softbank Vision Fund’s investment in WeWork not “dumb money”? Look at India: Have you heard of Just Buy Live? It shut down 9 months after it raised $100M. Thus, whatever lessons we can learn from analyzing these failed Chinese startups, it should more or less also apply to you, even if you are not based in China. Lessons from these failed China Unicorns, in cool phrases: “No matter how much you raise at your company you’ll end up spending it in 12~24 months” --- Justin Kan, founder of Justin.tv and Twitch The exact reasons that lead to this outcome might be different every time: Maybe your competitors are deploying massive advertising campaigns, and you think you need to fight back. Maybe you find new products you can work on. Maybe your employees keep asking for a raise, otherwise they would leave. Maybe one of the VC board members keeps saying you are too conservative. But the outcome is the same, almost for every VC backed startup. So raising more cash does not significantly increase your cash runway. To complete a home-run, you have to pass the first base.  No matter how many times you have hit a home-run before. In plain words, even if you were successful in your last startup, you still need to struggle this time to find your Product Market Fit, obtain your Early Adopters, adjust your Unit Economy, build out your Go-to-Market strategy, etc. You still need to pass these “first bases”, before you scale your business up. The more you raise early on, the harder you could raise later on. To break it down: The more you raise early on, the higher the valuation you need to set early on. The higher it is, the higher your shareholders will for the next round. And the higher it is, the harder you could find interested investors later on. From another angle: The more you raise early on, the higher the business milestone you need to set early on, and the lower probability for you to be able to achieve them. Constraints spark innovation. Why? Because innovation comes from thinking hard, countless trial & errors, and painful failures.  If you don’t have constraints, what would motivate or incentivize you to go through those awful processes? Larger animals have slower reflexes. One of very few advantages that startups have against large enterprises, is how small the team can be and how efficiently everyone can communicate with each other. Don’t take me wrong. It’s a great thing for a startup to increase its headcounts quickly and significantly, but the question is when it should do so. Definitely not before it even launches its product. More money, more problems.  Due to more stakeholders, and a higher stake. What’s the difference between a startup with lots of money and a large enterprise with lots of money? The startup does not have a definite plan to spend the money yet. So? So every stakeholder (VC, corporate investors, angel investors, management team, employees, customers) wants to argue on how to spend the money. Like our Facebook page for more upcoming articles! The Future Is Unwritten.

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  • Jonathan View (Eng)

    Failed China Internet Unicorn (Part II)

