Money may make the world go round but a philanthropic mission makes tech start-ups more likely to stick around
I have a personal story to share with you about the development of private equity, which may offer some indication of how fast the industry has grown over the past decade.
Many years ago I was appointed by my former employer Reuters as the British news agency’s Asia private equity (PE) correspondent. When I tried to introduce my job to friends in China, I was a little surprised that some thought PE stood for “physical exercise”.
When I relayed this experience to acquaintances at KKR, one of the world’s biggest private equity fund houses, they told me they had encountered similar misunderstandings on the mainland in recent years. They had to keep explaining to local entrepreneurs that they weren’t a gang on in anyway linked to the Ku Klux Klan.
Nowadays people in China, and elsewhere, have a better understanding of what private equity and venture capital are all about. Some may not have heard of Sequoia Capital, but almost everyone knows Google and Apple, two high-profile examples of companies that Sequoia helps to build and grow.
On the other hand, private equity and venture capital managers are often dubbed “gods of fortune” by the media. As long as you can get funding from VCs and PEs, your start-up will grow, or at least there is no need for you to worry about surviving in a tough market in the early stages.
But I would like to take the opportunity here to pose a simple question: What is the ultimate goal of venture capital, private equity and all those start-ups and new technology?
Is it just about making money, getting higher returns for your investors, or getting your portfolio companies to launch their IPOs as quickly as possible?
Please don’t get me wrong. Private equity and venture capital funds are not charity organisations. You must make money, and you’d better make a lot to stay competitive. I’m not against materialism or capitalism. Even non-profit organisations need to build revenue streams before they can do good. But if you want to make a difference, then you need to think about what your mission is.
Google has a clear mission to organise global data. Facebook’s mission is to keep everyone connected. My current employer, the South China Morning Post, aims to serve as a bridge between the West and East, particularly Hong Kong and China.
I recently met the co-founder of a fast delivery start-up operating in the business-to-business sphere who had just completed the first round of funding with several venture capitalists. He explained his business model to me and how the company rose quickly to become the market leader with the biggest network coverage in Hong Kong.
Then he asked me for some advice. I asked him if his goal was just to grow and become a “unicorn” - with a valuation in excess of US$1 billion - or he should think beyond the number of apartments his company can reach in the city and figure out ways of using big data to help make people’s lives easier and more convenient.
That should be the mission at hand, and it will very probably pay off handsomely. The same logic applies to food delivery services and other companies: They need to build platforms offering tools that make life easier for the general public or consumer.
That is why technology is so important and why it really matters. It is not just about getting start-ups to list quickly on the Nasdaq.
As you are probably well aware, China is full these days of fast-growing start-ups, and many are single-minded in what they hope to achieve: Grow bigger, get more users (or “fans”) and then quickly sell the company off or get it listed so that the co-founders can cash out and move on to the next project.
Some VCs and PEs buy into this “quick money” strategy for the sake of their LPs (limited partners) and high investment returns.
But perhaps the next time you sign a deal, pause to consider what kind of impact you and your business partners can have to make the world a better place, and what your real mission and purpose is or should be.
(This speech was given at the 2015 Christmas cocktail party of the Hong Kong Venture Capital and Private Equity Association at the China Club in Hong Kong on December 10. The author is the managing editor of SCMP International Edition and Mr. Shangkong columnist.)
