Author: Lei Jianping
INCE Capital (“INCE”), co-founded by JP Gan and Steven Hu, former partners at Qiming Venture Partners, has successfully closed its first fund with US$ 351.888 million in capital commitments.
JP Gan（甘剑平） and Steven Hu（胡斌） were interviewed by Lei Jianping, Founder of LEINEWS.COM.
An excerpt from the interview is as follows:
(“Lei” stands for Lei Jianping, “Steven” for Steven Hu, and “JP” for “JP Gan”)
Lei: How did you come to found INCE together?
Steven: We have known each other for 15 years. We first met at Kongzhong Corporation in 2005. He was CFO and I was Founding VP. In 2009 when I joined Qiming Venture Partners (“Qiming”), JP had already been a partner there. At that time, Qiming was promoting its second fund. Five years after I worked with Qiming, I was appointed as CEO of an A-Shares listed company. And four years after that, I returned to Qiming, which marked my third time working together with JP. So INCE is our fourth time of working together. We are co-workers during eight out of our 15-year relationship. So we know each other well.
Lei: Can you share with us your experience in the fund-raising?
JP: Steven and I stayed in the US for two weeks. For one week, we drove to raise money, and for the other week, we flew to do so.
Steven: During the two weeks, we worked 10 days, held 24 LP meetings, traveled to 17 cities in 13 states, took 11 flights and 2 trains, and drove 2,400 km on our own. It was a packed schedule.
The Internet sector still offers many opportunities.
Lei: JP has invested in many great projects, such as Meituan, whose worth now is over HKD 500 billion, BiliBili and Zhihu. But many are saying that the Internet sector’s dividend is disappearing in China. What’s your opinion on that?
JP: I do not share those people’s opinion. First of all, China is the world’s second-largest economy, still offering many investment opportunities. I see a future with increasing, rather than shrinking, opportunities.
The so-called Internet dividend disappearance may refer to the fact that almost everyone is holding a smartphone and surfing online. But many new Internet social and media platforms are emerging, even e-commerce has a long way from full coverage. There will be more emerging opportunities. Moreover, as the GDP climbs up, people will spend more time on the Internet.
Many young American users are becoming less willing to spend time on Facebook. They are seeking other platforms to express themselves and meet friends, old and new.
I have spotted a similar phenomenon in China. The young generation is looking for new platforms where they can meet friends and be provided with novel and fun functions. Therefore, we think highly of such fields as Internet community, social media, etc.
For the last ten years, we have held firm in the faith that there will be more emerging companies in China, which will create many opportunities. We still cling to the faith now. As the Internet has become an underlying framework, many opportunities will turn up. The current Internet has grown into a tool essential to commerce and enterprises.
I believe that in the future, an enterprise which shuts its door on Internet technologies such as big data and AI will be sifted out.
China’s overseas explorers will settle their R&D centers home.
Lei: More and more Chinese entrepreneurs and investors are laying eyes on overseas emerging markets, such as Africa and Southeast Asia. What's your take on this trend?
JP: Internet always relies on user growth. It is easier to obtain new users in some overseas markets.
China's product managers and entrepreneurs can feel less competitive in such overseas markets.
Meanwhile, China is delivering 2 million technology graduates each year. A great number of them are software engineers and electronic engineers who are able to write codes and program software right away. Such a large number of hi-tech talents gives China an incomparable advantage.
Therefore, I believe many start-ups will set up their R&D centers home and hire Chinese engineers and product managers to serve overseas markets.
Lei: you are called a “Unicorn Hunter” and you have been repeatedly named a top venture capitalist by Forbes, with the ranking going up. How would you describe your investment philosophy?
JP: One is faith. I firmly believe that many opportunities will emerge from Internet consumption and TMT in China. The other is focus. We always stick to the principle that we will not invest in something we are not familiar with, nor in something beyond our stage.
We have been delving into the Internet consumption industry and will keep doing so hereafter. With our faith and focus, plus a bit of luck, IQ and EQ as well as hardworking, we have managed to obtain what we have now.
China is more failure-tolerant than before.
Lei: What are the differences between the current Internet start-ups and those of ten years ago?
Steven: I noticed several differences:
First, higher requirements for founders. Higher requirements have now been set for both VC and founders.
For example, ten years ago, it was us who taught CEO business models. Now it’s the other way around. Founders are obtaining more management experience, including learning from listed companies.
Second, more funds and more exit channels. Companies now can choose to go public at home or abroad through multiple channels, including SSE STAR Market, HKEX, and Nasdaq.
Even the primary market is providing more exit channels than before. Though giants have made defensive investments in many fields, they are also the best buyers, including some late-stage PE funds.
Exit channels are more flexible now for both founders and early-stage VC.
A good business model will always attract funds. So, in general, the current business environment is much better.
JP: I agree. Recent years mark a golden age for start-ups in terms of either the amount of funds or the number of investors. A dozen years ago, the Internet and IT industries may be the only fields where startups can emerge. Now such probabilities are available to medicine, healthcare, media, etc., with more people joining in. And people now are more tolerant of failure.
Favoring courageous and capable entrepreneurs
Lei: Since 2018 China's economic situation has been posing challenges to startups and investment. What's your opinion on the current environment?
Steven: the main challenges have already shown up. Next, the difficulties in financing may become more obvious.
This year has seen a big decline in the total number and amount of US funds raised, compared with last year and the year before. Many entrepreneurs will face more difficulties in the next round of financing. The major challenge for them lies in their ability to manage cash flow. Future investors care for not only an enterprise's revenue size, but also its profitability. They will set a higher standard for cash flow management. So, cash flow management will be a top priority for entrepreneurs.
JP: We are more willing to invest in startups which devote themselves to technology and efficiency and compete in the market by virtue of true capabilities rather than existing resources and government connections. Facing an economic downturn, more enterprises will rely on technology such as AI and data analysis to improve efficiency and conduct business in a more accurate way.