    The Failure and Forgotten Stories in Online Vertical Platforms 15 min read Hi, I am Jonathan Hayashi. After graduating from University of Rochester with double degrees in Optical Engineering and Financial Economics, I worked in one of the top 3 investment banks in Japan, SMBC Nikko. Later on, I joined one of the largest VC firms in Japan, SBI, and took charge of growth stage investments in Blockchain, Fintech, and AI Sector. I joined Cornerstone Ventures in 2020. China Internet Unicorn Part I and Part II: For the full list of all the Chinese companies that became unicorns between 2014 and 2020, please go to Part I. “All I Want To Know Is Where I'm Going To Die, So I'll Never Go There” --- by Warren Buffet & Charles Munger For this article, which would be Part II of this series, we will look into the failed online platforms in some verticals in China, including real estate, automobile, fashion, cosmetics, books, 3C, etc., to learn from their mistakes. Part II Content Table: Background of general EC in China Vertical: Real Estate Vertical: Automobile Vertical: Famously Failed Vertical ECs    Background of general EC in China: 8848 The first B2C ecommerce in China. Started as a division under a software company and spun out in 1999.  Had some successful early traction, but shut down at around 2003 due to lack of funding, logistic infrastructure, and internal management issues. ebay Ebay entered China in 2003 by acquiring a local EC EachNet (易趣), which was established in 1999. Failed due to slow connection (as eBay transfers EachNet’s server to US), fierce competition from Alibaba/Taobao, and other issues. Ebay sold EachNet in 2012 and left China. Amazon  Amazon entered China in 2004 by acquiring a local EC Joyo (卓越網), which was established in 2000 by famous software company Kingsoft (金山). Failed due to lack of localization (as Amazon did not allow local teams to make much decision). Amazon announced in 2019 to stop serving Chinese merchants and only operates as a cross-border EC to sell foreign goods in China.  Paipai (拍拍網) A C2C E-commerce established in 2005 by Tencent to compete with Alibaba’s Taobao and eBay’s EachNet. As a late comer, Paipai gained some traction by leveraging Tencent’s social media users, but couldn’t scale up due to fierce competition of price coming from Taobao, and bad operation which resulted in delivering scandals of fake and low-quality products.  Below is the market share of C2C E-commerce in China, where red is eBay’s Eachnet, white is Tencent’s Paipai, and yellow is Alibaba’s Taobao. In 2014, Tencent invested in JD, forms partnership with it, and sold Paipai to JD at the same time.   Alibaba/Taobao (阿里巴巴/淘寶) Established in 1999 as a B2B E-commerce by Jack Ma. Received $20M investment from SoftBank in 2000, achieved positive cashflow in 2002. Established C2C E-commerce Taobao in 2003, released AliPay in 2004, acquired Yahoo China in 2005, started B2C E-commerce T-mall in 2008. Went public in HK in 2007, went private in 2012, and got listed on NYSE in 2014. The absolute number one player in China E-commerce. As a group, Alibaba occupies 50~60% market share of online retail. Below is the market share of online retail in China. JD (京東) Established in 1998 as an offline retailer by Richard Liu and started EC business in 2004. Transformed into a B2C EC with a focus on 3C (computer, communication, and consumer electronics) products. Unlike Taobao as a platform open to individuals and small firms, JD chose to be a direct sales platform sourcing from branded suppliers, with its strength in self-own logistics and well controlled quality of service and products. It is the number two player in China with about 20% market share. Below is the market share of B2C E-commerce. Pinduoduo (拼多多) Established in 2015/9 by Colin Huang as a late comer in China E-commerce scene.  Grew quickly with its gamification, group-buying model, social commerce, unique targeting on rural area, and other factors. Now the number three player in China.   China Internet Unicorn Vertical: Real Estate Media: Before 2000: Real estate industry was blooming and houses just sold themselves. House-buyers rushed into the offline agents’ stores. 2000 ~ : Internet started to bloom in China. Real estate companies and agents considered it as an advertisement channel. At that time, many Media E-commerce emerged, where the largest players were Fang.com (房天下, NYSE: SFUN), Sohu Focus (搜狐焦點, acquired by Sohu, NASDAQ: SOHU), E-House (易居, NYSE: EJ), and Anjuke (安居客, acquired by 58.com, NYSE: WUBA). These Media Ecommerce companies charge property sellers for posting real estate deals on their websites.  Online transaction: 2008 ~ : Leju (樂居, NYSE: LEJU), which was spun out of Sina (新浪, NASDAQ: SINA) was one of the first Chinese companies that actually allowed users to complete real estate transactions online and released mobile app version of its real estate E-commerce. 2011: Pan Yishi (founder of one of the largest real estate developers in China) and Zhou Xin (founder of E-House) met at a forum. One month later, they put 11 units up for an online auction with a zero starting price, which became a hot news in the nation. The largest real estate developers all jumped on this bus and started selling some property units online, with attractive discounts and terms. At this stage, online sales of real estate were still mainly considered a way to create buzz. E-commerce only occupied an extremely small portion of the real estate market. On the other hand, it became harder and harder to sell real estate, as GDP growth rate in China stopped accelerating. Mobile E-commerce and O2O (Online-to-Offline): 2012 ~ : With FangDD (房多多, NASDAQ: DUO) as the pioneer, followed by Haowu (好屋中國) and Tops Tech (房產銷冠) , a new trend in real estate EC emerged, which is providing smartphone-app tools to enable real estate agents (who used to focus on selling “second-hand” houses) to sell new houses. The revenue model changed too. Instead of charging real estate developers per listing, they charge a commission fee based on the value of transactions they help complete, and then share with agents who brokerage the deals. By providing services thru app, they created the real Online-to-Offline experience in real estate transactions. The War of Capital 2014 ~ : The market was overheated due to fierce competition. Started with Qfang.com (Q 房網, rescued and acquired by Guochuang in 2017), --- who copied FangDD’s model, offered higher revenue share to the agents, and acquired lots of agents itself, --- many players entered the market. That includes Iwjw (愛屋吉屋, shut down in 2019), which was founded by a team from a VC backed ride hailing business (which had a decent M&A exit) and operated both house-rental and house-buying platforms. Iwjw failed after burning $350M by  hiring tons of agents,  offering super high base salary to agents,  charging super low commission fee from transactions,  deploying massive marketing campaigns, and  waiving rent or down payment partially. The traditional real estate agents, like LianJia (鏈家) and 5i5j (我愛我家), were launching their internet arms to compete with these startups too. The general EC, like Taobao, also sold quite amount of houses by putting them up for online auction. Yet, the volume was relatively small. Needless to say, VC and PE funds were the ones providing the capital for this war. Coming out the other side: Cooperation and VR 2017 ~：The war of capital was over. Startups were shutting down or getting sold. That was when Beike (貝殼, NYSE: BEKE) came out, under the traditional agent LianJia. Officially launched in 2018/4, Beike is a platform that enables real estate agents to transact second-hand property, new property, and rental property. Its revenue in 2018 and 2019 were $4.2B and $6.8B, with an estimated revenue of $7.8B for 2020. It achieved this mostly due to two innovation: cooperation model and VR technology. Cooperation: Beike breaks down the job of an agent during a transaction into 10 different parts (ex. House listing, document administration, lead generation, etc), allows different agents to take charge of different parts, and shares the revenue accordingly.  VR: House buyers can check the inside views of the houses by watching the VR version of them.     China Internet Unicorn Vertical: Automobile Media  2005 ~ : Just like real estate industry, auto industry viewed Internet as an advertisement channel in the beginning. The winner of this race is Autohome (汽車之家, NYSE:ATHM), on which users can find all kinds of automobile related information and car dealers can throw in ads. Authome, a last mover established in 2005, beat its competitors like PCauto (太平洋汽車, est. 2002), Sohu Auto (搜狐汽車, ets. 2000), 51 Auto (51 汽車, est. 2005) and BitAuto (易車網, est. 2000) with incomparably great quality and large quantity of content. Online Transaction 2010 ~ : EC giant Taobao partnered with Mercedes-Benz to start gradually  educating the market to consider buying cars online. 