Highlights 2 | Silicon Valley Innovation During and After the Pandemic

Highlights 2 | Silicon Valley Innovation During and After the Pandemic

It is an understatement to say that Covid-19 has had a sizable impact on global society and economy. As such, SVTC is using its platform to host virtual events. Through conversations with thought leaders from different industries, we hope to present to Chinese audiences how Silicon Valley is innovating during the pandemic and the future direction of innovation in the post-pandemic era. These talks take place on Saturdays at 9:30-10:30 am CST (Fridays, 6:30-7:30pm PDT).

For the second session, SVTC invited Jeff Chien, Senior Vice President and Partner and Suki Dong, Program Manager from Plug from Play China (PnP China) to share how PnP has been investing in innovation during this pandemic.

Their insights generated a lot of discussion among attendees, so for those who were unable to attend, we’ll be providing a recap of the highlights below.

Established in 2015, Plug and Play China has centers in Beijing with other locations inShanghai, Chongqing, and Shenzhen. Plug and Play and Guangzhou Grand  Park are “Global Cornerstone Partners.” PnP operates in five business segments including investment, joint innovation docking, startup incubation and acceleration, global  cross-border innovation, and innovation ecosystems to build China's leading innovation platform, both online and offline. Their innovation ecosystem includes connections with universities, governments, venture capital institutions, research institutions, cities, and more.

How do we assist in portfolio startups facing difficult times during the pandemic?

PnP is a very active global startup investor, investing in more than 200 companies annually and has accelerated nearly 1500 startups in 2019. In response to this question, Jeff broke down his answer into three parts, corresponding to the different stages of a startup: early stage, post- funding and late stage.

For early stage startups, the primary thing they need to consider during the pandemic is survival. Out of the 400-500 companies in PnP’s accelerator program, 70% are early stage startups. Many can’t afford to pay salaries and use shares to pay instead. It’s easier for founders to understand and accept such  because many of them previously worked at large corporations, they understand the opportunity cost of working at a startup and the need to weather these difficult times together. Jeff also advises early stage startups not to focus too much on growth during this time, but to focus on surviving first.

At the same time, he explained that PnP and Facebook are working together to assist early stage startups from the Asian Pacific region, since early stage startups should focus on collaboration with large corporations rather than on growth during this time. In addition, while early stage startups usually maintained 6 to 12 months of cash flow before the pandemic, they have now extended that to 2 years of cash flow. Before the pandemic, they also focused more on rapid growth, but now are looking to maintain stable and safe growth.

Jeff clarified that post-funding stage startups refers to those that are valued at $50 million USD or more after Series A funding. Such startups are now focusing more on pivoting and exploring new application use cases for their products. For example, the autonomous vehicle tech company, AutoX focused on continuously improving its valuation through disruptive technology. Now, it is beginning to work with food delivery companies because of the tightening capital market.

Late stage startups refer to unicorn startups, which are those valued at $1 billion USD or more. PnP has invested in twelve unicorns: its ninth unicorn, Rappi—a South American version of Meituan and FlashEx—is the first unicorn startup in the South American tech field. Rappi has just received $1 billion USD investment from Softbank, and the startup is currently making adjustments to its online payment and B2B business model. Rappi's example demonstrates that good companies will still emerge, and that PNP will continue to invest in high growth startups. PNP helps large enterprises to innovate, and more than 90% of its investment are in areas where large enterprises have needs. Jeff also explained that he is responsible for the China-US cross-border work, mainly focusing on mobile travel and new retail, and is particularly optimistic about those two sectors in addition to artificial intelligence and big data.

What is PnP’s investment thesis during a pandemic?

In the first quarter of the year, PnP made 34 investments, around 50-60% of which were invested by the PnP Venture Capital Fund together with large enterprises. The rest were invested directly by the PnP Investment department. The average check size fell from $250,000 USD to $150,000 USD, and PnP now requires at least one percent more equity.

Suki then continued the discussion by explaining PnP’s investment thesis in the new retail field.

She explained that new retail, which has online and offline components, has been negatively impacted by the pandemic. For offline retail, there has been increasing demand for daily necessities and personal products and decreasing demand for outdoor apparel, while a new trend has emerged for consumers to try on clothes at home.

For online retail, she concluded that demand for food and groceries has increased by 70%, and was mainly affected through the supply chain and logistics. A new trend is based on mobile platforms making short videos for brands to promote brand recognition and loyalty.

Moreover, whether online or offline retail, Suki expressed that data analytics and automation for the platform and software is a new trend; as such, PnP has invested in the supplier and data automation platform, Backbone AI.

With regards to the pandemic, Judy asked whether this would impact the behavior of merchants of online retail.

Suki responded that the change has been dramatic. Previously, merchants didn’t feel the urgency to go online, but the pandemic has forced them to do so in a short amount of time and maintain the user experience of customers at the same time.  After the pandemic, merchants will continue with online operations. It’s not just new retail but other industries like physical checkups, baby products, and cleaning products will soon transition to an online model. Some products that require the physical store experience, like outdoor apparel, will experience less push to transition to online operations.

What advice and vision does PnP have for early stage startups in cross-border development?

Jeff mentioned a friend in New York who was at a startup in the payment field. During the pandemic, he returned to China and witnessed what China accomplished in the payment field and what the US was lacking. He also realized most of the research and development for startups could be done in China. However, because of the need to do business promotion in the US, he eventually returned. 

This example illustrates that American companies want to enter the Chinese market, but they need PnP and Chinese partners like Guangzhou Grand Park, to navigate their process in China, which can help reduce the costs of cross-border development, finding application use cases and market adoption, etc.

Jeff believes that travel restrictions due to the pandemic have moved communication from in-person to online, which has resulted in it becoming more direct and transparent. However, startups that plan to enter China should be more cautious because of that transparency. Projects with sufficient preparation for their cross-border development would not be negatively impacted by the pandemic, but those with inadequate preparation will see their shortcomings exacerbated.

Q&A

Overall, the guests provided insightful analysis which generated much discussion among attendees. Here, we will summarize the two key takeaways from this week’s virtual webinar.

1. When asked how startups can get funding faster during the pandemic, Jeff believes that the capital market is now a buyer's market. If a project cannot get funding, it’s because the project itself has not met its own valuation expectations. PnP and Constellar Ventures are still actively scouting for startups and will continue to invest in high growth startups. When PnP was helping the world-famous agricultural machinery company, John Deere, to review potential investments, there were 80 small companies participating in the Zoom conference, a record high. Though the proverbial door has closed offline, a window has opened online, and PnP will continue to invest in more high-quality startups that emerge.

2. Regarding the development of robotics and hardware technology, Jeff said that the integration of robotics, hardware and technology will not only be a matter of industry in the future, but that a city will need to take into account the needs of horizontal and vertical markets in one or more industries. The pandemic will bring about a lot of fundamental changes in the world. For example, some real estate companies have contacted PnP to find a new solution for elevators, instead of having multiple people take the same elevator at the same time.

After an hour of thoughtful discussion, SVTC once again thanked Jeff and Suki for joining our virtual webinar. With their combined experience, they helped present how PnP, with its global innovation accelerator and incubator programs, helps startups survive the pandemic and connects them with large enterprises.