Gaorong Ventures 2018: New Consumer and New Tech for Long-Term Value

In an era where new industry waves keep emerging, how does a top-tier VC firm consistently back outstanding startups? What investment strategies and methodologies can sustain that goal? These are critical questions we've continuously grappled with in refining our investment approach.

Gaorong Ventures believes in and practices a systematic methodology — combining top-down industry research with timely bottom-up coverage of key inflection points to better understand industry dynamics and underlying drivers, using deep domain knowledge to win over exceptional founders.

This approach is anchored in a service-oriented investment philosophy oriented toward long-term value creation. By providing portfolio companies with high-quality human resources, operational resources, operational advice grounded in industry understanding, and financial and strategic M&A support, we do everything possible to contribute to their healthy growth. As financial investors, we have a very clear sense of where our role ends and begins. Through this range of post-investment services, Gaorong strives to be a co-builder of long-term value alongside high-growth startups and future great enterprises.

In 2018, new consumer brands and new technologies were major battlegrounds for Gaorong's investment deployment. In fact, since our founding in early 2014, we had already been building out deep positions in new consumer and new technology sectors.

Seizing opportunities in new consumer brands hinges on understanding the evolution of traffic patterns and identifying effective pathways to both discover new demand and create new supply. From Pinduoduo, Mogujie, and Beibei to Huami, Qian Damai, Perfect Diary, and Roborock, these companies all achieved rapid growth by starting from this principle.

Third-party data shows that in 2017, China's internet users reached 770 million, with 560 million urban internet users and 530 million online shopping and payment users. Based on these figures and real-world observation, we can see that China's internet penetration is already quite high, online shopping and payment habits — especially mobile payment — are well established, and nearly all urban netizens engage in online shopping. Such high penetration and reach indicates that the construction of primary online shopping traffic gateways and payment infrastructure is largely complete.

One important consequence of this is "distribution channel simplification." For many types of consumer brands, a key competitive advantage used to be the ability to expand, penetrate, and operate multi-tier offline channels. Now, simply opening a few storefronts on major e-commerce platforms can directly reach massive numbers of consumers. This shift creates new opportunities for emerging Chinese consumer brands. Against this backdrop of simplified channels, entrepreneurs can potentially craft more effective paths to rapid, healthy brand growth by combining category characteristics, consumer habits, supply chain and logistics capabilities, and marketing and user operations. Gaorong-led Huami is the world's largest smart wearable device brand by shipment volume. Perfect Diary ranks first among domestic makeup brands on Tmall. And Roborock's smart robot vacuums have maintained a user satisfaction rate above 99% on JD.com for several consecutive years.

The simplification of consumer goods distribution channels is driving new consumer demand, which in turn is creating fertile ground for new retail formats. For retail-oriented startups, the variable and invariant factors — user behavior, social relationship networks, category characteristics, supply chain structure, logistics capabilities — collectively determine the room for growth through innovation. By rebalancing supply-demand contradictions and effectively addressing long-standing supply-side problems, high-growth companies may emerge in offline new retail, community new retail, and WeChat mini-program-related retail formats, among others. In one of China's most discerning regions for fresh food quality, Gaorong-led Qian Damai has grown into the largest community fresh food chain in South China by offering consumers fresher, higher-quality shopping through its "no overnight meat" promise.

Regarding WeChat mini programs, which many may be watching closely, we believe they remain in relatively early stages of development. Currently, most companies are achieving rapid growth by operating traffic within the WeChat ecosystem — including mini programs, official accounts, and group chats — but relatively few are building around mining the data capabilities that mini programs could unlock within this ecosystem. In the longer term, the latter is more likely to create durable competitive moats from this evolution. The WeChat ecosystem has accumulated and is rapidly generating massive amounts of user social relationship data, payments, transactions, search, and reading behavior. Once these ecosystem data are combined with appropriately designed mini program functionalities, new variables could emerge that reshape specific consumer sectors. WeChat and mini programs themselves continue to evolve, and we hope to learn more from outstanding founders about their vision for mini programs' future.

In new technology, we believe that truly understanding the core developmental threads and critical details of technology — and positioning ahead of them — is a necessary precondition for consistently backing excellent technology startups. Gaorong Ventures began comprehensively deploying in artificial intelligence from its founding in 2014, when this field was still a relatively cold investment area globally.

Over the past five to six years, AI has made tremendous progress and breakthroughs, and is now accelerating — every week brings new breakthroughs in specific domains, making what once seemed impossible achievable. What Gaorong Ventures does is invest in founders with the deepest understanding of AI technological trends within this trajectory. We've invested in leading Chinese and global companies across computer vision, natural language processing, AI acceleration chips, artificial general intelligence, and decision intelligence, among other sub-fields — including DeePhi Tech, YITU, Tianrang Intelligence, Zhuiyi Technology, Hupo Technology, and Qiyuan World.

Beyond artificial intelligence, frontier technology domains such as electric vehicles and autonomous driving continue to present global industry opportunities. Gaorong's investments in Silicon Valley-based autonomous driving company Nuro and LiDAR company Innovusion are frontier technology companies that have grown rapidly against this backdrop. Meanwhile, fields directly driven by technology such as intelligent manufacturing and fintech are also undergoing rapid change. These new technology enterprises will bring transformative long-term value to business society and human life.