2013/11/11: 11th November has always been the big day for Chinese EC. On 2013,  the giants EC in auto industry like Autohome, BitAuto, Sohu Auto and Alibaba’s T-mall came together and sold 180,000 new cars in one day, which sent a great signal to both the capital market and the consumer market. Yet, consumers still prefer to go to offline stores due to multiple reasons. For example, they’d like to physically touch the cars and test drive; many online payment methods couldn’t handle such expensive purchase. Major players in different kinds of models: C2C, C2B2C, B2C, B2B2C, C2B, B2B B2C / B2B2C / B2B B2B is the first successful model in this vertical. These companies act as wholesaler, importing cars from car manufacturers and selling them to individuals or car dealers/retailers. UXIN is the only player among the China Internet unicorns in auto industry to get listed and has enough bargain power to operate a B2B2C model, without purchasing the cars upfront. Hua Sheng, similar to Dasouche’s Tangeche service, sells car in a financial leasing model,  C2C / C2B “B” in these cases are car dealers/retailers. All of these companies provide physical car inspection and price estimation service within 1~2 days after inspection, and secure buyers within days or even hours. As the US pioneer of C2C second-hand car EC Beepi announced bankruptcy in 2016, all players in China pivoted to heavier-asset model, which is to operate their own physical car sales centers and sell cars in B2C model. The failed challengers The first movers that were established before 2010 in a premature market: GuChe (估車網), ShuaiChe (帥車網) The C2C platforms that couldn’t raise enough funding to wait through the long sales cycles 2 Souche (2 搜車), Old2New (以舊換新網), CCcar (CC 車), Maocar (貓卡) The B2C players that couldn’t gain much bargain power over offline dealers Maimai (麥麥車), Taoche (淘車之家), Niwo (你我車平台), Kaka (卡卡二手車), Mr. Che (車先生), D+ (迪加用車網), Kaola (考拉車) The C2B players that chose the best business model for car E-commerce and raised some funding, but lost in fierce competition. PAHaoche (平安好車), CLCW (車來車往)   China Internet Unicorn Vertical: Famously Failed Vertical ECs Fashion Vancl (凡客) Established in 2007, this China Internet unicorn had raised more than $400M with its peak valuation at $3B. At its prime time from 2009 to 2012, it hired more than 13,000 employees and sold 30M clothes per year. It was the fouth largest B2C Ecommerce in China at the time, behind JD, Amazon China, and Dangdang. Vancl designed, manufactured, and sold its own fashion items. Its price was much lower than offline stores, and it supported COD payment in more than 1,100 cities, while also allowed refund within 30 days. Now it has only less than 200 employees and there is rumor that it will be shutting down soon. Major factors of failure Vancl tried to copy JD and become a general EC by expanding to other categories. Yet, with poor execution, it just ended up producing lots of unsold inventory. Vancl aggressively deployed many unsuccessful yet expensive advertisement campaigns. High-quality affordable brands like ZARA and UNIQLO started to set up more stores in China. The last straw broke the camel’s back was placed in 2014, when government announced that 30% of Vancl’s product did not match the basic quality requirements. Since then, Vancl’s reputation of “low-price high-quality” just turned into “cheap”. Cosmetics Lefeng (樂蜂網) Founded by a celebrity anchorwoman in 2008, this China Internet unicorn was one of the first vertical EC focused on cosmetic products. It developed its own cosmetic brand and was one of the first ECs to explore KOL marketing. At its peak, its annual revenue was above $400M.  Lost to fierce competition with a late comer, Jumei (聚美優品, NYSE: JUMEI), Lefeng was acquired by the largest flash-sale discount EC VIP.com (唯品會, NYSE: VIPS) for $112M in 2014. Major factors of failure: It had too much resource from the beginning, from capital to media exposure and network. And because of this, it didn’t hustle like Jumei did. It could not successfully build a good reputation for its own cosmetic brand. Tiantian (天天網) Founded by cosmetic expert in 2008, it was also one of the first in this industry. Its peak annual revenue was around $160M and got listed on OTC market NEEQ in 2015. Yet, it shut down in 2017 due to fierce competition and cumulative net loss.  Jumei (聚美優品, NYSE: JUMEI) Established in 2010, this China Internet unicorn quickly became the number one EC in the cosmetics vertical, whose GMV was twice of the second player, Lefeng. It went public on NYSE in 2015, with a peak market cap of $5.6B. However, now it has completed lost its market share and its market cap has dropped to below $400M. What Jumei did right: Jumei could not attract much funding in the beginning. Thus, it had a company culture of saving cost. Unlike Tiantian and Lefeng, Jumei operates in a group buying model. Also, Jumei focused on content marketing on social media like Wechat, and instead of relying on other KOL, CEO of Jumei was active on TV shows and became a KOL himself. Major factors of failure: Jumei faced fierce competition coming from general EC like JD and Taobao as well as upcoming social media Ecommercel like Xiaohongshu. The company culture of saving cost was a great thing in the beginning, but that also led to the last straw that broke the camel’s back: its former employee exposed that Jumei had been selling fake and low-quality products.     Books    DangDang (當當) Incubated by major publisher and VC firms in 1999 as a online book retailer, DangDang occupied 40% of B2C online sales in China in 2004. It rejected the $200M acquisition offer from Amazon and got listed on NYSE in 2010. At its peak in 2010, DangDang sold $1.5B of books annually. Things started to change from 2010, when JD launched its book category and DangDang started to expand to others. With its strength in logistics and capital, JD offered one-day delivery and 20% cheaper price. On the other hand, DangDang relied on third-party logistics and rejected investment offers from Baidu and Tencent, and Tencent turned around to invest $215M into JD. DangDang has not ceased operation yet. However, it already delisted itself in 2016 and became a small online book seller on T-mall. Recently, the founder’s son is suing his father, which is another longer story… Major factors of failure: Founders are too profit-driven, that they focused too much on short term net profit. Founders wanted too much control over the company, that they rejected the good money and partners. It’s probably because the founders are married to each other and they consider this a family business. DangDang did not realize the importance of logistics. DangDang only had the team that was good enough to sell books, the easiest product to handle. Online Department Store   Mecox Lane (麥考林, NASDAQ: MCOX) Incubated by Warburg Pincus in 1996 and heavily backed by Sequoia (which held 63% as of IPO), Mecox Lane was the first Chinese B2C Ecommerce to went public in US, whose market cap reached $989M on the first day. Targeting at female shoppers, it offered a wide selection from apparel to home products. It was the only company in China with the following three sales channels: Internet, physical stores, and phone+mail order. The year it went public, 2010, was the peak time of its revenue, net profit, and valuation. It generated $227M of revenue and $4M of net profit in 2010, but it never made a profit ever since. It went private in 2016 at a valuation of approximately $200M. Major factors of failure: Mecox Lane was exposed that it had reported fake revenue and key metrics. Its mail order business became a costly legacy, while its offline retail stores did not generate any synergy with it EC business. It faced fierce competition from upcoming brands that also target at female shoppers. 3C (computer, communication, consumer electronics) Newegg China (中國新蛋網) Founded by Taiwanese American Fred Chang in Los Angeles in 2001, Newegg achieved profitability from its first year, reached revenue of $1.3B in 2004, and had a annual retention rate of 70%. It was one of the first ECs to combine forum community and ecommerce online. The founder of JD was one of the suppliers for Newegg US back then. And the founder of Yixun, which is the next company I’ll introduce below, was the head of Newegg China. Fred Chang was quite conservative that he rejected VC funding and refused to provide much resource for Newegg China, even though Newegg China achieved $9M revenue in its first year in 2005. At the same time, JD had also pivoted to 3C focused EC, but it only achieved $1.5M revenue in 2005. It is not fair to say Newegg US is a failure. In fact, it claims to be the second largest B2C Ecommerce in US, although its GMV is less than one tenth of Amazon’s. On the other hand, Newegg China has already been forgotten by consumers. Major factors of failure (of Newegg China): 2005: Newegg prioritized its business in US. 2009: Although it had increased its investment in China market for a few years and even had a chance to beat JD, it decided to prioritize its IPO in US and cut down its capital support for Newegg China. Yet, its IPO in US was not realized. 2011: It once again tried to go public (and failed), and it didn’t allow Newegg China to grow without profitability. 2012~: The last three heads of Newegg China were always asking for resource and challenged Newegg US, but this new head arrived and chose to not ask for additional resource and not report any problem. As a result, Newegg China has been shrinking up to this date. Yixun (易迅網) Unable to get resource from Newegg US, the first head of Newegg China quite his job and started his own 3C focused Ecommerce in 2006. This China Internet unicorn continued to be the number three player in this field, behind JD and Newegg China, until it finally beat Newegg China in 2011 to become number two. Yixun never raised fund until 2010, when it received investment from Tencent. Tencent increased its stake gradually and finally acquired Yixun in 2012.  However, even though Yixun was backed by Tencent’s capital and its users, it couldn’t surpass JD. In 2014, Tencent invested in JD and merged Yixun into JD. The founder of Yixun announced to leave the company. Major factors of failure (i.e. failed to beat JD) Yixun did not raise fund early on, while JD built out its logistics and marketing strategy with VC’s funding. Yixun’s founder, probably affected by Newegg’s founder, focused too much on profitability instead of growth. Yixun highly focused on a certain geographic area for a long time, while JD expanded to entire nation much earlier on. China Internet Unicorn Conclusion: This article simply summarizes the stories of these failed startups and China Internet unicorn that were told in public. It might be more beneficial if you look deeper into one of these startups and learn from it. For upcoming articles, we will share more subjective analysis on these startups and our own lesson learned from these analysis. If you would like to help us improve these lists or get these lists in other formats,  please "Like" our Facebook page and reach us at Facebook Messenger. The Future Is Unwritten.

