International Investing & The Rise of China Rui Ma 500 Startups - Partner, Greater China. November 7, 2014

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International Investing & The Rise of China Rui Ma 500 Startups - Partner, Greater China. November 7, 2014

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What Is 500 Startups? Global Seed Fund and Startup Accelerator Program 115MM USD under management across four Funds 800+ Investments, since 2010 (4 years) 40+ Countries (Ghana, Denmark, Ukraine, Philippines … 19 Greater China) 25%+ Outside of US Brazil, Mexico, India, SEAsia SF, Mountain View (HQ)

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Who is Rui Ma? ?? Born in China, raised in US (Silicon Valley) U.C. Berkeley B.S. Elec. Eng. Comp. Sci. Tsinghua-INSEAD EMBA (c/o 2015) 11 years working experience, 7 in China Merrill Lynch & Morgan Stanley Tech IBD (coverage + M&A), real estate principal investing CITIC Securities M&A Raine (TMT PE & advisory) Joined 500 in Jan. 2013 …

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China’s the #1 Internet Market 780 mm+ smart devices 449.6mm 3G/4G subscriptions, 33.2% penetration 26.6% globally, vs. 287.4mm / 91.6% in US (#2 market) 2013 smartphone sales: 27% $50+0, 57% <$350 83.9% Android, 29.4% Samsung 632mm Chinese Internet users 464mm mobile internet users (#1 market) 78.5% access internet via mobile vs. 70.6% via web e-Commerce - $296Bn (estimated) in 2013 (US: $262Bn) up 53% 8% of total consumption is online, 302mm shoppers Largest 1-Day Purchase: $5.75Bn on Singles Day, >4x $1.25Bn on Cyber Monday

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China’s Startup Ecosystem Local Heroes Two $100Bn+ Internet Giants, numerous other $5Bn+ Tencent ($149Bn) + Alibaba ($271Bn) Access to Capital 2x (??) # of seed funds in 2014 to 200+ 1200+ active angel investors Exit Opportunities Increasing IPOs (10 in Q3 2014, 2 in US, vs. 18 total tech IPOs worldwide) M&A & strategic investments by Internet Giants Talent is Growing Economically viable, culturally acceptable to do startups Expanding Ecosystem of Supporting Players Proliferation of accelerators, entrepreneurship education, events China does everything AT SCALE

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Meet the Local Heroes

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The Alibaba Phenomenon Founder: Jack Ma ($25Bn family net worth) Founded: 4/4/99, Hangzhou Employees: 26,845 $25Bn was largest IPO ever Expected to create over 10,000 millionaires at average $4.2MM net worth In 2013, USD$296Bn total GMV, mobile GMV $71Bn (vs ~$50Bn in US) 279M users, 52 orders / yr ~80% of Chinese e-commerce ~86% of total mobile GMV in China 188mm mobile MAUs 7 mm people started their business on Alibaba Current Market Capitalization: $271Bn (Nov. 2014) vs. AMZN $138Bn

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Later Stage Investing is Mature China was 12% of global VC market in 2012, 7% in 2013 SV funds been active 10 yrs+ Sequoia, DCM, GGV, Matrix, KP

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Early Stage Investing is Growing 5% of rounds are now angels / incubators(1) Very little syndicate investing VCs are major seed investors (IDG, Ceyuan, Lightspeed, Matrix …) Valuations can be frothy Anecdotally, 60-70% pre-launch funding at $5mm++ val $1-3MM seed rounds, $10MM+ Series A Quick Comparison vs. U.S. 30,000+ early stage startups (vs. 45,000+) ~1,200+ angel investors (vs. 35,000+) ~200 seed funds (similar?) (1) http://www.ey.com/Publication/vwLUAssets/Global_venture_capital_insights_and_trends_2014/$FILE/EY_Global_VC_insights_and_trends_report_2014.pdf

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Leading Chinese Angel/Seed Funds Based on data from ChinaVenture, http://research.chinaventure.com.cn/report_822.html, augmented with updated information.