In 2018, seven Gaorong portfolio or affiliated companies completed IPOs: Pinduoduo, HUYA Inc., Huami, Mogujie, Meituan, Ping An Good Doctor, and Puhui Wealth. Deep learning solutions company DeePhi Tech was also acquired by Xilinx in Q3.

Since Gaorong's founding, we've received tremendous recognition and support from across society. We extend our heartfelt thanks to all our friends!

Gaorong's recognitions and honors in 2018 included (partial list):

China Venture Capital and Private Equity Association, 2018 Top 10 VC Firms

Golden Bridge Awards, 2018 China's Best VC Firms TOP 3

Golden Bridge Awards, 2018 China's Best VC Fund Returns TOP 5

Forbes China, 2018 China's Best VC Firms TOP 10

Zero2IPO Group, 2018 China's Top Venture Capital Firms TOP 10

ChinaVenture, 2018 Most LP-Focused VC Firms TOP 10

36Kr, 2018 Most Founder-Friendly VC Firms TOP 10

36Kr, 2018 China's Most Influential VC Firms TOP 10

China Renaissance, 2018 Most Influential VC Firms TOP 10

Yicai Weekly, 2018 China VC Firm Rankings TOP 10

EqualOcean, 2018 China's Best Independent VC Firms TOP 10

AVCJ, 2018 Exit of the Year — IPO Award (Pinduoduo)

China Private Equity Summit, 2018 Most GP-Favored Founding Partners (Chang Chen, Gao Xiang, Yue Bin)

Forbes China, 2018 China's Best Venture Capitalists (Chang Chen, Gao Xiang, Yue Bin)

Cyzone, 2018 China Investor of the Year (Chang Chen)

Fortune China, 2018 30 Most Influential Investors in China (Chang Chen)

Zero2IPO, 2018 China's Top 10 Venture Capitalists (Chang Chen)

Entrepreneur, 2018 Top 10 Investors of the Year (Gao Xiang)

China Renaissance, 2018 Most Influential VC Investors TOP 10 (Yue Bin)

36Kr, 2018 Most Founder-Friendly VC Investors (Chang Chen, Yue Bin)

36Kr, 2018 Top 10 WeChat Ecosystem Investors (Gao Xiang)

Jiemian, 2018 China's Top Venture Capitalists TOP 30 (Chang Chen, Yue Bin)

Forbes China, 2018 30 Under 30 Elite List (Rui Han, Wu Ge)

Yicai Weekly, 2018 Best Young Investor of the Year (Rui Han)

China Renaissance, 2018 Most Popular Elite Investors (Rui Han, Zuo Aisi, Xin Wang)

While we've achieved some results, Gaorong Ventures remains a relatively young firm. We look forward to growing alongside more outstanding founders and co-building long-term value. Our latest $500 million Gaorong Capital Fund IV closed on December 5, bringing total assets under management across nine funds to approximately RMB 15 billion. In 2019, we will continue going deep into important sectors including new consumer brands, new technology, mobile internet, fintech, and enterprise services to discover more outstanding entrepreneurial teams and investment opportunities.

END

Recommended Reading

Gaorong Ventures Closes $500 Million New Fund, Committed to Co-Building Long-Term Value with Startups

• Gaorong Ventures manages approximately RMB 15 billion across USD and RMB funds, focused on early and growth-stage investments in TMT.

• Limited partners include top-tier global institutional investors as well as Chinese corporate giants in financial services, retail, advertising, and other industries.

• Additionally, dozens of successful entrepreneurs — founders of Tencent, Baidu, Taobao, Xiaomi, Meituan, Dianping, 360, Focus Media, Weibo, Sohu, JD.com, Vipshop, Tudou, Autohome, Ganji.com, and others — are also LPs in Gaorong funds.

• The founding partners previously led investments in numerous outstanding companies, including Xiaomi, Razer, Baofeng Technology, G-bits, Tudou, Wondershare, Archermind, 91 Assistant, 3G.cn, Mogujie, Dota Legend, Yuanfudao, and others.

• Since its founding, numerous Gaorong portfolio companies have grown into national and global leaders in their respective industries, including: Pinduoduo (NASDAQ: PDD), HUYA Inc. (NYSE: HUYA), Huami (NYSE: HMI), Mogujie (NYSE: MOGU), Lifesense (300562.SZ), Meituan (03690.HK), Ping An Good Doctor (01833.HK), Zhongrongjin (acquired by Aoma Electric), DeePhi Tech (acquired by Xilinx), Qian Daibao (acquired by Meituan), Fanpu Jinke, Beibei, Leqi E-commerce, DotC, Nuro, YITU, Roborock, Tianrang Intelligence, Zhuiyi Technology, Hupo Technology, Oasis Labs, Beitai Haoche, Quantgroup, Shuidi Mutual Aid, Testin, Doumi, BIGO LIVE, Danke Apartment, Qian Damai, Perfect Diary, and Ucommune.

• Gaorong Ventures maintains investment teams in Beijing, Shanghai, Guangzhou, Shenzhen, and Hangzhou.

Long press the QR code to follow Gaorong Ventures

Thank you, good friends of Gaorong