StrictlyVC: August 12, 2015

Happy Wednesday, dear readers! Investor-writer Semil Shah remains in charge of our columns for another week or so while Connie plays “Galaga” at an undisclosed location. If you have questions or comments, you can find him right here on Twitter.

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Top News in the A.M.

Facebook is reportedly working on a stand-alone mobile news application that sounds a lot like Twitter. Business Insider has more here.

Amazon has quietly shuttered product ads that drove traffic to outside sites. Reuters has the story.

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Jenny Lee of GGV Capital of What to Know Now About China

By Semil Shah

Jenny Lee of GGV Capital knows China. She set up the Shanghai practice of the cross-border venture firm a decade ago, and her performance since earned her the number 10 slot on Forbes’s Midas List earlier this year. It was the first time a woman has broken into the list’s top 10 dealmakers and hers represented the highest ranking ever for a woman in the list’s history. (Among Lee’s prescient bets: Leading an investment in the privately held smartphone maker Xiaomi, which was valued at $45 billion as of last December — a figure that billionaire investor Yuri Milner has said will look quaint soon enough.)

We talked with her recently about what, exactly, is happening in her vast backyard right now.

A few weeks ago, the Chinese economy was the talk of the town. Can you summarize what happened and what we should expect moving forward?

The Chinese stock market, which is largely retail driven, took a dive for a few consecutive weeks and resulted in a series of panic selling. The government had to step in with measures to calm down the market, including putting a temporary halt on new IPOs, halting trading on [other stocks], and encouraging the state-owned companies to acquire shares of “undervalued” listed companies in order to restore confidence in the market.

It is important to understand that the Chinese stock exchanges are still relatively young, and over the years they’ve been steadily opening up and attracting more institutional investors similar to international markets. However, the transition will take time and investors in China will need to have a strong stomach for such fluctuations. For example, the IPO market has been halted more than 8 times in the last 20-plus years whenever retail frenzy takes hold. But from a long-term perspective, the direction is toward more openness and transparency and on cultivating an investor base that is more institutional versus retail driven.

How has the correction in Chinese markets affected early-stage entrepreneurship in China? Do you believe it could have any affect on what’s happening in the U.S.?

Historically, only traditional and local companies –stated-owned, manufacturing, etc. — have been listed locally. The markets have profitability listing rules that have made it harder or impossible for technology companies to fund raise or list in the local markets. But despite past events, early-stage entrepreneurship in China (which, interestingly is largely technology and internet driven) continues to flourish and we see a record number of startups every day.  Good quality companies will always be able to find a listing venue either offshore or onshore when they are ready.

I believe China entrepreneurship will continue to generate some of the biggest returns in tech history, and for those who are familiar with China and the China-based VC managers who have generated real returns for their investors, the market will continue to be a hot spot for fund inflows.

On a short-term basis, any impact in the U.S. will likely be felt most by the Chinese ADRs listed in the U.S. whose stock prices see huge downwards pressure when their investors take profits to fulfill their margin calls for their domestic positions in the China stock market.

What are three characteristics of the typical Chinese mobile consumer that entrepreneurs in the West don’t fully comprehend?

Chinese mobile consumers are not one homogenous segment but rather highly segmented by age, usage behavior, demographics gender, location, and more. A 14-year-old female teenager living in Anhui province is very different from a 40-year-old woman working in Shanghai. For example, companies can target the “average joe” segment, also known as “diaosi” users, or target the “aspiring” segment, also known as “baifumei.” Both are huge consumer segments in China.

Another thing: Chinese companies prefer the subscription model, virtual currency/ items, commerce model versus a pure ad-based model.  Most people do not consume ads online, especially on mobile.

Also worth noting is that a lack of a fully built-out offline retail and services in second- and third-tier cities in China means that many services and products are not available offline. Variety and convience factors are lacking. Hence mobile commerce is a very natural transaction-based value for users.  Thanks to Alipay and Tencent’s further efforts to tie users’ phones to payment providers, the ease of payment has greatly enhanced e-commerce, and anytime anywhere transactions via the mobile devices.

As a long-time observer of Baidu, Alibaba, Tencent, and Xiaomi, do you expect them to be acquisitive in the U.S. as a means of deepening their ambitions in America?

Yes, you will start to see more Chinese companies expand overseas after they have “conquered” enough market share in China. The question is not whether they will come but when they do come, how U.S. companies will feel about feeling acquired by a Chinese company.

How does the Chinese startup ecosystem perceive Silicon Valley today? Is it seen as something to mimic, or something that could be leapfrogged given China’s enormous market power?

It’s seen as place that is driven by innovation and where the tech talent lives in the U.S. Many CEOs see Silicon Valley as a very complementary talent pool to their teams as they try to expand overseas. There’s also a large pool of Chinese engineers and entrepreneurs who have spent the last 10 to 20 years living or working in the U.S., who are now ready to return home to China.

It’s not about “mimicking” the U.S., since China is already more advanced in terms of mobile user base, mobile adoption and usage behavior. Also, the Chinese don’t view the U.S. as the center of the universe.  For overseas international markets, the U.S. is just one of the markets. They can also address the India market, the South American market or the Southeast Asia market, among others. In many cases, it makes more sense to address other markets first before the U.S. as Xiaomi has done.

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New Fundings

Allygrow Technologies, a months-old, Pune, India-based engineering services company, has raised $20 million in funding led by Zodius Technology Fund, with participation from founder Prashant Kamat and IT industry veteran Atul Nishar.

C2FO, a seven-year-old, Fairway, Ks.-based online business-to-business marketplace for working capital, has raised $40 million in fresh funding led by Temasek, with participation from Tiger Global Management, Union Square Ventures, Summerhill Venture Partners, OPENAIR Equity Partners, and Mithril Capital. More here.