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  • Jonathan View (Eng)

    All China Unicorns between 2014 and 2020 (Part I)

    15 min read Hi, I am Jonathan Hayashi. After graduating from University of Rochester with double degrees in Optical Engineering and Financial Economics, I worked in one of the top 3 investment banks in Japan, SMBC Nikko. Later on, I joined one of the largest VC firms in Japan, SBI, and took charge of growth stage investments in Blockchain, Fintech, and AI Sector. I joined Cornerstone Ventures in 2020. All China Unicorns - Purpose of this article: As a venture capitalist who focuses on Greater Southeast Asia market, I want to get some hints on which sector to look at, by analyzing what kinds of startups have grown rapidly and/or received massive funding and became unicorns in a somewhat similar market, China.  And since timing is one of the most important factors in venture investment, I also want to find out in what order that each sector has seen a rapid growth. On the other hand, I will point out the companies that had been shut down, despite their unicorn status, and study their failures in future blog articles. I also hope that the potential entrepreneurs in Greater Southeast Asia as well as people who are interested in working at startup companies could start thinking about which industry or sector they should enter.    ------------------- All China Unicorns - Part I and Part II, III, IV, ... : For part I, I will simply consolidate the lists of unicorns I found through my research, and provide basic information for each company. For later on, I will tag each company with multiple labels, such as “fintech”, “vertical EC”, “established by large corporates”, “established in less than 3 years”, “merged with competitor later on”, etc., and visualize the result with charts and graphs. ------------------- Background: Large tech companies in China that had been well established by 2014 (USD) Year 2013 Now Revenue (2013)  Net Profit (2013) Market Cap (2013/12) Revenue (2019) Net Profit (2019) Market Cap (2020/07) Baidu $5.3B $1.7B $61.1B $15.4B $0.3B $45.6B Alibaba $6.7B $2.8B $38B $72.0B $19.8B $713.0B Tencent $9.8B $2.5B $117.2B $54.1B $13.5B $685.4B Huawei $39.6B $3.4B - $122.7B $8.9B - Xiaomi $4.4B $0.6B ~ $40B $29.4B $1.7B $57.5B PingAn $68.1B $4.6B $60.4B $166.9B $23.5B $211.4B Qihu 360 $0.7B $0.1B $10B $1.8B $0.9B $20.4B All China Unicorns - Companies that already became Unicorns before 2014: Companies that became Unicorns in 2014: All China Unicorns - Companies that became Unicorns in 2015: All China Unicorns - Companies that became Unicorns in 2016: All China Unicorns - Companies that became Unicorns in 2017: Companies that became Unicorns in 2018: All China Unicorns - Companies that became Unicorns in 2019: All China Unicorns - Companies that became Unicorns in 2020: Last but not least: If you would like to help us improve these lists or get these lists in other formats,  please "Like" our Facebook page and reach us at Facebook Messenger. The Future Is Unwritten.

