Highlights 7 | Silicon Valley Innovation During and After the Pandemic (Week 8: University of California Incubators and Accelerators)

Highlights | Silicon Valley Innovation During and After the Pandemic (Week 8: University of California Incubators and Accelerators)

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).

Highlights from Week 8

This is the eighth and final session of our virtual webinar. Judy, General Manager of Silicon Valley Technology Council (SVTC), moderated the conversation with our guest speaker and her longtime friend, Victoria Slivkoff, Global Head of Innovation & Entrepreneurship at the University of California Office of the President. Victoria primarily works to increase collaboration with the industry through strategies, infrastructures, resources, policies, and partnerships she develops, in order to commercialize research innovations and scale up startups in the University of California (UC) system.

During this webinar, they discussed business strategy in the post-pandemic era, how the 60 technology incubators and accelerators in the UC innovation ecosystem help young entrepreneurs weather the pandemic, and finally industry trends in the post-pandemic era. Their insightful remarks also form a comprehensive summary of the whole program, providing key insights to attendees and prompting many thoughtful questions in return. We will provide a recap of the highlights from this webinar for those who were unable to attend.

UC incubators promote collaboration among startups, industries, and investors to work towards bringing those startups to market. With over 60 incubators and accelerators, the UC innovation ecosystem has helped many startups promote economic development. The UC innovation ecosystem has hatched a total of 800 startups, with more than 500 currently active startups, a total revenue of $21.2 billion USD, and more than 18,000 jobs created in California. UC incubators have 249 active startups in the medical field, with a total revenue of $17.3 billion USD and over 14,000 job opportunities created.

How to Improve Business Resilience During a Pandemic

1 Industry Winners after the Pandemic?

Victoria believes that the pandemic has led to a record high unemployment rate in the United States, and that different countries and regions have different timelines for the spread of their Covid-19 outbreaks, which means they will also have different timelines for economic recovery. It has been found that a portion of people who recover from Covid-19 suffer permanent physical damage due to the illness. Even with an effective vaccine, it will still take time before it becomes universal, and priority for the vaccine has to be given to the young and elderly. At the same time, the vaccine supply chain has also been impacted by the pandemic. Thus, the Covid-19 outbreak will persist for a long time, and is testing the resilience of many businesses. Business leaders will need to think about how to make fundamental changes; in fact, many trends, such as digitalization, existed before the pandemic, but the pandemic has served to accelerate them.

Before the start of this session, we did an online poll asking the audience about industry trends after the pandemic. The survey results show that most audiences believe e-commerce and telemedicine will become major trends. With those answers in mind, Judy asked Victoria for advice on how entrepreneurs can successfully pivot.

Victoria agrees with the questionnaire results, and believes that business leaders should make four changes. We have summarized the key points of her explanation below:

(1) The pandemic has led to the digital transformation of all industries, and this trend will continue even after the pandemic ends and as consumption habits change. Companies need to turn crisis  into opportunities through digitalization, challenging the limits of their capabilities. Consumers of all ages are now shopping online. Target had an e-commerce business before the Covid-19 outbreak, but devoted less attention to developing it; now, it is more focused on its e-commerce operations. Wal-Mart also recently increased its investment and development in the e-commerce business to compete with Amazon. Amazon is not the only company that can do e-commerce, so we will see more and more competitors increase their investment in that sector in the future. Because the pandemic has restricted movement, Uber recently acquired a food delivery company to augment its takeout business. Companies need to shift their focuses  in businesses with more opportunities.

Judy added that Target's digital sales has reached 20%; though it provided e-commerce before the pandemic, its digital sales were not as high before. The pandemic has indeed led many enterprises such as Target to pay more attention to their online shopping business.

(2) Changes in work habits: Californians have been working from home for 3 months now, and many employers have found that remote working is very feasible. Many large Silicon Valley companies, such as Google and Facebook, will allow employees to continue working from home for the rest of the year. Teleworking will blur the boundaries between people's personal and professional lives, thus allowing for greater work flexibility. It is also an opportunity to gain global contacts and talents, while having a 24-hour different time zone is cheaper because there is no need to pay Silicon Valley wages. Telecommuting may also promote the development of small and medium-sized cities. Because people no longer need to live in populous urban areas if they are working from home, it allows more people to move to smaller cities, which are more cost effective and have a better environment.

Based on Victoria's explanation, Judy asked her how to improve a startup’s  competitiveness  in online co-working space? 

Victoria said that a recent startup of an UC incubator aims to help people better express their ideas during remote working and better understand how to communicate with others. There is a VR/AR company simulating the real office environment in virtual. Companies like this are still competitive and can obtain funding even when it is difficult to do so.

(3) Globalization and regional development: globalization has led to manufacturing being offshored to countries with lower costs, so many companies have fragile supply chains. Companies therefore need to establish supply chains that are closer to consumers to bring procurement and manufacturing closer to the market.

Judy agrees with this point, citing Amazon's Mini Hubs as an example of bringing procurement and manufacturing closer to the market.

(4) Uncertainty in regulation: Changes in policies and laws challenge business leaders’ ability to adapt, and they must adjust corporate strategies and operation methods in accordance with new regulatory policies.

Judy believes Victoria's last point is crucial, as business leaders need to make constant adjustments based on a comprehensive analysis of the situation during the pandemic in order to turn a crisis into opportunities.

How can UC Incubators Help Entrepreneurs Turn "Risk" into “Opportunity"?

1.How do startups turn "risk" into “opportunity"?

Victoria offered four aspects that innovative enterprises should consider when facing this crisis. She believes that it is difficult for anyone to predict the full scope and duration of the pandemic. Startups are considered high-risk and are therefore quite resilient, so to turn risk into opportunity, they must adapt to market changes.

(1) The most important thing is to survive, focus on the company's core functions, and remove the non-core business model.

(2) At the same time, companies must preserve their cash on hand and reduce unnecessary expenses.

(3) Even with the pandemic, there will still be companies in various fields that will receive investment, such as in the fields of healthcare and telecommuting; however, investment institutions in other fields will give priority to protecting their portfolio companies rather than investing in new companies. Therefore, companies will need to seek government support. Through collaboration with the government, UC incubators help startups obtain government subsidies, such as POC (Proof of Concept) subsidies, which will also spur economic recovery.

(4) In addition, startups should actively connect with enterprises and strategic partners to increase collaboration opportunities.

2. Changes in Investment Strategy and Cross-border Strategy during UC Innovation Incubation Period

Judy explained that UC Incubators have invested in 800 startups and currently have 500 active; she asked Victoria if capital and number of transactions decreased this year. In addition, Judy mentioned that Victoria has been to Guangzhou GrandPark. What are Victoria’s views on establishing US-China cross-border connections and platforms to help enterprises start businesses in China and the United States?

Victoria provided detailed answers, explaining that UC incubators tend to prefer earlier stage startups. The UC incubators not only depend on the return on investment, but also shoulder the task of helping early stage startups to grow. Later stage startups do not need to rely on the resources of UC incubators after Series A funding.

She also explained that UC incubators have always had a global strategy and hoped to set up a platform for global innovation. At present, the United States is facing a lot of uncertainty in its policies and markets. If startups need to expand a new market immediately but don’t have the resources to do so, then they should develop in their home country first. However, to become unicorns, they must have a global market strategy.

3. How can UC Incubators Help Startups Globalize?

Victoria explained that each of the 60 UC incubators and accelerators has its own website.Alumni from all branches of the University of California can apply. Some incubators also accept teams that are not from University of California schools. An example she gave was that a service object of a UC Irvine incubator faces the entire entrepreneurial environment of Southern California. UC incubators provide mentors and programs, as well as experts to give guidance in any field that a startup might be in.

Innovation “Dark Horse” Technology in the Post-Pandemic Industry

1. Anticipating Post-Pandemic Industry Trends

Victoria offered two trends based on the current situation:

(1) What enables people to work and collaborate at home, for example, what tools, software, etc.

(2) What can help people coexist with the Covid-19 virus, because this virus will last a long time as we will not be able to easily get rid of it.

She believes that because of the pandemic, startups must seek out business opportunities and make changes due to the lack of resources. This is a good opportunity for developing cross-functional operations, and startups should pivot their business models to improve their competitive advantages. Financial technology, biotechnology, and online offices are all promising trends. Victoria added that they are also looking forward to seeing the pandemic promote the economic development of small and medium-sized cities to reduce the population imbalance between large and small cities.

