William Bao Bean, Shanghai-based managing director of startup accelerator Chinaaccelerator, discusses his investment strategy as the world is in disarray because of the coronavirus, at Focus Wire. “When things are bad, no one really does anything, and when things are hot, everybody’s investing,” Bean says.
Focus Wire:
William Bao Bean, a general partner at SOSV and the managing director of startup accelerator Chinaaccelerator, says that venture capital investors “often have a herd mentality.”
“When things are bad, no one really does anything, and when things are hot, everybody’s investing,” Bao Bean says.
“The best time to generally invest is when things are bad and the best time to exit is when things are hot.”
Although a global economic slowdown has an obvious impact on public equity investors, Bao Bean insists that earlier-stage investors are shielded due to a longer investment cycle over several years.
“The first thing that happens during any sort of a crisis or economic downturn is things just slow down measurably and significantly,” he says.
After years of growth and immense venture capital funding, China has experienced a funding slowdown – known as a “capital winter” – since late-2018.
Hundreds of Chinese tech startups were forced to shutter operations in 2019.
Bao Bean attributes this slowdown to the closures of underperforming venture capital funds and a drop in funding from the Chinese government.
Despite a surge of global venture capital deals in 2019, Bao Bean says that funding has started to dip and attributes some of that to activity around the SoftBank Vision Fund.
“The SoftBank Vision Fund deployed a huge amount of capital very rapidly and that threw off the numbers in terms of total investment because they deployed $100 billion over a couple of years,” says Bao Bean.
“We also had some mega-rounds in 2018. That throws off the numbers.”
With the outbreak of the COVID-19 coronavirus, Bao Bean anticipates that funding will slow down significantly.
“The biggest thing to happen is the whole model of using money as a weapon and buying growth and mega-rounds and negative unit economics where you spend a dollar to make 50 cents – that is out the window.
“Now it’s prove your model first, then raise money.”
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