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Exit Environment Is Excellent IPOs Weibo (Twitter) $286MM IPO, $3.9B 58.com (craigslist) $187MM IPO, $3.6B Jumei (cosmetics ecomm) $245MM IPO, $3.7B Tuniu (travel), $72MM IPO, $850MM Zhaopin (monster.com) $76MM IPO, $640MM JD.com (Amazon) $1.8B IPO, $33B iDreamSky (gaming) $116MM IPO, $650MM … and of course Alibaba (eBay+Amazon+PayPal+??) , $271B M&A UCWeb (browser) by Alibaba, $2B plus, undisclosed Autonavi (mapping) by Alibaba, $1.5Bn China Vision Media (TV) by Alibaba, 60% for $804MM Dianping (Yelp) by Tencent, 25% for $500MM+ 58.com (craigslist) by Tencent, 20% for $738MM Didi (taxi hailing) by Tencent, ??% for $100MM LY.com (travel ticketing) by Ctrip, $200MM

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Talent is Piling In It’s “cool” to be in a startup 31,110 startups on VC.cn (vs. 45,539 on angel.co) Numerous media mentions, even celeb angel investors It’s also profitable to be in a startup Developers ain’t cheap, and they’re hard to find

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Clan Alibaba – 130+ Startups

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Beijing’s Startup Street 450K sqft (under cons.) Gov’t backed/subsidized 9+ accelerators/ coworking 300+ co’s have “moved in” More Information: www.forbes.com/sites/ruima/2014/10/20/one-billion-chinese-entrepreneurs/ https://www.techinasia.com/beijings-massive-z-innoway-startup-complex-makes-your-local-coworking-space-look-pathetic/

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What Does it Mean for You? How does one benefit from the Chinese tech boom? Should you invest in China? … Maybe. But How? … And in What? Should your portfolio co come to China? … Maybe. But How? … And for What? Are there exit or funding opps for your portfolio cos in China? … Maybe, and it’s growing. Should you visit China? This is an easy Yes. (Bring a mask.)

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3 Things to Beware of Accuracy is optional Spend time on the ground Get a local partner 360-degree DD is a must Conflicts of Interest rarely disclosed Again, need trusted insiders Government relations don’t make a business Stay away from restricted industries More details - https://www.techinasia.com/3-points-to-consider-before-you-make-your-first-angel-investment-in-china/ Welcome to the Shark Tank!

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Investment Opportunities Have specific know-how and clear value-add Crossborder E-Commerce (10-15% of total, already $80Bn) Education Travel 2B (more SMB, less enterprise) <20% of China VC, but ~85% of US VC Device proliferation and increased wage pressures Hardware China plans to invest $600Bn into IoT by 2020 Shenzhen / Pearl River Delta = manufacturing hub Best mechanical, electrical, robotics engineers still in the West … but industrial engineers are in China Gaming $13Bn market, #1 for MMOs Mobile gaming more popular in China than anywhere else … 86.7% of gamers

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SV Co’s Coming to China … Raised $ in China, 2nd biggest mkt at 11.5mm users Raised $ in China (for 7%), 5mm users Beijing, Shanghai, Shenzhen, Hangzhou, Chengdu sets up sales office Baby steps … no clear successes yet (aside from AAPL!)

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Chinese Co’s Are Looking Abroad Baidu Alibaba Tencent are increasingly active ex-China Baidu Control of Brazil’s daily deals site Peixe Urbano – 10/14 Hired Andrew Ng for $300MM R&D center in SV Alibaba $50MM into Peel – 10/14 $75MM into Shoprunner – 10/14 $120MM into Kabam – 7/14 $215MM into Tango – 3/14 Tencent Part of $36MM into Whisper – 5/14 Part of $27MM into Cyanogen – 12/13 Led $150MM into Fab – 6/13 Part of $35MM into Weebly – 4/13 Part of $2.5MM and $22MM Series A & B in Plain Vanilla - 2013 13% of KakaoTalk $63MM – 5/12

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Chinese Angels/Funds Overseas Coworking / Accelerators Angel Investors Investment Platforms Conferences The Chinese are already here ;)

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In Summary China is the #1 Internet Market #1 3G/4G subs, #1 eCommerce, #1 mobile eCommerce Likely the #2 Startup Ecosystem (behind SV) Lots of ??? Alibaba Halo Effect Opportunities Exist for Expansion and Exits Have a Investment Strategy & Partner Ready The Chinese move fast … get ready

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Thank You! Please contact me at any time: rui@500.co WeChat:missruima Follow Us: @500Startups @ruima Website:www.500.co Read Me: Forbes TechinAsia TechCrunch The Next Web