She also mentioned the results of our survey, which showed that attendees believed mobile travel and real estate technology would be losers in the situation. However, Victoria believes that not all real estate will be negatively affected. People working from home will have a certain impact on commercial real estate in big cities, such as Wework's co-working space; she looks forward to seeing how commercial real estate operators can transform successfully.

Q&A

During our final webinar, Judy and Victoria shared many insights, prompting many questions from the audience. We will summarize the more frequently asked questions below for those who were unable to attend.

Question 1: UC incubators are very interested in the medical field. Will it increase investment in this field after the pandemic is over?

Victoria: Many technologies from UC incubators focus on biotechnology, not just on biopharmaceuticals. An incubator of the University of California at San Francisco focuses on the field of medical devices, which will receive more and more attention in the future.

Question 2: Can you explain the application and selection process for UC incubators? Which ones can we apply for and when? (Please click “Read Original" at the bottom of the article for the application link)

Victoria: Some incubators require deep tech startups, while others are more open.  Some only accept alumni from University of California schools, while others accept outside entrepreneurial teams. Some are aimed at relatively early-stage startups for students in school, while others are aimed at relatively mature startups. Each incubator has its own website and application periods in spring and fall, with some accepting applications once a year and others twice a year. Each application will be evaluated based on entrepreneurial experience and background by a selection team. UC incubators have hatched many successful startups, including the bike share company Lime.

Question 3: What help have UC incubators provided to startups during this pandemic?

Victoria: UC incubators help startups connect with investors and obtain government subsidies. It is not easy to receive funding now, which makes getting government subsidies even more important. UC incubators will also help connect small- and medium-sized businesses located nearby with resources and strategic partners, as it is important for them to survive the pandemic.

Judy: How do startups apply for subsidies from the US government?

Victoria: There are many applications to apply for government subsidies. The most important thing is to be quick, since there might not be any subsidies left if you apply any later. These opportunities are available online and startups should seek out many to apply to. The University of California, for example, receives $7 billion USD from the federal government every year. The government will provide many subsidies, because small and medium-sized businesses in the United States account for 99% of all businesses, and the economy will collapse if small and medium-sized businesses cannot survive.

Conclusion

For the final webinar, Judy and Victoria discussed business strategies and industry trends in the post-pandemic era, as well as how UC incubators assist young entrepreneurs in getting through this pandemic.

Thank you again to Victoria for joining us; we’ll be watching UC incubators for any future excellent startups they hatch, as many will bring improvement and convenience to our everyday lives. We’d also like to thank everyone who joined us for and participated in these webinars. We hope to see you again at future science and tech events. If you have any topics of interest, we’d love to hear from you!

Highlights 7 | Silicon Valley's Innovation During and After the Pandemic (Week 7: Dialogue with PnP)

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).

Our seventh virtual webinar was moderated by Mr. Ming Lin, Chairman of the Silicon Valley Technology Council (SVTC). Our guest was Mr. Chen Zhao, Managing Partner of Plug and Play China, the world’s leading incubator and accelerator.

PnP China, as the world's leading incubator, is a fundamental partner of Guangdong Zhonghuan Investment Group, the parent company of Guangzhou Grand Tech Park and Onelin Capital. China had the first outbreak of coronavirus and is the first country to recover. In this webinar, Mr. Zhao describes what China’s innovation ecosystem looks like in the wake of the pandemic: how has innovation in China been impacted by the pandemic and what does the future hold? Below is a recap of the highlights from this week’s webinar.

Established in 2015, Plug and Play China has centers in Beijing with other locations in Shanghai, Chongqing, and Shenzhen. Plug and Play and Guangzhou Grand Tech 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.

Based on Mr. Zhao’s insights, we have summarized the current status of PnP’s development:

1. PnP China's investment field focuses on artificial intelligence, smart manufacturing, and the Internet of Things. It has invested in the Level-4 autonomous vehicle company Auto X, Zhen Robotics––China’s first robotics company to solve the last mile problem, mixed reality tech company Archifiction, and more.

2. PnP China partners with large enterprises from many different industries, such as Guangdong Zhonghuan Investment Group and Grand Tech Park. It connects enterprises with startups who are providing the latest technology and solutions, and promotes cooperation between startups and large enterprises in business, investment, and M&As.

3. PnP China promotes innovation and collaboration between large enterprises and startups in different vertical industries. For example, PnP Chinafacilitated Daimler’s partnership with SenseTime and PowerShare. Now, the Fortune  500 companies more actively collaborate with startups, with some of them undergoing strategic M&As.

4. For the past 20 years, PnP China has been building an entrepreneur-centered innovation ecosystem, connecting the best tech startups in the industry through a one-stop entrepreneurial solution. By providing an active community space, mentorship system, investment institutions, talent integration and other services for startups, PnP China supports startups in entering and developing in China.

5. There are many differences in innovation and investment in China and the West. In particular, the main difference is it has driven by the government and its unique policy in China. At present, an increasing number of high-tech zones have issued policies with more specific innovation and positioning requirements to support the innovation of large enterprises in their zones. In this way, PnP China has introduced the concept of urban innovation, hoping to attract more companies to the city and region for development.

Mr. Lin summarized Mr. Zhao’s insights using Guangzhou Grand Tech Park’s close partnership experience with PnP China. He explained that Grand Tech Park has worked with PnP for many years and been supported by PnP all this time. At first, they took part in PnP activities to observe and learn. Later, they slowly started exchanges and collaboration. Now Guangzhou Grand Tech Park has become a cornerstone partner of PnP, the world's leading incubator.

Analysis of the Development of Innovation Technology (Macro)

How has the pandemic impacted China's innovation ecosystem?

Mr. Zhao explained that China's investment in science and technology has been increasing in the past few years. Beginning in 2014, there has been a wave of innovation and entrepreneurship. With the help of government policy, entrepreneurship and venture capital have received greater exposure. However, many founders come from schools or from large enterprises such as BAT, and there are not many A-plus founders. A large amount of funds going into the venture capital market come from the secondary market, foreign exchange market and real estate market, resulting in an increase in venture capital. Abundant venture capital funds yielded a significant number of unicorns, but while some unicorns perform well, others are overvalued.

Generally speaking, from 2014 to 2015, more attention has been paid to China's scientific and technological innovation. From 2018, rumors about venture capital encountering a capital winter has been heard, but this is a normal adjustment. Founders considering returning to China to start their own businesses should not worry too much, because leading venture capital institutions are taking advantage of low valuation to actively look for A-plus founders and founding teams. PnP is also looking for better early investment deals.

He concluded that in the first quarter of 2020, transactions in venture capital decreased while the funds  have not been significantly impacted. Angel round to Series A round funding accounted for the vast majority of financing. Investors pay more attention to health and education, because they are more accessible when working from home. At present, the listing in China is still slow. Although the STAR Market and the future registration system will alleviate this problem, there are still restrictions on listing, which has led some Pre IPO and PE funds to shift their investment towards earlier Series B startups. 

Enterprise/Urban Innovation in the Post-Pandemic Era

1. The Current Situation of Urban Innovation in China

Mr. Lin brought up a popular topic, saying that China, besides being market-driven, has many policy drivers, with urban innovation being especially important. He asked Mr. Zhao to share his insights into how urban innovation is being promoted in China.

Mr. Zhao analyzed this topic from two aspects:

1. In terms of investment assistance, for example, Beijing's municipal finance bureau has started a government fund - the science and technology innovation fund.   The funds in Beijing can raise about 40% of the fund from the government funds at the municipal and district levels, which means that government funds can help the GPs to achieve almost half of their fundraising goals . In addition, government funds provide  incentives for GPs that can reduce their return distributed to the limited partners after exits.

2. In terms of industrial promotion, PnP China has two projects landed in Nanjing this year, with much thanks to the Nanjing government. One is the mobile travel project, since the Nanjing government issued policies to rapidly develop unmanned driving.The other is a smart farming project. The agricultural science and technology industry is a very large industry with many opportunities for innovation in sub-sectors and across industries. Combining the positioning of different cities, we can see that there are many different opportunities in different cities.