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  • Jonathan View (Eng)

    Weekly News (2020.8.12 ~ 2020.8.19)

    5 min read Hi, I am Jonathan Hayashi. After graduating from University of Rochester with double degrees in Optical Engineering and Financial Economics, I worked in one of the top 3 investment banks in Japan, SMBC Nikko. Later on, I joined one of the largest VC firms in Japan, SBI, and took charge of growth stage investments in Blockchain, Fintech, and AI Sector. I joined Cornerstone Ventures in 2020. English version: 【Institutional Investors】 The world's largest digital currency asset manager Grayscale raised $217 in one week after its debut of national TV commercial. (Details) And Grayscale's trust crypto products begin trading publicly on  OTC markets. (Details) Nasdaq-listed software firm MicroStrategy, whose major shareholders include BlackRock and Vanguard, purchased $250M in Bitcoin. (Details) Famous crypto fund Pantera has raised $165M for Fund III. (Details) 【Large Crypto Exchanges】 CME becomes the third largest bitcoin futures exchange, behind OKEx and BitMEX, as institutional investors put more money in. (Details) Coinbase will allow US individuals to borrow fiat loans against as much as 30% of their bitcoin holdings. (Details) Crypto exchange INX plans a $117M IPO in US with a small Israeli underwriter. (Details)  【Regulation / Compliance / Government】 Singapore’s central bank backs a code of practice that is released by a crypto industry NPO, which focuses on AML and KYC. (Details) US prosecutors seize Bitcoin that allegedly tied to AL Qaeda, ISIS, Hamas. (Details) Blockchain analytics firm Elliptic teams with crypto transaction storage platform Fireblocks to automate AML compliance for institutional clients. (Details) Investing app Wealthsimple (known as Canada's Robinhood) enters Canada's crypto sandbox. (Details) China plans a major expansion of testing for its CBDC Yuan, in cities including Hong Kong and Macau, with companies like Tencent, Meituan-Dianping, Bilibili, and Didi.  (Details) 【Blockchain Application】 Japan's Keio University partners with major bank MUFJ, major insurance SOMPO, and Sumitomo Life to launch STAR, a blockchain based platform for students (job candidates) and corporate HR (recruiter) to exchange personal information. (Details) SOMPO partners with LayerX to test instant payout for various insurance, using smart contract. (Details) Korea's tech giant Kakao partners with private stock trading platform Angel League to issue digital ID card on its public blockchain Klaytn. (Details) Walmart partners with shopping loyalty platform StormX to provide cashback on shopping using crypto. (Details) The Future Is Unwritten.

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  • Jonathan View (Eng)

    Book recommendation: The Innovation Stack

    7 min read Hi, I am Jonathan Hayashi. After graduating from University of Rochester with double degrees in Optical Engineering and Financial Economics, I worked in one of the top 3 investment banks in Japan, SMBC Nikko. Later on, I joined one of the largest VC firms in Japan, SBI, and took charge of growth stage investments in Blockchain, Fintech, and AI Sector. I joined Cornerstone Ventures in 2020. Target audience for this book and this recommendation article: People who are interested in having their own business, but not sure what is the difference between an entrepreneur and a business-owner People who already started a business, but not sure when to copy and when to innovate People who have resource to invest in startups, but not sure what kind of companies can compete with and beat Amazon, which was what the author of this book did.   Background of The Innovation Stack the book: Author: Jim Mckelvery (1965/10/19~ ) Serial entrepreneur. Glassblowing artist. Hired Jack Dorsey (CoFounder of Twitter and Square) as an intern in Disconcepts, his CD cabinet manufacturing company. CoFounder of Square, Disconcepts, LaunchCode (a NPO to nurture new programmers), Cultivation Capital (VC based in St. Louis), Third Degree Glass Factory (Glassblowing studio). Jim cofounded Square with Jack Dorsey, which became one of the very few companies that beat Amazon in competition. After leaving Square, Jim spent more than 3 years to conduct research and interviews to finally figure out, why he won in the battle against Amazon. Some of Jim’s message in The Innovation Stack: The word “Entrepreneur” has lost its value because of overuse. It used to refer to rebels, explorers, and crazy people who leave the walled city into the wild. Now it just refers to any businesspeople who own a business. End of a market is where entrepreneurship begins. The end of a market represents a standoff between the costs to produce a product and what people are willing to pay. The end of a market is like a border that nobody is able to cross or a wall that separates the city and the wild. Don’t innovate just for the sake of innovation. Only innovate when you have to.  Find a perfect problem that you truly care about and try to solve it by copying everything you could. Only innovate when you could not find any example to copy from. The phrase “so we have to” repeated like a cult benediction during the early days of Square: 「We want to allow millions of small business to accept credit cards for the first time, so we have to make it easy to sign up.」 「We need easy sign-up, so we have to design simple software and eliminate paper contracts.」 「We have millions of people signing up, so we have to keep our customer service costs down.」 Innovation Stack: the problem with solving one problem is that it usually creates a new problem. Thus, you need a collection of innovative solutions, not just a single one. Jim went on to apply his theory above to his own company Square, and also apply it to The Bank of Italy (now Bank of America), IKEA, and Southwest Airline. Jim also points out Square beat Amazon by “doing nothing at all”. If you’re curious, read the book! It will be worth your time.   My thoughts on The Innovation Stack:  This book has answered so many questions that I used to have. For examples: “Should a lawyer who started his own law firm be considered an entrepreneur?” “If a startup’s solution solves a problem that the incumbent solution couldn’t solve, but on the other hand the startup’s solution couldn’t solve another problem that the incumbent solution can solve, is the startup providing a good solution?”  “Why do some innovations create value, while some other innovations are rather meaningless?” The book is also a wake-up call for me.  In the last few years, there are too many “businesspeople”, who present themselves as “entrepreneurs”, and try to raise fund from VCs. Starting an existing business in an existing market is like stepping into a crowded elevator:  the occupants won’t welcome your arrival, but they will adjust and make some room. It’s like starting your own restaurant: you don’t have to invent a thing. Find a decent location; hire some good chefs; buy your tables, food, linens, insurance and all the other stuff from the same dozen suppliers everyone else uses.  It sounds obvious that a restaurant is not innovating, but it is much more subtle when a software company or co-called tech company is just copying what everyone else is doing to enter an existing market. My key takeaway of how to build a successful innovative company: Find a perfect problem that you truly care about. Copy everything that you could to solve this problem. When there’s no existing solution to copy from, start innovating. When one innovation creates a new problem, solve that problem with another innovation. Keep doing it until you have a collection of innovation, an innovation stack, that can truly solve the core problem you were trying to solve. The Future Is Unwritten.

