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Bloomberg
How a woman turned a $ 40 million bet in Kuaishou into $ 12 billion
(Bloomberg) – In 2014, as their Kuaishou video app was starting to take off, Su Hua and his co-founders started looking for money to grow. They quickly received a proposal from Ruby Lu, a venture capitalist who had earlier spotted them as promising engineers and given them feedback on previous ventures, but Lu’s proposal was overshadowed by a larger firm. with a much higher offer, according to people close to the matter. She refused to concede. Lu told Su and her team that she would give them more than just money, offering her personal commitment and the support of her partners at DCM Ventures. Kuaishou Technology began trading in Hong Kong on Friday after the largest initial share sale for an internet company since Uber Technologies Inc. in 2019. In all respects, Lu’s investment was love at first sight: the approx. The $ 40 million that DCM invested in Kuaishou is now worth around $ 12 billion after the stock jumped 163% in its first two days. “There is a methodology for starting a business from scratch,” Lu, 50, said in his first interview in years. . Part of his strategy is to identify talented engineers like Su, but they also need to have the right strategy and the right mindset. “You have to endure more pain than the usual person.” Lu belongs to an unusual group of female investors who have risen to the forefront of the venture capital world in China. In 2019, she launched her own company, Atypical Ventures, which seeks to groom the next generation of tech darlings in China using funding from U.S. institutional investors. It was the next step in a life spent as that bridge between the two countries, which began when an American couple invited her to live with them in Maryland and ended up paying for her undergraduate education. Then came a stint working on IPOs at Goldman Sachs Group Inc.’s investment bank at the height of the dot-com bubble, and later a pivot to investing in startups. She is “such a positive force for the Chinese business community,” said Kai -Fu Lee, CEO of venture capital firm Sinovation Ventures, who has known Lu for years. “She will help you when you win, she will help you when you lose.” It all started in 1989, when Lu ran into Fred and Virginia Pausch on the streets of Xiamen, the port city in southeast China where she grew up. The couple, in town to help teach the English language, took a liking to her, inviting her to live with them and study in the U.S. Lu’s parents gave permission – on condition that the The teenage girl herself collects over 30 approvals needed to travel overseas. When she was successful, her mom sewn $ 200 into her underwear in case she needed to escape. “It would have been impossible for someone else,” said Tammy Pausch, the couple’s daughter. “With Ruby, almost nothing is impossible.” His new “brother” in the United States was Randy Pausch, who became a famous computer science teacher for his “Last Lecture”. He has often said that he won the “parent’s lottery”. Lu’s English was poor when she arrived and she understood little in her lessons. So Fred Pausch bought her a tape recorder that she could use to review the lectures at home. She finished first in her economics class at the University of Maryland, Baltimore County, then did a Masters in International Studies at Johns Hopkins University and got a job with Goldman’s investment banking in 1996. , working first in Hong Kong to help the Chinese state. The companies owned by the company go public and later move to the United States. It was eBay Inc.’s IPO that hooked her on tech, prompting her to change her focus and move to Goldman’s tech division in Menlo Park, California. “After that there was no going back,” she said. Lu left Goldman in 2003 to join DCM Ventures, the Silicon Valley company created by David Chao and Dixon Doll. There, she co-founded DCM’s business in China to capture what she calls “time and place arbitrage,” in which ideas that had worked in Silicon Valley were adopted in China. At that time, Chinese tech giants like Alibaba Group Holding Ltd. and Tencent Holdings Ltd. were still in their early years. Some of Lu’s major investments in DCM have followed this pattern, such as Amazon-style e-commerce site Dangdang and online car dealership Bitauto, but his biggest success is a very different story. Kuaishou, like its rival TikTok owned by ByteDance Ltd., is a Chinese idea that has gone global. The two outfits – both debuted less than a decade ago – pioneered the live-streaming, small-size video format that has since been adopted around the world by companies like Facebook Inc. and YouTube. Kuaishou’s Su was on his radar long before. he created the short video app. They became friendly as Su developed an AI-based ad recommendation system for Chinese search leader Baidu Inc. After Su left Baidu, Lu didn’t hesitate to support