Mr. Lin also agreed, adding that the Chinese government measures will be a large driving force. For example, in the autonomous vehicle industry, government measures in China help road testing and business operations go much faster, while the United States has stricter requirements such as road testing permits. This is the difference between China's innovation ecosystem and that of the United States.

2. What is the impact of the pandemic on the innovation ecosystem of enterprises?

Mr. Zhao believes that due to the pandemic, some short-term changes are occurring in enterprise innovation. Before, many North American, Southeast Asian and Brazilian enterprises contacted PnP China seeking to come to China for collaboration opportunities after the Chinese New Year holiday. At the beginning of the outbreak in China, many enterprises still planned on coming. Later, after the situation stabilized in China, they chose not to come.he reversal of that was due to the impact of the pandemic. China has quickly resumed production through strict disease control measures. China is full of confidence in innovation and industrial recovery, especially in the field of hard science and technology.

3. Predictions for the Future Development in Science and Technology

Mr. Lin mentioned that China needs to boost the economy through investment in infrastructure and hardware technology. He asked Mr. Zhao in which areas will investment increase?

Mr. Zhao responded that there are three areas where investment will increase.

1. The field of robotics will see increased investment. Due to the pandemic, factories and streets now need to use robots to replace human employees, so there will be many opportunities in the robotics field.

2. The field of online software will also receive increased investment, such as online education software and collaborative office software. People will have to continue using online software while working from home due to the pandemic. This software is essentially online tools and services. Changes in people’s behavior caused by the pandemic will lead to many online business opportunities, including in e-commerce.

3. The hardware technology field will also see increased investment, such as chips. Currently, top experts working from home may generate new ideas, and this time is also a good opportunity to invest in A-plus founders.

Mr. Lin fully agrees with Mr. Zhao that this pandemic will not lead to drastic change in the investment circle, and investors should find new needs in every aspect of our lives. For example, to maintain social distancing, robots are needed to solve human problems. Shelter in place has created a variety of online business demands such as telecommuting, home entertainment, e-commerce, etc.

The Impact of the Pandemic on Investment and Funds

1. The Impact of the Pandemic on Investors' Outlook and the Investment Market

Mr. Lin said that the pandemic has put a brake on the upward trend of increasing valuation of the primary market and has now entered an adjustment period. However, in the secondary market, U.S. stocks rebounded sharply and hit a new high after the adjustment period. Are investors still confident?

Mr. Zhao believes that the amount of funding and the number of deals invested by top investment institutions did not decrease significantly in the first quarter of this year. Many of those investments were signed at  the end of last year. The real impact of the pandemic can probably be evaluated in the second and third quarters of this year.

However, we can see a large number of online pitch sessions, and we can also see that middling and smaller institutions are relatively short on funds. Now that work has essentially resumed in June, it is necessary to speed up progress to make up for the negative impact of the pandemic in the first half of the year, especially the delay in decision-making caused by the inability to interview. It is expected that funds will rebound significantly at the ends of the second and third quarters. Investment funds with poor performances have already been eliminated. As Churchill once said, “Never waste a good crisis.”

Mr. Lin agrees with this view. During the pandemic, there was a sense of powerlessness when it came to making investments. The reason being that it was difficult to make decisions online, since these decisions require close communication with the founding team. He also very much hopes that the United States can resume work and rebound as soon as possible.

Looking to the Future of Entrepreneurship Innovation after the Pandemic

1. Control Measures for Rapid Changes in Business Environment

Mr. Lin said that China's business environment is developing rapidly and that Chinese people generally have a good business sense. A lot of people have taken advantage of opportunities during this time, from masks to personal protective equipment to market stall businesses. Mr. Lin also asked what advice Mr. Zhao had on the rapid changes in the business environment?

Mr. Zhao explained that he has met with some people who had planned to start their own businesses by the end of this year. Now they have chosen not to do so because of insufficient preparation. Due to the pandemic, more factors are needed to be considered, such as their commitment, project barriers, business obstacles, etc. In the end, they opted to remain at their corporate jobs and receive a stable income, rather than start a business at this time. Therefore, the number of entrepreneurs will be lower, while the average quality will be higher.

At the same time, he mentioned that because Asians work very hard, the pace of entrepreneurship and venture capital in China is very fast and the mindset of not working during weekends is not that prevalent. If someone considers going back to China for their career, they should know that it will be very competitive. Startups and venture capital institutions need to make up for delays in the first half of the year.

Mr. Lin added that with some points, entrepreneurs can rethink some of their radical business ideas. Business moves at a rapid pace and many opportunities are fleeting. Starting a business is not a short term job, but a lifelong career that requires a good deal of time and effort. Therefore, mass entrepreneurship and mass innovation cannot be linked.

The explanations shared by Mr. Zhao were extremely insightful, prompting many questions from attendees. Although we cannot include all the questions here, we will summarize the frequently asked questions below.

01 What should entrepreneurs do to attract investors' attention?

Mr. Zhao said there was no need to do anything in particular. Venture capital funds have basic evaluation systems, and founding teams that have the passion, ability, and experience are best able to attract early VCs. For example, investors will be interested in if you have 2-3 experienced co-founders with disruptive technologies, many potential application use cases, large market scale and potential exits.  China has recently focused heavily on insurance, agriculture, and automobile industries, which have seen many opportunities for development. Entrepreneurs should combine their own experience to seek innovation ideas that funds will be interested in.

Mr. Lin added that gold always glitter. Entrepreneurs need to show their strengths.

02 In the United States, where the market is relatively mature, Okta and auth 0 gain growth through their comparative advantages. In contrast, are there any Chinese identity cloud software companies that can compete with giants such as Ali and Tencent? Secondly, what does the competitive situation between them look like? Can this kind of enterprise SaaS be internationalized?

Mr. Zhao said that the exchange of new technologies at the civilian commercial level and the exchange between entrepreneurs and communities will return to previous levels after flights resume. Certain aspects of cross-border cooperation between China and the United States have been put on pause; offline operations can only be completed online, and global cross-border cooperation can only resume at its previous level after the pandemic is brought under control.

Mr. Lin expressed that he hoped to see business exchanges between China and the United States resume as soon as possible.

03 Can Mr. Zhao give some advice on finding suitable co-founders, especially on how to find new partners?

Mr. Zhao said that Onelin Capital has invested in many good companies, and this is his advice for finding a co-founder, which can be no less difficult than finding a spouse. PnP China found in its post-investment management and communication with founders that founding teams can encounter various problems.

The ideal situation is that the founding team already has a foundation of mutual trust before the company is established. Because it will be more difficult to accomplish later. Character, honesty, personality, knowledge of the industry, and how well they complement each other are all very important. Companies with good moral character and integrity will take a long-term approach; otherwise, there will be many problems. The capabilities of the founding team members should complement each other, and there should be honest and open communication among members. If you meet suitable co-founders and core team members, you should quickly formulate effective measures. If the team isn’t working well together, it should dissolve as soon as possible, as long-term pain is worse than short-term pain.

Mr. Lin added that the founders should be able to get along, since they are founding a company together. Whether founders can get along is not a question of tolerance, but one of character––you shouldn’t sacrifice that for entrepreneurship. There are many problems encountered in the process of starting a business, and founding teams that don’t work well together will have difficulty in growing the business.

Conclusion

After an hour of insightful discussion, SVTC once again thanked Mr. Zhao for joining our webinar. He showed us the entrepreneurial character of a global innovation incubator through his professional experiences, explaining to us how PnP China, as a global innovation accelerator, understands innovation and investment strategy during the epidemic. We appreciate PnP's continuous efforts to foster innovation and improve people’s lives during these difficult times.

Highlights 6 | Silicon Valley Innovation During and After the Pandemic (Week 6: AI and Robotics)

Highlights | Silicon Valley Innovation During and After the Pandemic (Week 6: AI and Robotics)

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 scientific experts from various fields, we hope to explain to Chinese audiences how Silicon Valley is innovating during the pandemic and the future direction of innovation in the post-pandemic era. These talks will take place on Saturdays at 9:30-10:30 am CST (Fridays, 6:30-7:30pm PDT).

Leanne Wang, Global Business Development Director of Silicon Valley Technology Council (SVTC), hosted the conversation with Song Cao, founder and CEO of Turing Video, an American tech company. Mr. Cao, who has a background in computer vision and robotics, received a PhD in computer science from the University of Southern California and a bachelor's degree in electrical engineering from Tsinghua University. He has insights into China-US cross-border innovation and entrepreneurship. During this dialogue, he shared with us how the AI robotics industry turned “risk” into “opportunity” during the pandemic.

