Q&A: SOSV William Bao Bean
William Bao Bean has left Singtel Innov8 for a new role as investment partner of SOSV in China and managing director of the firm’s accelerator program. He shares his thoughts on the China start-up scene
Q: Why the move?
A: I am very interested in early-stage investment and building up the China ecosystem, and also in the cross-border element. The SOS platform is extremely powerful, doing over 120 investments a year. It operates as an evergreen fund and has a very strong IRR. Their brand of mentor-driven accelerator investment really fits with my approach. I’ve been a mentor at Chinaccelerator since the beginning in 2010 and also at hardware accelerator HAX. There are six accelerator programs globally and then we also make direct investments of $50,000 to $5 million. These may be follow-ons or investments in companies that aren’t part of the accelerator programs.
Q: Five batches of start-ups come through Chinaccelerator. What are the big success stories?
A: Orderwithme was founded in Hangzhou and started off helping US small retailers buy directly from factories in China. They have since expanded into a platform managing all relationships between retailers, distributors and factories. The company has moved to Las Vegas and now focuses on connecting US retailers with factories all over the world and managing the supply chain. They raised a Series A round from SOSV and another VC firm, and then got a $6 million Series B round last year led by Tony Hsieh’s VegasTechFund. Another company, which came out of the program last year, is called Launchpilots and runs student events on university campuses. They started in Hong Kong and we helped them get into China. Now they cover 250 universities nationwide. If you are a brand that wants to reach out to the university population you go to Launchpilots.
Q: What kind of support do start-ups receive?
A: Once you are accepted into the program you get $16,000 in cash plus services such as free rent for six months and attendance at the 8×8 conferences we hold in Beijing and Shanghai. After graduation we expose start-ups to a wide variety of funding sources. We have 150 mentors who are business leaders and entrepreneurs and many become investors in the companies they mentor. We also have close relations with AngelVest, the largest angel group in North Asia, as well as a network of other angel funds and early-stage investors. We differ from other accelerators in that SOSV usually invests in the start-ups that come out of the program. The model works especially well when you double down on the winners.
Q: There was a boom in accelerators in China a few years ago but many have since closed. What happened?
A: The issue has been localizing the accelerator model in China – it hasn’t worked for some people and there are various reasons for this. For example, the concept of sharing and mutual support between teams is quite difficult to foster in China. Start-ups worry about ideas and staff being stolen. Our approach is more international and coming from the outside in, there is a lot less of that. You need cooperation to survive. We are mentor-focused, with all the start-ups in one location, and we work together for three months, focusing on the demo day [the next one is in Shanghai on November 25] and beyond. We help international start-ups penetrate China and emerging Asia and help Chinese start-ups going global. There is a huge cross-border aspect to it and the program is run in English, not Chinese.
Q: In the absence of a sizeable number of accelerators, what fills the funding gap?
A: There are 10,000 angels running around China, it has ballooned over the last two years. Accelerators came into vogue globally and there has been a narrowing and I’d say the culture of start-ups in China doesn’t lend itself to accelerators. However, for those going outside the country, the network of local relationships provided by an entrepreneur or angel investor doesn’t help much, so they need mentorship and acceleration.
Q: What is behind the rise in angel investors? Is it evidence of the virtuous cycle, with successful entrepreneurs backing the next generation of start-ups?
A: Rather than follow what US entrepreneurs did and turn their companies over to professional management and start that virtuous cycle, the first generation of entrepreneurs in China are still running their companies. However, the second generation – who worked at those first-generation companies before starting their own businesses – are exiting. People have made money from stock options or by selling to Alibaba Group or Tencent Holdings, they have capital and experience, and they are investing. So the second generation is now funding the third generation, and the first generation is purchasing everyone. This round of acquisitions has only been going for two years. Before that, most companies did everything in house – they saw someone doing something good, put together a product team and it themselves. However, China has become so competitive and talent has become so scarce that the internet leaders have added the acquisition tool to their tool box.