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  • Jonathan View (Eng)

    Myths about Series B

    7 min read Hi, I am Jonathan Hayashi. After graduating from University of Rochester with double degrees in Optical Engineering and Financial Economics, I worked in one of the top 3 investment banks in Japan, SMBC Nikko. Later on, I joined one of the largest VC firms in Japan, SBI, and took charge of growth stage investments in Blockchain, Fintech, and AI Sector. I joined Cornerstone Ventures in 2020. Target audience of this article: Startups who have raised their Series A from VC and are planning to raise their Series B Startups who have been trying to raise their B round, but it’s not going well Purpose of this article: As I have made investments in Series B deals as both lead investor and follow investor, and as I also exchange views with other growth stage VCs, I would like  to reduce the misunderstanding or wrong idea that some startups might have, when it comes to Series B. Basics of fund raising: If you are my target audience, I assume you already understand the basic concepts such as Series, Valuation, Pitch, Due Diligence, Closing, etc. If not, our articles and this page might be helpful. Yet, lots of information online are not written by VC, but by journalists or researchers, so they might be describing how Series B in general looks like to them. Myth: A company is “supposed” to raise about XX million USD in Series B There is no such thing as a generally appropriate range of amount to raise in any round. They can be any number. Airbnb, for example, raised a massive $112 million Series B in 2011. Snapchat's 2013 Series B was also notable, coming in at $80 million. But Palantir only raised $10.52 million in Series B in 2006 and even Uber, well known for its capital intensive moves, only raised $38 million.(Source: Techcrunch) Ant Financial raised $4.5B in Series B! On the other hand, Paypal only raised $23M.  There are several ways to make sense of how much to raise, and the following are the most common among the pitches I have heard The company is growing rapidly and will hit the next Series C milestone in 12~18 months, and the amount of fund that needs to be raised in Series B should be sufficient to fuel the company's growth and expansion for 18 months. The company will have a second product, so it needs to raise an amount that is enough to cover R&D or obtaining licenses/approval. The company can break even in a foreseeable future, let say 10 months, and it just need to raise 10 months of working capital to cover the short term cash burn. There isn't one generally accepted way to calculate how much a startup should raise. It depends on the industry, the market, the competition landscape, the business model, etc.  Also, different entrepreneurs and investors believe in different philosophy on this topic. Myth: Lots of VC firms invest in both A and B rounds, so Series B investors pretty much have the same mindset as the Series A investors Even if a venture capitalist does regularly invest in both Series A and B deals, he/she values very different aspects of the startups at different rounds. Of course, different investors have different investment philosophy, and I cannot tell in general what Series B investors care about the most. However, below are some observations that I would like to share with you: At this point, the investors are not investing in the Team, but in the Business. If necessary, they might even appoint a different management team to run the business. CVC (Corporate Venture Capital) love growth stage B rounds, as it appears to be the perfect stage for the startups to work on synergy with large corporates. CVC do not care much about financial return or exit of the equity investment per se. Instead, they conduct intensive technical due diligence and arrange many meetings between the business unit teams and the startup. Financial investors like independent VCs, however, would want to hear a clear path to exit in your Series B pitch Myth: If I raise a massive Series B from prestigious VC, I can start relaxing a bit If anything, it's the opposite. You need to arm yourself even more. According to CBInsights, there were 322 rounds of Series A in US in 2019, but only 208 rounds of Series B. It might be human nature to loosen up after a intense battle and a great achievement. However, in fact, the more your raise, or the higher the valuation you set, or the more prestigious your investors are, there will be more pressure sitting on your shoulder to achieve growth and exit. To make matters worse, now you are famous, people will start critically looking for bugs or imperfections in your service Here are some examples of startups that failed, after raising successful their B rounds: Juicero, which raised $70M from GV and KPCB in 2015, shut down in 2017, as Bloomberg and Youtubers posted videos showing how its juice machine was a fraud. NextVR had a great product, with a decade of experience marrying virtual reality with sports and entertainment and provides these VR experiences on headsets from PlayStation, Oculus, HTC, Microsoft, Lenovo. It raised $80M in Series B from CITIC, Comcast Ventures, Time Warner Investments, but failed to raise its Series C later on, and sold itself to Apple at a valuation of $100M, which is even lower than the total amount of fund it has raised. Betterplace's $350M Series B was the largest venture funding round in 2010. Yet, it was close three years later. There are lots of great articles online that analyze why Betterplace failed while Tesla is going great. OneWeb, a company with great vision to build a space-based global communications network, raised $1.2B from Softbank Vision Fund in Series B, filed for bankruptcy in March 2020. One piece of advice: One of the best ways to have a correct understanding on Series B, might be developing a close relationship with VC that have invested in your Series A, and think about how to raise your B round in together with them. The Future Is Unwritten.