In this session, they provided in-depth discussion for the impact of the pandemic on AI robotics innovation, the development and challenges of AI robots, as well as the entrepreneurial experience in China and the United States. Attendees responded to the discussion with great enthusiasm and numerous questions. Below, we will provide a brief summary and the key takeaways of the conversation for those who were unable to attend.

Turing Video specializes in security robot technology, and aims to promote the development and transformation of the security industry and human capabilities. The company assists security personnel through the integration of security robots, software, mobile phones and unmanned aerial vehicles to form a comprehensive security platform comprised of people and machines.

AI and robotics technology will both mature in the coming future, which will improve the operational efficiency of and reduce the operating costs for large enterprises. During the pandemic, an increasing number of large enterprises have joined the trend of digitalization and industrial upgrading via AI robots.

The Impact of the Pandemic on AI Robotics Innovation

1. How has the pandemic spurred the innovation of robotic monitoring products?

Mr. Cao explained that the pandemic has spurred innovation for service robots, which are used to replace maintenance personnel for certain operations. Before 2020, such work was done by people. With the continuous development and maturing of AI and robotics technology, large enterprises increasingly begin to consider using AI robots to assist their workers during the pandemic.

He also mentioned that during the pandemic, operational and maintenance personnel do not wish to go out and perform routine inspections, while the large enterprises saw rising operating costs and pressures. Large enterprises found that robots can perform timely inspections without being affected by the pandemic, so they increasingly turned towards using AI robots, which helped promote the large-scale implementation of more service robots.

Leanne asked when there will be breakthroughs in specific application use cases, prompting Mr. Cao to elaborate on his previous remarks. He believes that the development will be in the direction of service, and that machines will replace human beings in an increasing number of fields and scenarios, while enterprises’ ROI will be improved significantly. First of all, more robots will be used in the food delivery industry. It is not enough to rely solely on food delivery companies such as UberEats during the pandemic. In addition, more robots will appear in the security industry in order to reduce operating costs and replace security personnel. The cleaning industry will also see more robots doing cleaning work in the future.

2 What policies were implemented during the pandemic to drive the purchase of AI robots?

Mr. Cao thinks that it is mainly driven by the enterprises themselves. For example, the security work is tedious, does not pay well, and has a high turnover rate; for those reasons, enterprises will consider using security robots during the pandemic. In the future, labor costs will grow more expensive, and that rising cost will affect the financial performance of enterprises. Enterprises will undergo digitalization through the use of AI robots, which have a lower cost.

Leanne agreed with him, mentioning that Wal-Mart uses robots to pack goods and Amazon for packaging logistics. She also asked Mr. Cao which jobs will be completely replaced by robots and AI in the future, what he thinks of the unemployment problem caused by this, and how to achieve balance between the two.

Mr. Cao explained that historically speaking, machine technology has continuously advanced over the past 200 years, while social efficiency has also developed along with it. At present, society will also undergo such a transformation. Security personnel and house cleaners will be replaced by AI robots.

Mr. Cao believes that machines should do what machines are good at and people should do what people are good at. There will be industrial upgrading in the next 20 years. People will be able to pursue more creative work in the future, while machines perform the labor-intensive and repetitive tasks, with social efficiency improving overall.The future will see technological progress, industrial upgrading and improvements in efficiency broughtby AI robots.

Prospects and Challenges in the Development of AI Robots

1 The future of AI robots

Mr. Cao believes that in the service industry, AI robots and human coexistence will become more widespread, with intelligent robots appearing in office buildings, factories, hospitals, etc. Artificial intelligence and robotics technology will go through several stages of development as other high technology has, from a stage of immaturity to implementation on a larger scale. In the future, the development of AI robots will progress even more, eventually with AI robots being found everywhere in our lives.

Leanne mentioned that many AI robots are developed to solve enterprise-level problems and forgo entering the mass consumer market. In the future, what are the application use cases in the consumer market?

One of the most common applications for AI robots  is the robot vacuum. The consumer market differs from the business market in price and application use case: individual consumers are more sensitive to price. Mr. Cao added that in the long run, there will be more and more applications for AI robots in consumer homes. For example, smart cameras can be used as home assistance in large houses.

2 What is the difference between AI robots in China and America?

Mr. Cao answered this question from the aspects of market, foundation, talent, and application.

1. With regards to market scale, both China and the United States have very large markets, ranked the world’s top two. The purchasing power of US consumers is stronger, due to higher wages in the US.

2. On a fundamental level, American universities and R&D institutions have advantages when it comes to the development of cutting-edge technologies.

3. On an individual level, China and the United States do not lack when it comes to talen, and have a similar level of R&D.

4. On an application level, U.S. consumers are less receptive of AI robots than their Chinese consumers. China’s acceptance of AI in general is higher, which relates to government policies. The US is trailing China in this aspect, but is catching up gradually. China has more application use cases and startups can accumulate more data to improve their products.

Leanne asked whether the difference in data security between the two markets has a favorable or unfavorable influence on the development and application of AI.

Mr. Cao believes that entering different markets means different regulations that the company needs to comply with, based on the country. In Europe and America, companies need to comply with stricter data security, data privacy and network security regulations. In contrast, the requirements in China are not as strict as those in Europe and the US; thus, there is more available data to use, so experimentation can go faster in China.

Sharing Entrepreneurship and Innovation Experiences

1. Views on current status of venture capital

Mr. Cao’s outlook on the current financing situation is relatively pessimistic. He believes the unfavorable circumstances began in the second half of last year. After the pandemic, many companies lost money, making financing more difficult. At present, investors focus on cash flow and large-scale applications to ascertain the strength of the company's products, business models and marketing. A key quiteria for investors is how much income you can generate.  orders from large enterprises is a good endorsement for its product.

Mr.Cao thinks that now that the time of obtaining financing with a nice PPT and a good narrative is over; investors are now more practical and rigorous. What the investors value the most is the rapid growth in income and consumers. We suggest that entrepreneurs should focus on growing their business and revenue. 

The most important thing is to survive. Currently, companies are facing many challenges. During the pandemic, many normal business operations are difficult to carry out. As a result, the annual income declines, and the business shutdown of upstream and downstream suppliers also affect the supply chain of companies.

Of course, he believes that the startups which whether the present difficulties will emerge on the other side stronger. The Internet bubble in 2000, the 2008 financial crisis and now this year's pandemic: based on history, we will see excellent companies stand out from this crisis. We believe this will continue happening after the pandemic, especially those in the AI robotics field. Because the pandemic has prompted large companies to think about digitalization.

2 . Tips for raising capital

Leanne has often worked with many investors and fund management partners in her past, and understands that investors are more realistic and focus on a company’s business operations, finance performance, , and upcoming sales pipeline. She also asked Mr. Cao what suggestions he had for pitching to the investors.

Mr. Cao explained his own views on how to pitch investors, especially for those in the AI robotics industry.

He believes that the strategy and time allocation for the pitch session should be made according to the stage of the startup.The later the stage of the startup is, the more need there is for companies to clarify their financial situation with investors to show potential growth. For early stage startups, the technology and products should account for about half of the pitch, before pitching their ideas on business expansion and implementation to investors.

He also mentioned that for the AI robotics industry, it’s much easier for unicorns to raise funds . As the Chinese saying goes, number one gets the meat, number two gets the soup; there exists a process of survival of the fittest.

He believes that the pandemic has revealed cash flow and money-burning problems, which will increase investors' consideration of risks, and prompt them to further consider the risks and return of their portfolio companies.

In the long run, when startups reach the Pre-IPO and secondary market stages, they should amplify their strength in the actual application use cases, finance performance and operation data can impress investors, as providing hard evidence can demonstrate the strength of the company.

3. Advantages of the Chinese Market for AI Robot Startups

Mr. Cao believes that the advantages of the Chinese market are higher consumer acceptance of AI robotics, extensive data, accessible talents and more application use cases, all of which can accelerate the process of product application and foster greater observation of industry pain points. In the long run, the Chinese market will help global digitization and industrial upgrading. China has its own advantages in implementing artificial intelligence. China's best AI companies can internationalize and take a market share on the global market.

