“My main professional goal is to have a deep understanding about the next waves of the internet, and invest in the next Facebook, Amazon, Tencent or Alibaba, which I think is also the ultimate goal for any internet investor.”
These words could be spoken by any rising star, but when you have already backed a business that has seen a near 600-fold increase in valuation to $35bn in three years, you probably have a better chance of identifying the next generation of talented entrepreneurs as they will be beating the door down to find you.
Yao Xia, executive director at Tencent Investment, therefore, is prepared to be a popular person. Jeffrey Li, managing partner at Tencent Investment, in nominating Xia as a Global Corporate Venturing Rising Star 2017, said: “He was the one to find Didi Taxi three years ago and is the driving force of our O2O social commerce practice.”
O2O, or online-to-offline, commerce is a business strategy that draws potential customers from online channels to physical stores and Tencent through its WeChat communications and payments portal has done more than any company to integrate a more seamless integration between the internet and physical worlds.
Xia noted two of his other deals had also reached at least $1bn in value. Online retail startup Xiaohongshu, which means Little Red Book in Chinese, was valued at $1bn in March last year compared with the $70m valuation when Tencent first invested in 2014’s $10m B round. And used car auction company Youxinpai was worth $2bn when it was raising a reported $400m earlier in 2016, compared with when Tencent first invested at a $50m valuation for the company’s series B round in 2013.
However, his big win in this field has been Didi. Given that less than a sixth of China’s population owns a car – there were 172 million registered in 2015 – taxis are a popular form of transport for getting to the store. Didi’s platform completed 1.43 billion rides in 2015, the equivalent of about one ride per person in the country, albeit actually spread among 300 million users in 400 Chinese cities.
When in May 2013 Tencent invested $15m for a 20% stake in Beijing-based Didi Taxi’s series B round, at an estimated $60m valuation, Xia confirmed, the Didi Taxi mobile phone application had just entered the Shanghai market with 5,000 new orders being placed in the city every day.
Now, and every day, Didi’s platform generates more than 70 terabytes of data, processes more than 9 billion routing requests under its Great Tidal strategy to reduce traffic jams, and produces over 13 billion location points.
Much of the growth to be China’s largest ride-hailing platform has come through the mergers, acquisitions and corporate venturing strategy of the company, now renamed Didi Chuxing.
Didi Chuxing sealed its position as China’s largest ride-ordering platform when it agreed in August to acquire competitor Uber China in an all-share deal that would create a company officially valued at $35bn.
Postal service China Post invested an undisclosed amount in Didi Chuxing two weeks later, adding to some $10.5bn in debt and equity raised since its founding companies, Didi Dache, as Didi Taxi was renamed, and Kuaidi Dache, were launched.
Didi Chuxing was formed by the merger of Didi Dache and Kuaidi Dache in early 2015 and its subsequent corporate venture capital investments – $100m in peer Lyft and at least $10m in bike-sharing service Ofo, has reinforced its position.
Xia said: “CVC becomes a very important player in China internet investment industry. Beside the money being the same as other financial investors’, it has a unique competitive advantage, such as business resources and operation know-how to bring benefits to investee companies. It gives us the best opportunity to back the promising company to grow and change the industry landscape.”
As a result, he added: “Similar to other industries, CVC needs to have a clear understanding and also the good execution on its competitive advantage, and differentiate itself from other investors.
“Investment is a red ocean market, with too many investors and too much money. Although everybody is talking about post-deal management or value-added services to investee companies, the key thing it can provide is still the same – money.
“From this perspective, CVC naturally has the capability of differentiation. No matter whether it is minority investment or acquisition, CVC should be thinking from the company’s perspective, being a trusted friend of the company, and provide its resources and expertise to back the company to grow.”
It is an attitude developed in Tencent through its own experience, having Naspers, a South Africa-listed media company, as a CVC shareholder since the turn of the millennium.
Naspers supported Tencent founder Huateng (Pony) Ma’s hiring of Chi Ping (Martin) Lau and James Mitchell from investment bank Goldman Sachs – now president and chief strategy officer, respectively.
Lau had worked with Qing (Jean) Liu, president of Didi Chuxing and daughter of computer maker Lenovo founder Liu Chuanzhi, when she worked for Goldman Sachs Asia for 12 years until July 2014’s move to be chief operating officer at Didi Dache.
After joining Didi Dache under founder Cheng Wei, she led the strategic merger of Didi Dache and its main competitor Kuaidi Dache, and reportedly masterminded Didi’s acquisition of Uber China in 2016.
Xia’s own background was less connected. After studying finance and economics at Shanghai University, he worked as an analyst in Deutsche Bank for nearly two years from mid-2006 before later spending three years as an associate in boutique investment bank China eCapital Corporation, focusing on the internet sector. He described these moves to China eCapital and then Tencent as his biggest challenges.
“After graduation, I started my career in the commercial banking department of Deutsche Bank. I wanted to do internet investment but it was difficult to find a job in the investment industry for a person with no relevant experience.
“The two transitions are the biggest challenge for me. Thinking back, there are two key things. One is you need to have a goal, understand the path to the goal and keep yourself doing the right thing along the path to achieve that goal.
“The other is always staying foolish and curious about everything around you, both in your daily job and daily life. Having a deep-thinking habit is key to become a good investor. These two things helped me a lot in the two transitions.”
But having made it to his goal, Xia is now one of the well-connected, given Tencent was understood to have invested about $5bn in more than 100 CVC deals in 2015 and formed a consortium with other investors to close the acquisition of a majority stake in Finland-based gaming company Supercell for $8.6bn in October last year.
In November, Tencent backed China-based knowledge sharing platform Zaihang and Fenda, according to the startup’s Wechat public account.
Zaihang and Fenda had earlier raised $25m from storied investors Vision Plus Capital, Sequoia Capital, Wang Sicong, the son of China’s richest man – Dalian Wanda Group’s chairman Wang Jianlin – and online talk show Luoji Siwei in June.
At the time of the deal, Xia said: “Tencent believes in the potential of knowledge-sharing, which is perfectly supplementary to our own ecosystem. Zaihang and Fenda will become one of the most important knowledge-sharing platforms in China.”
Knowledge-sharing might also be said to the secret of good investing, looking at how Naspers, Tencent and now Didi Chuxing have developed with Xia as the latest star in the firmament.