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  • Jonathan View (Eng)

    DeFi: From the basics to the latest, as of 2020/6

    5 min read Hi, I am Jonathan Hayashi. After graduating from University of Rochester with double degrees in Optical Engineering and Financial Economics, I worked in one of the top 3 investment banks in Japan, SMBC Nikko. Later on, I joined one of the largest VC firms in Japan, SBI, and took charge of growth stage investments in Blockchain, Fintech, and AI Sector. I joined Cornerstone Ventures in 2020. Target audience of this article: Startups,future entrepreneurs, and investors who have interest in crypto and blockchain. Anyone who saw “DeFi” in recent news and wondered what it is. What is DeFi: The word DeFi, abbreviation of Decentralized Finance, can be referred to as a broad definition and a narrow definition. In a broad context, DeFi can be any decentralized application that is related to financial service/product, or any protocol that supports these applications. In a narrow context, DeFi is P2P lending on blockchain. Some media also describes companies like Celsius Network and BlockFi as DeFi, but to the best of my knowledge, they conduct a centralized fintech business using crypto, which is great, but shouldn’t be included in this category. History of DeFi: The community of DeFi movement was formed on Telegram in around 2017, and an annual event called DeFi Summit was held for the first time in 2018/10. The first DeFi project was DAI by MakerDAO, launched in late 2017. (Details in next section.) Some major DeFi projects and latest news: MakerDao a decentralized organization built on Ethereum to allow lending and borrowing of cryptocurrencies without the need for a middle man. made up of a smart contract service that manages borrowing and lending, as well as two currencies: DAI and MKR to regulate the value of loans. With the DAI, MakerDAO is the first attempt at creating a decentralised stablecoin based on pawned Ethers. You put down ETH as collateral, and the system, not any centralized corporate or organization, issues DAI to you. When the collateral of a loan drops below a certain point --- meaning the price of ETH has dropped too far below the amount of DAI borrowed --- the loan is liquidated. In other words, the ETH being used as collateral is sold off to repay the borrowed DAI plus penalties and fees. MakerDao has raised $12M with equity from world-renowned venture capital firm Andreessen Horowitz and others. In September 2018, Andreessen Horowitz invested $15 million in MakerDAO to buy 6 percent of the total Maker (MKR) token supply. It was the first investment for the firm's $300 million a16z crypto fund. In MakerDAO's Forum, there is ongoing discussion from April 2020 to include real-world asset like tokenized invoice and other fixed income as potential collateral. MKR was up 30% in June 2020 after MakerDAO community’s vote in favor of introducing tokenized “real-world” assets as collateral for Dai loans. In May 2020, MakerDao's community voted to include WBTC as acceptable collateral to open Maker Vaults in order to generate Dai, and also to include TUSD in June 2020. WBTC's market cap has increased 3 times in less than a month. MakerDAO, along with Lightning Labs, Elliptic, and Ripio, is selected as one of 100 tech pioneers in June 2020 by the World Economic Forum. Bitfury was one of the blockchain startups on the WEF's list last year. Ripple was also recognized by the forum in 2015. Total Value Locked: USD 494.7M (as of 2020/6/19) Market Cap of MKR: USD 531.5M (as of 2020/6/19) Compound Launched in September 2018, Compound is an algorithmic money market protocol on Ethereum that lets users earn interest or borrow assets against collateral.  Unlike MakerDao that only accepts ETH, BAT, WBTC, USDC and TUSD as collateral, Compound now supports BAT, DAI, SAI, ETH, REP, USDC, WBTC, and ZRX. Many users use ETH on MakerDAO to borrow DAI, and use DAI as collateral to earn interest. Unlike Tether Inc., Compound has been audited and formally verified. Compound has raised $33M across Seed round and Series A, where Andreessen Horowitz was the lead investor in both round. In February 2020, Compound announced it will consider issuing its' governance token COMP, and published the detailed distribution plan of COMP in May 2020. On this Monday, June 15, COMP was launched. Within 24 hours, the market cap of this new token had exceeded that of MakerDao, which already existed for more than 3 years, and became the largest DeFi token by market cap. By supplying other cryptocurrency as collateral, users can received newly issued COMP. Users can vote on governance topics with the COMP they have. Total Value Locked (TVL): USD 340.1M (as of 2020/6/19) Market Cap of COMP: USD 1,604M (as of 2020/6/19) Dharma With commercial launch in April 2019, Dharma started as an Ethereum-based fixed-interest fixed-duration peer-to-peer lending platform, competing with Compound. Yet, it pivoted in late 2019 and adopted Compound’s protocol to provide a variable interest rate savings account, aiming to become a crypto bank. Dharma has raised fund from Y Combinator, Coinbase, Polychain, and Ripple.                                                                          . If you are interested in this topic, here are some other DeFi projects, protocols or applications, including DEX (Decentralized Exchange), that you can look into: Aave (LEND), SET Protocol, Balancer, Augur, Gnosis, Numerai (Erasure Protocol), 0x, Amoveo, Synthetix. Total Value Locked in DeFi & Top 100 DeFi Tokens by Market Capitalization Source: https://defipulse.com/ (as of 2020/6/19) Source: https://defimarketcap.io/ (as of 2020/6/19) Lastly The bottleneck of mass adoption for DeFi might be a combination of the lack of trustworthy and correct knowledge about it, the lack of ways to spend the return, and the difficulty to estimate the actual return considering the high volatility. Also, to be honest, unlike the traditional centralized system where the borrowers actually borrow money to create real-world value and repay with interest, the current DeFi system is able to generate return for lenders mostly because of the rather random appreciation of price of the cryptocurrencies. Yet, just like there were lots of fraud and speculators when the system of corporation, stock market, and Internet just came out, I personally think this will only be a short phase, and DeFi will benefit human beings over a longer period of time. The Future Is Unwritten.

