Few professionals in China have a track record like Ron Cao. Over the past twenty years, he has led three venture capital firms investing in technology companies in both the United States and China.

Perhaps the Wuxi native has a particular instinct for technology trends. Firms led by Ron have invested in some of China’s technology market leaders: Tujia, China’s equivalent of Airbnb, and local food delivery and daily services unicorn Dianping (now Meituan Dianping).

His firm is also helping to develop a peer-to-peer lending platform, a cloud computing startup, and an e-commerce platform where young mothers sell products to other mothers.

Today, one year after founding Sky9 Capital, Ron remains as optimistic about China as ever.

“I feel like everything in China is just getting started,” he says. “Urbanization, rising consumption and improving financial security — all of this is happening before our eyes.”

Like many members of China’s technology elite, Ron gained extensive experience abroad. He earned bachelor’s and master’s degrees in electrical engineering and computer science from MIT and later worked at Goldman Sachs and Intel. His career in venture capital eventually brought him back to China, where he founded the China office of Light Speed Venture Partners.
Ron’s current firm, Sky9 Capital, focuses on early-stage Chinese startups. When we asked him why he decided to launch a new company, he replied: “There are so many opportunities in China! I simply had to start my own firm.”

Q: As someone with experience working in both the United States and China, do you see any differences between early-stage venture capitalists in the two countries?

A: I don’t think so. Venture firms in both countries operate in much the same way — they pay close attention to the project team and its level of competence. There are different ways to assess a team’s capabilities, but early-stage investing is primarily about the talent of the team.

Q: How do you get to know founders?

A: After so many years in this industry, I have developed a feel for founders’ strengths and weaknesses. You can usually assess them fairly accurately after two or three meetings.

As a rule, we look for two things. The first is the ability to create, manage and lead, as well as vision and strategy. The second is authenticity. We want to understand what kind of person someone really is, who they are inside and what drives them. The central question is how genuinely committed they are to what they are doing.

Take Richard Huang, CEO of QingCloud, for example. The company is his life’s purpose. He genuinely believes he was born to make cloud computing as accessible as water.

There are many examples like this, and they can influence your decision. But you have to believe that what you are seeing is genuine, especially when information is limited.

After many years and thousands of meetings, you inevitably develop this skill. You begin to understand whether someone genuinely enjoys being an entrepreneur or simply enjoys what they are working on.

Q: What do you think about foreign investors operating in China? What advice would you give them?

A: It is similar to a Chinese person going to the United States and trying to start a company there. I doubt there is any piece of advice that can guarantee success. It is extremely difficult. The chances that a Chinese person who has never lived or studied in the United States will go there, start a company and succeed are close to zero. The reverse is also true.
If a project has a competitive advantage, it is usually related to technology. Suppose you own such a technology and want to come to China, find a team and build a company around it. I think that is realistic.

Q: Why, in your view, do local companies have such significant advantages?

A: Many Chinese companies compete through their business models, processes and execution. Many foreigners simply do not understand the overall situation as well as local entrepreneurs do.

Anyone who wants to operate in China has to understand their strengths very clearly. Information is no longer an advantage because it is widely available. Chinese entrepreneurs are capable of taking a foreign business model or technology and implementing it in the local market.

Q: China’s technology industries experience their own cycles. Many new companies develop in a regulatory grey area until the government introduces new rules. As a venture investor, how do you help portfolio companies adapt to such changes?

A: In our field, particularly when it comes to early-stage technology startups, specific regulations often do not yet exist. Companies frequently introduce new business models or more efficient approaches, while legislation simply follows the business.

Take Tujia, for example. There were many legal questions: can private individuals rent homes to other private individuals? Is identification required? Who should pay taxes? If something goes wrong during the rental period, who should be held responsible?

Tujia built relationships with regional authorities to help establish rules and introduce best practices. We have to deal with similar issues as well — simply because no one has done these things before.

The peer-to-peer lending platform and our other projects also work closely with government authorities. On the one hand, they want to operate transparently; on the other, they help the government understand how to work with new technologies.

For startups in China, building relationships with the government is extremely important. The Sky9 Capital team helps founders meet and develop relationships with the “right” people so that their businesses can become sustainable and reliable over time. These relationships and the experience behind them are among our most important achievements.

Q: You mentioned that many Chinese investors are now looking toward Southeast Asia. What investment trends do you expect to see in the future?

A: I believe one of the trends in the U.S. market will be increasingly active participation by Chinese companies. Why? Because the U.S. and China are the two largest markets in the world. They have a great deal in common in terms of business models and consumer behavior.

In some cases, Chinese venture funds and entrepreneurs can be considered more sophisticated than their American counterparts because the Chinese market is ahead in certain business models.

We increasingly see ideas emerging in China and then being implemented in the United States. Take live streaming as an example. China has the world’s largest live-streaming market. In the future, other ideas and trends will emerge in China, and the United States will follow, particularly on the consumer side.

We will see an increase in cross-border investment. Chinese expertise, Chinese capital, Chinese ideas — China’s expansion. I am not talking about tourism, but about the expansion of capital, talent and innovation.

Q: What have you learned during your career as an investor?

A: The hardest part of starting a business and making it successful is simply getting started. And if that is the hardest part, why not do something significant?

Another lesson we have learned is that the scale of the project does not really matter. Nothing is guaranteed — there are no low-risk opportunities or stable rates of return. The risks are always substantial. So you should think big. Believe me, if you are aiming for significant returns, the risks are often actually lower.

Q: Why do you think that is?

A: Usually, ideas like that come from exceptional people. That is the nature of the natural selection of talent. These entrepreneurs are mature, crazy visionaries.

Big ideas can attract more capital and more capable leaders. A big idea can help you enter a positive “talent – capital – talent” cycle that increases the probability of success and improves the project’s potential results.

Q: How do you distinguish a big idea from a crazy one?

A: Sometimes it is extremely difficult. The stakes are high. We tend to make that judgment intuitively. But in reality, it is not as risky as it may appear. You may feel nervous when nobody else is involved in a project and you are putting your own money into it. Nothing more and nothing less.

This is another thing I have realized recently — people understand risk differently. The difficulty of investing is that if you want to invest in something truly significant, you need the courage to go against everyone else.

The hardest thing is to go against everyone else and be right.
Investors sometimes confuse perceived risk with actual risk. The ability to understand and assess the difference is a skill that early-stage investors have to develop over time.

Interview by Tech in Asia
Translated by Eurasia Development. The original interview is available here