Cenx, a six-year-old, Jersey City, N.J.-based company that provides interconnect services for the new generation of Ethernet-based backhaul networks, has raised $12.5 million in Series D funding from BDC CapitalMistral Venture Partners, and VMware, with participation from earlier backers Highland Capital Partners, Mesirow Financial Private EquityVerizon Ventures, Ericsson, DCM Ventures, and Cross Creek AdvisorsMore here.

DoubleDutch, a four-year-old, San Francisco-based company whose mobile applications aim to capture and surface data from live events and conferences, has raised $45 million in Series E funding led by KKR, with participation from Bessemer Venture Partners, Index Ventures and Enspire Capital. The company has now raised nearly $80 million to date. TechCrunch has more here.

HUVRData, a year-old, Austin, Tex.-based data analytics company that uses drones to inspect industrial assets and acreage, has raised $2 million in funding from backers, including Central Texas Angel Network, Houston Angel Network, and the Texas HALO Fund.

Illumitex, a 10-year-old, Austin, Tex.-based LED innovator and maker of precision LEDs, has raised $16 million in Series C funding led by outside investor WP Global Partners. Other participants in the round include New Enterprise Associates, Morgan Creek Capital, Mousse Partners, Apex Venture Partners, Syngenta Ventures and numerous individual investors. Venture Capital Dispatch has more here.

Kineticor Resource, a 2.5-year-old, Calgary, Alberta, Canada-based energy services company that purchases, develops, and owns power projects, has raised $80 million in funding from Harbert Power. More here.

Lightricks, a two-year-old, Jerusalem-based startup behind the popular selfie app Facetune, has raised $10 million in its first external funding round. Carmel Ventures led the financing. TechCrunch has more here.

Ovid Therapeutics, a 1.5-year-old, New York-based biopharmaceutical company focused on developing therapies for rare and orphan diseases of the brain, has raised $75 million in Series B funding led by Fidelity Management & Research Company, with participation from Cowen Private InvestmentsSanofi-Genzyme BioVentures, Tekla Capital Management, Sphera Global Healthcare Fund, Jennison Associates, Redmile Group, and Cormorant Asset Management, as well as earlier backer DoubleLine Equity Healthcare Fund. Xconomy has more here.

PaidEasy, a year-old, New York-based mobile payments application that allows people to connect with merchants to easily view and pay a bill, has raised $2 million in seed funding from South African industrialist Ivor Ichikowitz. More here.

Record360, a two-year-old, Seattle, Wa.-based property inspection and asset condition reporting dashboard and app, has raised $1.5 million in seed funding led by The Alliance of Angels, with participation from Bellingham Angel Investors, and others. Geekwire has more here.

Spoken Communications, a 10-year-old, Seattle, Wa.-based company that provides telecom cloud infrastructure as a service to contact centers, has raised $28.8 million in Series D funding led by the private equity firm Riverwood Capital, with participation from earlier backer Ignition Partners. The company has now raised $54 million altogether.

Talena, a two-year-old, Milpitas, Ca.-based company behind a new data management platform, has raised $12 million from investors, including Canaan Partners, Intel Capital, ONSET Ventures and Wipro Ventures. SiliconAngle has more here.

Tuhu, a four-year-old, Shanghai, China-based company that has built an automobile after-sales products and services e-commerce platform that connects drivers with repair services, has raised roughly $100 million from investors, including Far East Horizon and earlier backers Legend Capital and Qiming Ventures. The WSJ has more here.

Tyfone, an 11-year-old, Portland, Oregon-based provider of mobile-first digital security for financial and identity services, raised $6.6 million in Series C funding. The round was led by RPX Corp, with participation from In-Q-TelSteve Pawlowski and former C.I.A. director David Petraeus.

Unifysquare, a 7.5-year-old, Bellevue, Wa.-based company that was founded by a former Micosoft employee and that builds support services on top of Microsoft products (including those that run Skype or Lync), has closed a $12.2 million Series B round. Its investors include Microsoft, Bridge Bank, Stanford University, and numerous individual investors. The Puget Sound Business Journal has more here.

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Exits

Aricent, a nine-year-old, Redwood City, Ca.-based outsourcing company, has acquired the seven-year-old, Bangalore, India-based product engineering services company SmartPlay Technologies for $180 million, reports Livemint. Aricent has raised $64.7 million from investors to date, shows Crunchbase. StrictlyVC isn’t sure about SmartPlay’s backers, though according to Livemint, it employs 1,200 people around the globe.

Infor — created through the mashup of dozens of software companies focused on manufacturing and other enterprise processes — is shelling out $675 million to acquire the cloud software company GT Nexus. Fortune has the story here.

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People

Aricent, a nine-year-old, Redwood City, Ca.-based outsourcing company, has acquired the seven-year-old, Bangalore, India-based product engineering services company SmartPlay Technologies for $180 million, reports Livemint. Aricent has raised $64.7 million from investors to date, shows Crunchbase. StrictlyVC isn’t sure about SmartPlay’s backers, though according to Livemint, it employs 1,200 people around the globe.

Infor — created through the mashup of dozens of software companies focused on manufacturing and other enterprise processes — is shelling out $675 million to acquire the cloud software company GT Nexus. Fortune has the story here.

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Essential Reads

Tinder and the dawn of the “dating apocalypse,” in Vanity Fair. (If you managed to miss it, here, too, is Tinder’s very public response to the piece, triggered by the author’s tweet Monday that 30 percent of Tinder users are married.)

How hackers made $1 million by stealing one news release.

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Detours

When envy is good for you.

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Retail Therapy

1960 Mercedes-Benz 190SL. Mmm.



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