Leanne and our guest, Mr. Cao, shared many insights, which garnered many questions from the attendees. Below, we will summarize the most frequently asked questions.

1. Can you tell me if Turing Video's non-contact body temperature scanners are used in hotels and casinos, and how do you market this product to companies in the service industry? What are the competitive advantages of non-contact temperature scanners?

Mr. Cao explained that Turing Video’s sales team conducts business development  with large companies through B2B business models. As the US gradually reopens, more tools and technology will be needed to facilitate the process. At the same time, robots can assist in controlling the spread of the disease. The service industry has many pain points, so many of these companies are willing to use robot products.

2. What aspects should companies pay attention to when choosing intelligent security robots?

Companies should consider what are the pain potions and potential return on investment. For example, a company might identify five major pain points and set a goal to solve at least three of thosebefore purchasing. Can intelligent security robots solve at least three pain points? Then, considering the return on investment after reaching that 60% threshold, we can find that intelligent security robots are not more expensive than employing people. Both of these aspects can be evaluated through purchasing decisions.

3. Intelligent robots have provided much-needed assistance to companies during the pandemic, which will likely lead to an accelerated adoption of this technology in the coming future. What deficiencies do you think security robots still have and what functions need to be improved?

At present, one function that a security robot lacks is the ability to open and close doors, because it doesn’t have a hand. Moreover, robots mainly get to different floors by using the elevator, which will prove difficult for inspections of factories with outdoor stairs. These problems, which are currently being worked on, will be solved gradually with each iteration and the progress of technology.

Conclusion

During this week’s event, we discussed the technological innovation of AI robots during the pandemic through three aspects: the impact of the pandemic on AI robot innovation, the development and challenges of AI robots, and the entrepreneurial experience in China and the United States.

Thanks again to Mr. Cao for joining us this week. We hope his startup will continue to innovate and pave the way for the adoption of AI robotics technology. We’d also thank all the attendees for their questions and discussions. If you have any topics of interest you’d like to hear more about, please contact us.

Highlights 5 | Silicon Valley Innovation During and After the Pandemic (Week 5: Cross-border Venture Capital)

Highlights | Silicon Valley Innovation During and After the Pandemic (Week 5: Cross-border Venture Capital)

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 scientific experts from various fields, we hope to explain to Chinese audiences how Silicon Valley is innovating during the pandemic and the future direction of innovation in the post-pandemic era. These talks will take place on Saturdays at 9:30-10:30 am CST (Fridays, 6:30-7:30pm PDT).

For our fifth virtual dialogue, SVTC invited Mr. Wayne Shiong, partner of China Growth Capital (CCG), to share with us how the pandemic has impacted and created opportunities for cross-border venture capital, the current financing situation, and the impact and changes that the pandemic has on the existing technology startups.

About China Growth Capital Management

China Growth Capital was established in 2006 and from 2006 to 2014, made numerous angel investments. At present, China Growth Capital manages a total of eight billion RMB. Investment fields include soft technology, hard technology, consumption upgrade, and B2B. Notable portfolio includes Tiger Brokers, SMZDM (300785.SZ), DeePhi, Wish, WeRide, and more.

Among its acquisitions, Deephi Tech is Xilinx’s only acquisition in China, acquired not for Deephi Tech’s Chinese customers and markets, but for its abundant technological accumulation. China Growth Capital helps portfolio companies  find Chinese resources. The Chinese supplier China Growth Capital introduced to Wish early on became the head of Wish suppliers.

Judy Lee, general manager of the Silicon Valley Technology Council (SVTC), moderated this event. She and Mr. Shiong have been good friends for 15 years; they have worked together at Wall Street investment banks and have helped Baidu, Sina, Sohu and other Internet companies successfully list in the United States. Mr. Shiong is an expert in the field of mobile Internet investment and has valuable insights for China-US cross-border investment.

For this week’s event, as Judy and Mr. Shiong are both experienced in the venture capital industry, they exchanged valuable investment insights, especially in the mobile Internet field, prompting many questions from the audience. Below, we’ve provided a summary of the event’s key takeaways.

Investment Thesis and Direction During and After the Pandemic

1. How has China Growth Capital changed its investment strategy due to the pandemic?

Mr. Shiong believes that China's market has changed since 2014: the consumer infrastructure is already well-developed, and there are already industry giants in each consumer segment, so there is little chance of further penetration. It is very difficult for consumer base startups to reach 10 billion US dollars. China has now entered the era of enterprise-level software as a service (SaaS) investment. The Chinese personal cloud computing center runs on mobile phones, while the American personal cloud computing center runs on computers. At present, mobile phones are very popular in China, so there will be an explosion of enterprise service software.

In addition, Mr. Shiong mentioned that CCG’s investment amount has not changed, ranging from 10 million RMB to 10 million USD for a single investment, from seed round to series A. The decrease in the number of investments is not due to reluctance on CCG’s part to invest, but to the fact that the deal flow is undergoing a rapid adjustment from high to low in the market.

Judy is familiar with the trends of the Internet in the US, asking, “Many US enterprise SaaS startups have been acquired by large companies. Will there be more mergers and acquisitions instead of listings in the future?”

Mr. Shiong responded that mergers and acquisitions are already taking place, explaining that listing requires volume. Software giants can still emerge in areas that traditional Internet giants are not willing to enter, so there will still be enterprise SaaS startups that go public.

2. Predictions for Enterprise SaaS Startup Giants 

Mr. Shiong thinks there are three areas:

1. Software tools for small- and medium-sized enterprises. Because small- and medium-sized enterprises do not want large enterprises to control their inventory management and financial management, they need a third-party software service provider to provide solutions. 

 2. Private Cloud Architecture for Large Enterprises. For example, China Merchants Bank has changed from a traditional offline service organization to an Internet company with 50 million daily users. 

3. Database. The demand-driven nature of this area and the way the industry is structured have led to a lack of access to American products that used to be readily available and thus now the need for self-sufficiency.

3. Prospects for Enterprise Saas companies in China 

“华创看到很多企业级软件即服务创业公司创业者之前有在美国大企业和国内互联网巨头工作的经历，这些都是不错的创始人。” 熊总补充道，“企业级软件即服务符合中国目前的发展阶段，因为企业算过帐之后会发现软件服务外包会更划算，这点中国在学美国。”

China Growth Capital has observed that many entrepreneurs of enterprise SaaS startups have worked at large American enterprises and Chinese Internet giants before, and these are founders that Mr. Shiong considers to be good. Mr. Shiong added that enterprise SaaS is in line with China’s current stage of development, because enterprises will find it more cost-effective to outsource software services—something that China is learning from the United States.

Financing Environment and Valuation in the During and After the Pandemic

1. The Impact of the Pandemic on the Venture Capital Financing Environment and Valuation 

Mr. Shiong thinks that the financing environment is favorable at present: LP and GP still have money, and many leading funds have recently raised new funds.

Mr. Shiong explained that China’s Beta is good and there are many Alpha opportunities. The consumer market environment has changed, and at the enterprise level, there is not yet a large market. At present, China's enterprise market, like the Internet in 2003, still needs time. Valuations have fallen and become more reasonable.

Judy made a key point when she asked if startups’ valuations decline because previous valuations were too high?

Mr. Shiong said, “It should be said that the valuation has become more reasonable now. Investors are more concerned with the logic behind the rise than the absolute valuation.”

Comparison of Project Withdrawal Methods and Conditions in China and America

1. Is it appropriate to exit at this stage? What are the advantages and disadvantages of a China vs. US exit? 

The questions of whether, how, and where to exit require comprehensive consideration. Mr. Shiong explained that deciding whether to exit or not should be calculated as a value: the difference between the expected return of investors and entrepreneurs who exit now and the expected return from exiting in the future. The morale of the founding team should also be taken into consideration.

Below, we will summarize Mr. Shiong’s three exit methods: IPO, selling (merger and acquisition), and secondary fund.

Mr. Shiong believes there are many factors to consider when exiting. For example, one should keep in mind that there will be a 6-month lock-up period after IPO. If the price is right, he advises selling, but acknowledges that some founders will be obsessed with listing. An exit strategy also depends on the development cycle of the industry to which the company belongs. If the industry develops rapidly, listing is a good choice. If it is a scientific research industry, there is no bubble and the price of listing and selling are the same, then it may be better to sell.

