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Gobi View: Ken Xu, Managing Partner of Gobi Partners – “Challenge” the Internet

No one is created by history, but all are chosen by it.

Managing Partner of Gobi Partners, Ken Xu. 

In Xu’s opinion, the venture capital industry is a very unique one, in that you are exposed to new things every day.

Ken Xu joined the venture capital industry in 2003 through Gobi Partners, focusing on the Internet and mobile Internet fields etc., and is regarded as one of the industry’s earliest “pioneers.” Commenting on his choice of entering a venture capital firm back then, Xu explained that his biggest motivation was influenced by his previous job of working in a startup where he first learned about VC. At the time, he was curious as to why some people were willing to give out large sums of money to companies that didn’t seem likely to profit in the short term. This prompted him to follow the industry closely for a long time, until he was finally given the opportunity to enter the industry, when he returned to China with a Master’s degree in Economics and Finance from the University of York, in the United Kingdom. Curiosity was what brought him into VC, and still is the main reason why he remains in this industry until this day.

Since joining the VC industry, Xu has not changed jobs for more than a decade, and many say that he is very stable and dislikes change. However, as far as Xu is concerned, the question of whether a job is interesting enough to arouse his continued enthusiasm and interest is key. To Xu, the VC industry is a very unique one in that you are always exposed to new things every day. On the other hand, curiosity towards a company’s management is also why he is still passionate until now, as this allows him to constantly discover new management systems of a company, and establish a good partnering relationship with clients.

Things often change with each passing day. According to Xu, changes in the industry or the future development of the portfolio companies, even the changes in the entire market are all very challenging, and this matches his personality traits. He recalls that, “When I first graduated, I was constantly changing jobs, three or four times. The key reason was that I just couldn’t find a job that was interesting or challenging enough.”

 “I can recall that, ever since primary school, I have skipped zhongkao and gaokao*, never taking any exams. After graduating from Tongji University, I talked to my family about this, and I realized something: I found the whole skipping process very boring: it was not challenging at all, and I felt like I had missed out a lot on the interesting parts of my life.” Xu continued, “This was probably my attitude towards studying. I have a lot of patience and endurance, and I can keep going for a long time, but the precondition is that whatever I’m doing must be interesting and challenging enough. There should also be enough incentive to show the progress and development displayed, no matter by my peers or myself – all this are more important to me.”

Commenting on his achievements in investing since joining the VC industry, Xu, as the Managing Partner of Gobi, said, “Basically, more than 70% of the portfolio companies have received follow-on funding, and we have achieved exits from more than a dozen startups in our portfolio. In terms of the whole industry, these results are quite good. However, this success only represents our past track record and has little to do with the future. I hope I can perform even better in the future, on the basis of this track record.”

When it comes to selecting a company to invest in an industry, Xu says, “I place more emphasis on the technology the startup uses, the unique offerings of its products or services, how innovative their business model is, as well as how capable their team is etc. This method is similar to what other VC firms consider, but what Gobi Partners does more of is quantitative comparison. Six years ago, we have set up our own screening system, which is able to thoroughly analyse projects. The collected and quantified data is “organically matched” with investments in the primary or equity markets. While such quantification cannot directly influence an investment transaction, it can help provide perspective on a company, and it can be helpful in conducting refined analysis on companies in different industries, which can make elements of the company clearer. I think this method of analysing a startup is a developing trend, as more people are paying attention to it.”

Most people like to talk about their successful investments, but for Xu, a less successful investment case study left the deepest impression on him. It was his first investment right after entering the VC scene, a company named LingTu Software. At first, things were going very well, the company receiving two huge follow-on funding after Xu’s investment, which included many large funds from the Silicon Valley. As such LingTu was considered to be one of the more efficient companies in fundraising at the time.

The company’s key business was navigation using digital maps, including autonomous driving. From the investment point of view, the company comes from the right industry and track, the company’s business model is working, ample funds are available, and the team looks capable, so it seems like a promising startup. However, Lingtu Software’s burn rate in key areas was too high, and they missed the best timing to bring its services to the market. Concurrently, the team was relatively localized, so the startup lacked knowledge about the international market, and reacted slightly slower in connecting with foreign capital markets. The company could have been listed, but in the end, it was instead sold off at a cheaper price to a company within the same industry.

 “To be frank, this company was not considered a failure in terms of returns for us, but personally it was quite disappointing, based on the potential for development of the company and the situation at the time.” Xu added, “This experience has led me to strongly believe in the saying ‘no one is created by history, but all are chosen by it.’”

As an early-stage investor, Xu is more concerned with the future development and trends of the industries he invests in, and selecting a field which is likely to boom in the future, although assuredly it might be under the radar right now. He aims to invest in the future, and although the startups he invests in may not seem to have the potential or may not seem so attractive at the moment, he is confident that as time goes by, the core value of his investments will eventually be demonstrated.

In terms of the future development of the industries invested, Xu believes that previously, the Internet played a greater role in connecting people, linking between people and things, or with specific processes. Now, with the development of science and technology, he believes that the whole dimension and breadth of those connections will become more diversified, expanding to the Internet of Things, no matter the Internet or artificial intelligence (AI). At the moment, although the amount of data that has been collected about these connections is plentiful, the dimensions of the data has yet to be expanded, and said dimensions will need to be diversified in the future.

Xu will next be focusing on traditional industries, as these sectors are the most likely to be transformed by the Internet; firstly, because they are relatively operating in an old-fashioned manner, and secondly because they are still relatively separated. Thus, the need for connectivity in these industries is more evident than in industries that were already founded during the Internet era. Moreover, the supply and demand in these traditional fields – in terms of how to create more value through increased efficiency – already exists, it just needs to be improved further, so these industries have more opportunities emerging. Within its portfolio, Gobi has several examples of the Internet reforming traditional industries, including Mychebao, Dianwoda, UR, and FarmFriend etc.

*zhongkao: Senior High School Entrance Examination in China; gaokao: National Higher Education Entrance Examination in China