his businesses, from first an online bazaar for second-hand goods – which was not the case. t come to fruition – then Kuaishou, which at the time had less than 15 people and no income. Lu served on the board until his departure from DCM in 2016, and the venture capital firm then invested more in Kuaishou, but the high return is largely due to his early bet. DCM, which now owns 7.6% of Kuaishou’s capital, is its first and largest international venture capitalist. Chinese capital 5Y, formerly called Morningside Venture Capital, has invested around $ 204 million, with a current value of around $ 22 billion. “A lot of entrepreneurs that I have supported, when they wanted to leave their business, I would say I will give you money.” Lu started Atypical Ventures in September 2019 after a brief stint at another venture capital firm. The name stems from his belief that entrepreneurs should be different from the norm, ready to go through tough times and delay gratification on the long road to building a great business. His first fund raised $ 200 million from US pension funds, endowments and billionaire families. Atypical is betting concentrated in a small number of startups – so far only five – and sees its role as supporting entrepreneurs. Lu said her personal policy is to respond to messages from contractors within three hours and often receives emergency calls from them in the early hours of the morning. Company founders who worked with her say that she is very honest, outgoing and determined to succeed. “She’s very, very determined,” said Stanley Li, the founder of the Chinese online health care unicorn DXY, which DCM has supported. Li first met Lu in Beijing in 2010 after calling him. Cold. He described the meeting as a kidnapping. Although he enjoyed his conversation, he refused to accept his offer because the entrepreneur was about to close a fundraiser with another investor. “Ruby told us we weren’t allowed to leave the room unless we signed an agreement.” The next morning, Li had agreed. DCM invested $ 2 million in the first round of fundraising and then invested more money. He still has his stake. The company’s valuation passed the billion dollar mark in 2018, and some of Lu’s relationships have been brewing for decades. In the 1990s, Victor Perlroth and his friend were looking for a roommate in Portola Valley, near where he was studying at Stanford University. He put an ad in the newspaper and Ruby answered. Ten years later, the two started working together when Perlroth wanted to start a biotech company, but struggled to find support. So he raised money from friends and family, including a personal investment from Lu. Kodiak Sciences Inc., the company he founded, went public in 2018 and is worth over $ 7 billion. of dollars. Lu probably made a 100-fold ROI, according to Perloth. “She has an energy,” Perlroth said. “She is very talkative, curious, friendly. What you see is what you get. Lu is unusual in her reluctance to let startups go. Most venture capitalists quickly move away from the losers so they can spend time with the winners. “She doesn’t even accept a single failure,” Sinovation’s Lee said. In one case, a start-up was floundering and everyone else on the board was ready to give up. Lu worked overtime to find a buyer, which made a small return to investors, according to people familiar with the matter.Of the more than 20 startups she has invested in throughout her career, only one has been written off, well below the usual 30%. 40% failure rate. Eight had IPOs, while Lu had big hits, she also has regrets. They notably include missing ByteDance because it didn’t see enough potential to monetize the company’s first hit – the Toutiao news aggregator app. She also turned down Lei Jun’s offer to invest in Xiaomi Corp. with a valuation of one billion dollars. The company is now worth more than $ 88 billion. As a rare female executive in venture capital and boardrooms throughout her career, Lu said her male colleagues often told her that she was “like one of us,” which was a compliment. She says more needs to be done to bring women into leadership positions and that government regulation should be used to speed up the process. According to a Credit Suisse Group AG survey, women held just 11% of Chinese company board seats in 2019, below the global average of 21%, while Lu has come a long way since her retirement. chance meeting with the Pausch family more than three decades ago, Kodiak’s Perlroth believes there is more to come as the Chinese tech industry grows. He said he was sending his four children to a Chinese immersion school in Palo Alto, in part because of his relationship with Lu. “It’s great to see the success she has,” he said. “But I think she’s just getting started.” For more articles like this, please visit us at bloomberg.com Subscribe now to stay ahead with the most trusted source of business news.
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