When comparing exit strategies in China and the United States, that largely depends on the industry. Currently, China's semiconductor industry is equivalent to that of the United States in the 1970s, and there are good opportunities for semiconductor entrepreneurs to return to China. China’s regulation of the Growth Enterprises Market (GEM) and STAR Market is matching up more closely with that of the United States’. China's STAR Market bubble has both advantages and disadvantages: a certain bubble can attract more funds and talents. In conclusion, Mr. Shiong thinks one should exit wherever it is most worthwhile to exit.

2. Views on A V-shaped Recovery 

Judy quoted Warren Buffett's famous saying, “You only know who is swimming naked when the tide goes out,” and asked Mr. Shiong for his views on the V-shaped recovery. 

Mr. Shiong replied that when the secondary market faces setbacks, the primary market will feel like it's swimming naked. The financial crisis in 2008 was an asset problem and there were problems in company balance sheets. This year, there is a cash flow problem for companies, because many employees cannot go to work. Mr. Shiong believes the current situation is much better than the situation in 2008, and there is likely to be a V-shaped recovery, because this is not an assets issue. However, the bottom of the V may be wider because the pandemic and its impact could last a long time—something that is hard to accurately predict.

The insights shared during this conversation prompted enthusiastic questions from attendees. Though we cannot list all the questions asked, we will summarize the frequently asked questions below.

01 The current pandemic situation is gradually improving in China. What should entrepreneurs do at this stage to attract investors’ attention? How long should you maintain your cash flow?

Mr. Shiong said that now is a good time to start a business, because fund partners have a lot of time to discuss deals. When you are ready to raise funds, you can do so via online video. Cash flow below 6 months at any time in most industries is a red flag and funds need to be raised immediately.

02 In the United States, where the market is relatively mature, Okta and Auth0 survive due to their comparative advantages. In contrast, do Chinese identity as a service (IDaaS) companies compete with giants such as Alibaba and Tencent? If so, what is the competitive situation between them? Is this kind of enterprise service software internationalized?

Mr. Shiong thinks that the domestic ecosystem is different from that of foreign countries, and that countries are very concerned about data security. IDaaS companies occupy an independent, third-party identity security market space and will have many future development opportunities.
03 We often see WeRide’s autonomous vehicles in Guangzhou. What does this company’s development look like now? Where did they come from and why did they register in Guangzhou?

Mr. Shiong explained that unmanned driving involves safety. China is unlikely to allow foreign enterprises to fully land. The Chinese government has given WeRide a lot of support. China's autonomous vehicles industry, including Guangzhou’s WeRide and Changsha’s Baidu, are now starting to charge fees. Unmanned vehicles are available in local areas. Apart from unmanned vehicles, the pandemic has spurred the automation process in a variety of industries.
04 Can you compare the business environment and investment environment in China and the United States? Should overseas Chinese choose to return home to start a business or stay abroad?

Mr. Shiong thinks that it is necessary to look at the field in which the innovation is happening; cutting-edge technology is being developed in the US and implemented in China. It is better to obtain seed and angel funding in the United States, because seed and angel investment institutions have more specific and comprehensive focuses for investing. Later rounds of funding can be obtained in China because the amount of money in China is more massive.

05 Video Conference or Virtual Office is a 100-billion-dollar market. Who can enter that field in China? Can Huawei/China Mobile do it, or a non-state-owned enterprise like Zoom?

Mr. Xiong thinks that non-state-owned enterprises, such as DingTalk, Tencent, and Toutiao are likely to do this better. Because what  video conferencing and virtual office competing is  product iteration capability and a huge consumer base. There are the advantages that giants like Alibaba, Tencent, and ByteDance have. Moreover, these companies know more about user behavior because their services are used by so many people. 

After an hour of insightful discussion, SVTC once again thanked Wayne Shiong for joining us this week. As an expert in Internet cross-border venture capital, he shared with us how cross-border venture capital has turned “risk” into “opportunity” during this time. We wish Mr. Shiong all the best in his future investments!

Highlights 4 | Silicon Valley Innovation During and After the Pandemic (Week 4: A Conversation with a Successful Entrepreneur)

Highlights 4 | Silicon Valley Innovation During and After the Pandemic (Week 4: A Conversation with a Successful Entrepreneur)

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 scientific experts from various fields, we hope to explain to Chinese audiences how Silicon Valley is innovating during the pandemic and the future direction of innovation in the post-pandemic era. These talks will take place on Saturdays at 9:30-10:30 am CST (Fridays, 6:30-7:30pm PDT).

 For our  session 4 virtual webinar, SVTC invited the CEO of Amprius, Dr. Kang Sun. He was the founder and CEO of RayTracker Inc. (acquired by First Solar in 2011) and the chairman of JA Solar Co. Lt (listed on NASDAQ in 2007). Dr. Sun has had many successful startup exits.

 This event was moderated by Judy Lee, general manager of Silicon Valley Technology Council (SVTC). Dr. Sun and Judy have been friends for over ten years, with Judy having helped Dr. Sun successfully list JA Solar on NASDAQ in 2007 when she worked at a Wall Street investment bank.

 Judy has previously worked at listed clean energy companies for many years and knows that this field is a very “money-burning” industry. Dr. Sun has been in this industry for several decades, and achieved the impressive feat of having successfully listed two companies and helped numbers of startups exit. Judy thinks that many entrepreneurs and business managers can learn from Dr. Sun's successful entrepreneurial experiences. For this virtual webinar, she and Dr. Sun had in-depth discussions about the field of technology venture capital.

Their insights were met with engaged discussion from the attendees. For those who were unable to attend, we’ve summarized the key takeaways from the event below.

What impact has the pandemic had on clean energy technology?

01 The macro impact of the pandemic on clean energy technology

Judy mentioned that because of the pandemic, the price of oil has decreased. Will this have a direct impact on clean energy technology?

 Dr. Sun quoted Saudi Arabia's former Minister of Oil, saying, “The Stone Age didn't end because we ran out of stones.” In the same way, the oil age won’t end because the oil ran out. He explained that the development of new energy wouldn’t happen because there is no oil. The extent to which the pandemic has impacted new energy and the decline in oil prices depends on a comprehensive consideration of environmental protection, politics, development and other factors.

 Dr. Sun also summarized the state of new energy in both China and America. The fact that new energy projects of the Chinese and US governments have not been terminated due to the pandemic reflects the resilience of the new energy industry. Compared to the government, consumers actually have a greater influence on new energy projects. For example, California's plan for solar energy projects in 2020 has not changed much, but orders in the home solar energy market in the United States have decreased a lot.

 China’s new energy industry has been hit harder than the United States’. For example, China’s sales of new energy vehicles decreased 75% in February (compared with the same period in 2019), while the world's sales of new energy vehicles increased 36% in the first quarter. Amprius has been negatively impacted by this situation; the company's lithium ion batteries are used in new energy vehicles, and the shortage of orders has been evident.

 He added that the impact of the pandemic on the industry has not yet materialized, and the real impact will be seen in the second half of the year. According to his 20 years of experience in the new energy industry, he asserts that the past 20 years of rapid development, during which the annual output value was increasing rapidly, has ended. Beginning 2020, the new energy industry will enter a few years of slow development.

 He believes that as an industry with high investment costs, the new energy industry has areas in which it requires government support, such as for power stations, energy storage, and automobiles. However, the government itself is facing difficulties due to the pandemic, so the development in these areas will slow down.

02 The Impact of the Pandemic on Industrial Supply Chain and Rate of Growth of Clean Energy Technology

Dr. Sun believes that the effect the pandemic has depends on the particular company’s position and products in the industrial supply chain. The tide of layoffs in new energy companies around the world has already begun, and the recession in the downstream industries of new energy has caused an imbalance in demand. Some large solar companies do not have enough customers and are already reworking their expansion plans for the future.

 At the same time, the rate of growth will slow down, and it will be more difficult to grow during the pandemic. People don’t use new energy because the cost of new energy is still higher than that of traditional energy. However, there are still opportunities for the new energy industry. For example, it is very expensive to transmit electricity to remote areas through traditional methods, so we will see the application of new energy sources in remote areas.