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  • Jonathan View (Eng)

    Practical Advice on How to Raise Fund from Foreign VC

    10 min read Hi, I am Jonathan Hayashi. After graduating from University of Rochester with double degrees in Optical Engineering and Financial Economics, I worked in one of the top 3 investment banks in Japan, SMBC Nikko. Later on, I joined one of the largest VC firms in Japan, SBI, and took charge of growth stage investments in Blockchain, Fintech, and AI Sector. I joined Cornerstone Ventures in 2020. Target audience of this article: Founders as well as employees who are interested in how to raise fund from foreign VC in foreign countries for their startup companies Local financial advisors and local early stage investors who want to help their clients or portfolio companies to raise fund from foreign VC Purpose of this article: As I have executed a significant amount of investments in oversea startups, I would like to share some practical advice to startups on how to raise fund from foreign VC and how to make the process more efficient. I also have experience making investments without physically meeting the founders or visiting the startups' offices. If you are raising funds under the current COVID-19 situation, (or even after the situation is settled,) I hope you can get some hints on how to execute this process from my own experience. First question to ask yourself: Should you raise from foreign VCs? As you can imagine, compared to raising from a local VC, there are some drawbacks in raising funds from foreign VCs. I'll just list a few of them: The speed and quality of communication before/during/after the investment might be frustrating. The network and resource that the foreign VC can provide might not be very relevant. The capital cost as well as the time cost to deal with due diligence and closing might be high. However, foreign VCs can for sure offer some unique values: They might have invested and supported other companies who operate a similar business as yours, but in a different market. Some CVCs' (corporate venture capital) parent companies might run a similar business themselves. Thus, they can share with you what problems you might face, how to solve them, and how to expand your business, etc.They might be located in a more mature capital market, so they can invest with larger ticket size. They can help you break into their market, which would be an oversea market for your business. Lastly, even if you think you need to raise from foreign VC, you should consult with your attorney or legal team on whether there is any regulation in your country that is related to foreign capital. If you are sure about raising from foreign VC, you should perfect your pitch To raise from foreign VC, you need to be able to  Pitch within a one-hour video call, including Q&A Present firmly and clearly in English  To achieve so, I recommend you to Keep your deck shorter than 15 pages of slides. But you can include some more slides in Appendix for Q&A  Finish your pitch in less than 40 minutes. Leave time for Q&A. Practice, practice, practice. Prepare your response to any possible questions, and try to keep your answer short. Make sure you explain What problem you are trying to solve? Do conduct research on whether the problem exists in other countries too. If not, make sure you explain why the problem exists in your country What are the incumbent solutions, who provides them, and what is your solution? Some incumbent players might be large and well-known in your country, but not so much in others. A one-sentence explanation of them would be great.  You may use an analogy to let the foreign VC know what you do. Eg. “Lazada in SEA is as to PChome in Taiwan” or “It's Uber for XXX sector.” How big is the market? Both the current market and the potential market in the future. How is your traction?  Analyze and explain the characteristics of your clients/users. They might be very different from those in other countries. What is your revenue model and go-to-market strategy? Different countries/markets have different characteristics, and by the time you pitch to foreign VC, you should already figure out and be able to explain what revenue model and strategy will work the best in your market. What is the forecast of your business? Once your deck is ready, you can approach them by … : Asking your existing shareholders or connections for referral Preferably, a prestigious local VC / incubator / accelerator / angel investor Your entrepreneur friends who have raised from foreign VC would be a great start too Of course, financial advisors can make the introduction, but they won't do it for free. Attending events  My advice would be: attend the sector-specified events and the small investor-matching events. It would be more effective than attending large generic events, if your goal is purely getting connected to foreign VC Reaching out to government and embassy Sometimes they facilitate business matching or simply make introductions via emails. Yet, they are not incentivized to be proactive, so you should be. Utilizing social media, like LinkedIn Don't send long boring messages. At this point, you do not need to have the VC fully understand your business. You just need them to be interested. Short bullet points of some highlights of your company would be great Ex. MoM growth, number of clients/users, prestigious partners/investors … etc. After first pitch call, if the foreign VC is interested and starts to set up follow-up calls: Make sure you are on the same page regarding the fund-raising timeline Ask the foreign VC regarding their process of decision making Establish a reasonable and mutually agreed timeline of When to kick off DD (due diligence) When to complete DD When to hold the Investment Committee (or any other decision making process) When to sign a term sheet When to close the deal There are cultural differences between countries on how to communicate and get things done. Therefore, do not assume the common practice in your country can be applied to the foreign VC.  Make sure your data room is tidy. Use data rooms like Intralinks, Dropbox, Carta, Box, Google Drive, and Microsoft OneDrive, instead of file transfer services like Docsend, WeTransfer or Transfernow. Either save your files in an order that matches the foreign VC's DD list, or provide a separate guideline on where to find each file requested by the foreign VC's DD list Share the following items early on, maybe during DD, would be helpful Materials that explain the corporate governance structure, basics of corporate law, regulation on foreign capital, etc. of your country. Your company's MoA (Memorandum of association. Might also be called AoA, Constitution, etc. in different countries)  Investment related agreements (ex. SSA, SHA) of last round, if it is fine with your existing shareholder. Sample agreements would be great too. The idea is not to check the actual term, but just to check the major differences in investment agreements between your country and the foreign VC's country. Maybe slightly adjust your daily schedule matching your foreign VC's time zone During closing: Schedule management becomes even more crucial than during the DD process Ex. When to circulate the first draft of agreements; When to provide the first review; When to set up a call to go through the comments and changes; When to sign; When to initiate wire transfer, etc. There are some additional steps that local VC can skip, while foreign VC might need to complete Set up SPV (Special Purpose Vehicle) or other entities, due to regulatory reasons “Local check” for the legal documents This means hiring a local law firm to review the legal documents. Usually this is required when the original legal documents have to be written in a local language that is not English. Application for tax exemption or regulation exemption Preparation for foreign currency conversion Conclusion on how to raise fund from foreign VC: If there is only one takeaway for you from this article, I hope it could be this one: The communication would be frustrating, the culture and common practice would be different, and there would be additional steps that might need to be completed. Thus, make sure both you and the foreign VC are working within a reasonable and mutually agreed timeline. As described throughout this article, raising from foreign VC will be more time consuming than raising from local investors. I would suggest kicking off the due diligence process with at least 6 months of runway.  If you are interested in Taiwan Market, Cornerstone Ventures will be happy to be connected. My colleague Samuel has written several articles regarding Taiwan market. If you are interested, give them a read! The Future Is Unwritten.

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