China’s ongoing anti-monopoly campaign is part of a larger global push by regulators against big tech, and will reinforce a shift among venture investors in the country toward enterprise and deep technology companies, according to a member of the Forbes Midas List ranking of the world’s top venture capitalists.
“We’re seeing the impact,” James Mi, founding partner of Lightspeed China Partners told the recently held U.S.-China Business Forum. The 2nd annual online gathering was held on Aug. 20. Mi ranked No. 53 on the 2021 Forbes Midas List unveiled in April, helped by successful investments in Pinduoduo and Meituan. Lightspeed China is the China investment partner of Lightspeed Venture Partners, which manages $10 billion in assets globally.
“In the past, China’s anti-monopoly regulation enforcement efforts were very limited,” Mi continued. “You see (with) a lot of the companies in China, the number one and two companies merged together. Usually, you wouldn’t pass that muster in the U.S., but now I think the government is seeing that needs to change.” China China e-commerce heavyweight Alibaba was hit with a $2.8 billion anti-monopoly fine in April; food delivery app Meituan, another consumer-interfacing service, is reportedly facing a $1 billion fine.
“The impact is on the biggest players” in China, Mi believes. “It has a little bit of benefit for a not-number-one or even a number two, maybe the No. 3 players — you have more room to operate.”
“This is not just happening in China,” Mi said. “In the U.S. Congress, there are a lot of efforts, and they’re looking at the big Internet companies, like Facebook and Google, and whether they should be broken up. I joined Google way back in 2003. It was a very, very small company. Right now, it has become a really big conglomerate.” The upshot is that early-stage venture investors will “probably put a little bit less weight” in the consumer Internet space, Mi said. “There are still plenty of opportunities” in consumer-related companies “but there are just other much bigger opportunities in enterprise and deep technology that we can capture,” he added.
Mi, 53, has a long record of success in tech and China business. Before joining Lightspeed in 2008, he was the chief representative of Google’s China office, where he led investments in Baidu, Dianping (later bought by Meituan), Xunlei and Ganji (bought by 58). Earlier in his career, he co-founded iTelco Communications, a VOIP global communication products supplier, and held management positions at Intel. The Shanghai native holds a master’s degree in electrical engineering from Princeton and an undergrad degree in physics from Fudan University in Shanghai.
So in what areas is Mi looking to invest today? “One thing that’s pretty obvious is enterprise services. The pandemic accelerates a lot of the enterprises adapting these cloud services,” he noted. The impact of tension between the U.S. and China has also changed investment dynamics in China, Mi said. In the past, Chinese companies wanted to purchase semiconductors and deep technology products from Silicon Valley, he said. “Now people worry that, given U.S. restrictions, they may not be able to (buy them), and so there’s a huge demand for domestic solutions. Mostly, it will be provided by startups.” The latest evidence of China’s big push into semiconductors came on Friday with Semiconductor Manufacturing International Corp., or SMIC, the largest local maker, announcing a $8.87 billion investment in a new plant in Shanghai.
“I’m not just talking about semiconductor chips or equipment, but many others. For example, in the autonomous driving space — this is a global big trend,” Mi said. “And other than the AI software layer, one of the most key, important parts is LIDAR (laser-based radar detection products). So we invested very early on.” Lightspeed China holds a stake in Hesai, a world leader in the business, along with Bosch, GL Ventures, Xiaomi, Meituan and Baidu. Demand for autonomous driving, ironically, may be a beneficiary of the anti-monology push at delivery firm Meituan. Big delivery companies looking to lower costs will turn more than ever to automation, he noted.
China will be competitive for new high-tech products because of its manufacturing strength, Mi said. “Supply chain and manufacturing capabilities are very strong. I’m not just talking about low-cost manufacturing, I’m talking about cutting-edge technology products. You need a lot of iteration. You even need to make your own equipment for your manufacturing production line. That’s the edge the Chinese startup company would have,” he said.
Mi is also upbeat about green technology, whose importance has been underscored by extreme weather around the world this year. “It is not trivial to get to carbon peak in 2030 and carbon neutrality in 2050 by U.S. and European standards, and by 2060 for China.” The world “lacks technology,” he said.
One “very interesting” area to be investing in in the coming decade, Mi believes, is solar. Another is battery technology. “Certainly, China has CATL (Contemporary Amperex Technology), and CATL has been the leader in that space,” but it is also an example of a business that is benefiting from changing technology. “There are multiple technologies, and I think even CATL won’t be able to keep up. This is a typical startup story, right? You come up with something very disruptive— not only the battery but also the materials used in the battery.”
Looking ahead, he expects big demand for batteries and storage to be a driver of change. “This will be constantly a huge demand, not only for electric vehicles, but also for energy storage, which is required for the solar and wind (businesses) because they are not stable. You need a battery-based storage solution.” Mi optimistically sees green technology as an area in which the U.S. and China can collaborate. “Both countries can really work together” since both hold technology advantages that can be pooled.
Mi also shared with forum attendees some tips for venture investment success. “We always think we need to be really nimble,” Mi said. “We always focus on the early-stage technology investment. We adapt ourselves for the new opportunities. We used to focus on the consumer Internet, but we started investing in enterprise services over 10 years ago. Then we started to invest in deep tech over eight years ago and green tech over three years ago. It’s something that we remind ourselves: always keep a growth mindset, always reset ourselves,” he said. “Don’t sit on your past success, be humble, and always try to learn new things.”
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