03 The Impact of the Pandemic on Power Station Investment

 

With Judy’s experience working at a clean energy company, Judy is well-versed in the situation of investment in power plants and asked, “Before, the investment in power plants had a 10-12% return, with the lower end having a 6-8% return on dividends. What is the return on investment now?”

Dr. Sun asserted that this requires specific analysis, mentioning that he’s a director of a publicly listed company in Hong Kong that makes power plants in a competitive landscape. Each new energy company needs its own competitive advantages, without which, it would need sufficient funding to develop these advantages. If a company has neither competitive advantages nor sufficient funding, then it will have difficulty surviving. The return on investment for the same company and product differs in different locations; even the payback situation is different in different places.

The survival and operation of startups during the pandemic

01 How do startups turn “risk” into “opportunities”?

Startups need to look at the innovation stage. The development of each company is different, and opportunities should be found according to specific situations. For example, Dr. Sun explained, though we are in a global pandemic, Amprius has established a new company in China because China offers  best incentives such as low rent and tax return for overseas startups..

 In addition, Dr. Sun notes that newly established startups have an easier time raising funding than companies that have already operated for a period of time. Investors already understand the financial performance of  companies in operation and are usually not satisfied. New startups are usually able to impress investors more easily, but on the other hand won’t get as high of a valuation.

02 How do startups get funding during the pandemic?

Based on Judy and Dr. Sun’s discussion, we have summarized the five main funding options for startups during the pandemic:

(1) Venture capital. Because of the pandemic, the chance of getting venture capital for startups have declined, because venture capital institutions need to spend time and money to rescue their portfolio companies. However, startups with good ideas will still be favored by venture capital funds. One example is Dr. Sun with his startup, RayTracker Inc., which received venture capital funds in 2009, the year when the solar energy industry was at its worst. He exited after two years and two months with 13x return on the original investment.

 (2) Strategic investment. Companies that have been operating for a period of time can seek strategic investment from their partners, customers, and suppliers. not only to meet the financing needs in terms of capital, but also to help the strategic development of the company in all aspects.

 (3) Bank credit and loans. This option is mainly for companies that already have some assets and some degree of scale of operation. Companies can obtain financing (credit and loan) from banks. 

(4) Promissory note financing. If the companies are not favored by investors, they can also obtain promissory note financing through the mortgage of intellectual property rights and patents.

(5) Government resources. With the pandemic, obtaining government grants and incentives is also a form of financing.

Dr. Sun paired these funding suggestions to startups at different stages:

According to its stage of development, newly established startups should focus on the use of venture capital and promissory notes. Companies of a certain size have more options, with the best way of going public to raise funds.

03 How do startups operate during the pandemic?

Judy, who has been working in the investment field for more than 15 years, understands very well that company operation is the fundamental component of the startup team, so she invited Dr. Sun to share his own experience.

1. Cash flow maintenance time and runway of the company. Dr. Sun shared his personal strategy: his main objective of each round of raising funds is to ensure the company has a 2 years runway Because he thinks that startups need at least two years to reach a milestone. It is risky to have enough for one year only, because the startup may not reach its target in time and will have no funds after.

2. Core team. Dr. Sun believes that the more difficult a crisis is, the better the startup needs to preserve its core team. Even under such difficult circumstances as a global pandemic, a startup should not reduce wages. Only by maintaining the morale and passion of the core team can a startup tide over the difficulties and make a comeback.

Judy also concluded that startups need a 24-month runway and cannot weaken team morale. They should put the funding received from the investors in good use, such as focus on research and development, even though there’s no incoming revenue. 

The impact of the pandemic on the capital market

01 Advantages and disadvantages of Sino-US listing or M&A

 Dr. Sun maintained that comprehensive consideration should be given according to the company’s specific circumstances, business environment, shareholders’ opinions, and the listing conditions and rules of various places. He gave an example to illustrate that companies listed in the first quarter raised a total of 2.6 billion USD, of which listings totaling 2.2 billion USD were completed by SPACs. A SPAC establishes a listed shell company of its own, and the target company will raise finances through M&A with the listed SPAC. SPAC is not a traditional way of listing and financing, so compared with traditional listing (IPO), backdoor listing, public offering listing and high-priced selling listing, SPAC's equity dilution is greater and saves more time.

 After that, they discussed JA Solar, which Judy helped Dr. Sun to list on NASDAQ in 2007. At the time, Dr. Sun chose to list on NASDAQ in the United States after considering the conditions and rules for listing in various regions, the trading volume of stock market investors, and the time limit for investors to withdraw. For example, it takes 3-6 years for investors listed in China to withdraw, while it takes 6 months in the United States and Hong Kong. Moreover, compared with the traditional way of listing, the US stock exchange has less strict management over SPACs.

02 The future development of China-US capital markets

Judy previously concluded that Chinese internet and solar energy companies chose to list in the United States because similar companies in the United States had higher valuations. Now, many companies have chosen to list in China because of high valuations for and low barriers to listing in China. Judy asked for Dr. Sun's views on such an assessment and on future trends.

 Dr. Sun explained that the regulations of China’s stock exchange up to 2019 are still not ideal, while those of the US stock exchange are very strict. However, he believes that the key is to look at the price-earnings ratio, which is relatively high for listed companies in China's stock market and will attract more companies to list in China.

In addition, he mentioned that listing also depends on where the investors and clients of the startups are located. If the clients and investors of the company are in the United States, then listing the company in the United States is more advantageous.

 Next, Dr. Sun also talked about his expectations for his future exit strategy of Amprius, where he is currently CEO. He plans to divide into 4 companies and list them in the United States and Hong Kong. As investors want US dollars and are not inclined to list in China, they want to stay for three years or more before withdrawing.

The insights shared during this week’s dialogue were wonderful and prompted attendees to pose many questions. We will summarize the four common questions below.

 1. The Amprius battery allows an unmanned aerial vehicle (UAV) to run for 3 months. What is its energy density?

Dr. Sun responded that the three months’ time is achieved because solar energy is also integrated. Tesla's latest battery has an energy density of 240 watt-hours per kilogram, while the energy density of Amprius’ listed batteries has reached 450 watt-hours per kilogram, and Amprius Laboratory has been able to provide 510 watt-hours per kilogram of battery samples to relevant customers. Though the current cost is still relatively high, there are no competitors at this level.

2. Why establish a company in Nanjing during the current pandemic? Is it because you are seeing an increasing demand in the new energy market after the pandemic?

Dr. Sun said that the results of attracting foreign investment are closely related to the performance evaluation of local governments. Amprius received the best incentives in Nanjing compared to that he received during his previous decades of experience; it was even more beneficial than that from Hebei during the 2009 financial crisis. Market demand is one thing, but the most important things for companies to do are to ensure sufficient cash flow and a stable core team, maintain a good consumer base, and improve the company’s operating efficiency.

3. Has the capital market started to recover at present or is there a massive contraction?

Dr. Sun believes that there will be a large-scale contraction. The capital market is now facing difficult times, and it will be even more difficult in the second half of the year. Considering the stage that the startup is at, the startup can now consider raising funds at the valuation of the previous round , which can be understood as giving investors a discount. In short, a startup should take what funding it can get; if it receives no funding, then the valuation is just some numbers.

4. If you can, should you exit a company with low valuation or should you wait until the pandemic situation stabilizes before deciding?

Dr. Sun replied that it depends on whether shareholders need to cash in on the Pre IPO and whether there is money coming in during the Pre IPO. It may not be a good opportunity because it is not easy for investors to invest in the Pre IPO. US investors often push companies to go public because it is expensive to raise venture capital while the cost of going public is low.

Judy fully agrees with Dr. Sun and summarizes this issue: at present, it is not whether it is easy or not to go public, but whether there is good financing after going public.

After an hour of insightful discussion, SVTC once again thanked Dr. Sun for coming on as a guest. With his many years of entrepreneurship and experience in exiting successful startups, he explained the impact of the pandemic on clean energy technology companies, how startups have turned this crisis into opportunities and his views on the capital market. We wish Dr. Sun all the best in his future business endeavors!

Highlights 3 | Silicon Valley Innovation During and After the Pandemic (Week 3: Real Estate Technology)

Highlights 3| Silicon Valley Innovation During and After the Pandemic (Week 3: Real Estate Technology)

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 dialogue with scientific experts from various fields, we hope to explain to Chinese audiences how Silicon Valley is innovating during the pandemic and the future direction of innovation in post-pandemic times. These talks will take place on Saturdays at 9:30-10:30 am CST (Fridays, 6:30-7:30pm PDT).

Session three’s conversation was hosted by Judy Lee, the General Manager of the Silicon Valley Technology Council (SVTC). Judy also holds a California real estate agent license and has considerable experience in real estate investment. Our guest was Helen Chong, Partner and Founder of Haylen Group as well as a Certified Commercial Investment Member. With their combined years of experience in real estate and investment, Helen and Judy shared insightful analysis on changes in the Silicon Valley real estate industry due to the pandemic and the future trends in the real estate market through the lens of real estate transactions and transfers, marketing technology, and financial technology.、

Haylen Group is headquartered in the San Francisco Bay Area, the heart of Silicon Valley. The company's main business is to help customers buy and sell houses and to help customers do real estate investment analysis from an investment perspective. The company's current various real estate technology tools are backed by large Silicon Valley tech companies.

During Helen’s presentation, we learned that in March 2020, California's Silicon Valley Bay Area real estate prices rose by 1.5% compared with March 2019, of which the San Mateo area rose by 6.5%, the Alameda area by 5.1%, and the Santa Clara area by 4.8%.

After the outbreak, the number of new listings from March 16 to May 6 decreased by 40% compared to the same period in 2019, and withdrawal transactions increased by 70%. The main reason is that during the epidemic, a shelter-in-place order was issued, which made it impossible for customers to visit properties. Many buyers are choosing to wait for the pandemic to end, so they withdrew their transactions. However, new listings will come back after the shelter-in-place order ends.

The shelter-in-place order has caused the number of houses for sale to drop by 40% after the effective date. After that, the number of houses for sale has been on the rise, although it is fewer than the number in 2019.

In the 7-day period from May 1 to May 7, 324 new homes were added, of which 199 new homes, accounting for 60%, were listed between May 5 to May 7. On May 4, some of the shelter-in-place restrictions were lifting, including allowing people to visit properties. Helen believes that there will be more and more new listings in the future.

Will automation/technology replace people in completing real estate transfers?

Transaction

It is common to sign real estate documents online, For example, the American technology company Docusign

Real estate transactions in the Bay Area did not stop even during the pandemic. he main reason being that almost all US real estate agents currently use Docusign (electronic signature), E-notary (electronic notarization), E-recording (electronic records) and other online real estate transfer technology tools.

Helen explained that Docusign has been in use for 10 years, and many customers read and sign contracts on the computer. Electronic notarization is currently available in some states like New York, but the California government still does not allow it. Customers would instead sign in front of their houses while maintaining social distancing, rather than going into the office to sign. Helen believes that the situation created by the pandemic will push the California government to allow electronic notarization. She added that the government now does house inspections over video. Due to the pandemic, all companies and organizations must speed up their use of technology. In fact, these technologies have always been there, but people did not use them. However, technology-assisted real estate transactions will increasingly become commonplace.

Property technology's online marketing presence is rapidly growing

Marketing

3D Virtual Tour (virtual reality viewing)

It is becoming more popular to use 3D virtual tours for real estate marketing, since it can provide more information than still photos can, such as lighting and dimensionality. Before, customers had to visit more than a dozen places a day to view houses they were interested in buying. Now, customers can first take virtual house tours with 3D tour technology, and then select a few to visit in person. Real estate marketing tools with virtual reality and augmented reality are now becoming more common.

Helen believes that more and more customers will change their buying habits in the future, and the trend will be to do virtual viewings followed by on-site viewings. The virtual tours will not replace one-site visits in the final decision making process.  However, it will affect which houses customers will ultimately consider.

Buyers will still choose to see the property in person.  Because certain aspects, like the surrounding neighborhood, the sound insulation of the house, etc. can only be experienced in person. However, virtual house tours will still be advantageous to both sellers and buyers: buyers don’t have to visit as many houses in person as before, and the seller will not need to accommodate as many prospective buyers’ visits. Virtual tours can screen buyers, as only those still interested after the virtual tour will likely choose to visit in person. For Asian customers, 3D tours will also be beneficial, since it’s often important for them to share views of the house they’re hoping to buy with family members who live in Asia.

Real estate finance and data analysis

New FinTech in Real Estate

Using real estate fintech for purchasing houses

Bitcoin and blockchain for purchasing houses

At present, there are many ways to buy a house outside of traditional loans and cash. For example, Flyhomes—a tech company in the US real estate industry—provides an option called the Cash Offer, for which Flyhomes put their cash on the line to help clients buy homes. Buyers can likely get a cash offer discount and preference. Since Flyhomes is very popular at the moment, Judy asked Helen about her views on this new real estate tech company.

Helen believes that Flyhomes is more suitable in the seller's market, as its leverage is weakened in the buyer's market. Because cash buyers will have price discounts, sellers will tend to pick the highest bidders. After the pandemic, Flyhomes may become less popular. The reason is that although cash offers are the ideal option, traditional loans are still very common. Every lender's situation is different: with some customers, the situation is more complicated, so banks can be reluctant to lend. Thus, it is still best to find an experienced lender to help in the situation.

Regarding the purchase of real estate using Bitcoin and blockchain, Helen feels that many sellers are reluctant to accept tokens because the price of tokens can fluctuate greatly in a short amount of time. It may take many years before using blockchain technology for real estate transactions will be adopted, because the government is reluctant to make changes soon to use this technology.

Big data analysis

American real estate tech companies Zillow, Redfin

Judy talked about her experience of investing in real estate. Before real estate big data was not transparent enough; now however, there are websites in the United States like Zillow, which allows people to see how much their house is worth on the Internet. Judy asked if real estate  appraisals can be done by technology itself or coexist with humans as technology involves more and more big data and AI?  "

Helen believes that the real estate agent's sweet spot is to find a house that others could not find, but nowadays, people can find such houses on the Internet. However, artificial intelligence and machine learning cannot replace human knowledge, professionalism, experience, and roles as advisors. For example, a machine cannot replace a broker's experience—gained from hundreds of houses—in the transaction, construction, and analysis of houses.

Judy concluded that certain technology has already been used in real estate transactions for many years, such as electronic signatures and electronic notarization. These parts of the process can be done by artificial intelligence or technology in place of humans. In real estate marketing, technology also plays an increasingly important role. However, when it comes to subjective real estate data analysis, as well as experience in buying houses, still have to rely on humans.

With all the insights shared by Judy and Helen, the attendees were eager to ask follow-up questions and engage in discussion. Below, we will summarize three questions that many of the attendees shared.

1. It has been rumored that Amazon was also working on a real estate trading platform, but Helen believes that customers will still choose a professional real estate agent to perform transactions and are unlikely to use a platform like Amazon’s. Because buying a house is different from buying other goods, customers still need the help and insights of real estate agents.

2. With regards to the future of real estate agents, Helen also made some suggestions. In the past, she explained that to be a real estate agent, all someone had to do before they practiced was to get a license. Now though, intermediaries must continue to learn even after receiving a license and need to obtain more certificates if they don’t want to be replaced by computer technology. Real estate agents should plan to develop more into real estate investment analysis and development.

3. For the concepts of Co-Living and Co-working, Helen believes that this concept is a good real estate investment trend. Student dorms, for example, were a very good investment before the pandemic. Although many students moved out of them due to the pandemic.  When it’s safe to do so, students will still return to campus since the need for community in schools is still present. Thus, the difficulty here will be temporary. In addition to schools, tourism and hotel catering have been negatively impacted—some hotel occupancy rates have dropped to 5%. In the next 2 years, the commercial real estate industry will be changed due to the pandemic. Office working, for example, might look drastically different in the near future, as employees will be reluctant to return to the office due to Covid-19 concerns. As such, employers will want to reduce the area of rented offices. Shared office will become more common, because a lot of work can be done remotely over the Internet. Small companies will prefer the cost-effectiveness and flexibility of shared offices.

This week, our event focused on how technological innovation in the real estate industry has been impacted by the pandemic. Judy and our guest, Helen, discussed the changes wrought by the pandemic to the real estate industry from three aspects: transactions, marketing, finance and big data.

Once again, we’d like to thank Helen for joining us as a guest this week, and we’d also like to thank all the attendees for their participation. If you have any topics of interest, please contact us.

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.