When Lyft, Uber’s smaller rival, needed an entree into China, the company’s president turned to another Silicon Valley insider who shuttles between worlds. The introduction from Connie Chan, a partner at the venture capital firm Andreessen Horowitz, to China’s largest ride-hailing company led to a $100 million investment and partnership.
Behind the scenes of an unprecedented flood of capital from China into Silicon Valley over the past two years is an elite network of brokers. These brokers do more than deal-making; they play anthropologist and cultural translator -- from coaching startup founders about the culturally appropriate place to sit at a conference room table in China to breaking down how emojis are used in Chinese apps. Their acumen is growing more valuable, entrepreneurs say, as they navigate a cast of hard-to-parse characters with alluring deep pockets and promises of big business opportunities overseas.
“She is the whisperer between China and Silicon Valley,” said Matthew Prince, chief executive of Cloudflare, a web security startup, of Chang. Last year, Chang helped Prince -- whose company had given up on China in 2011 -- clinch a partnership with Baidu, China’s search giant. “There’s very few that really understand both sides.”
Chang, who was born in Nanjing, China, came to the States to seek a doctorate in Modern Chinese History. She got pulled into tech industry after graduating from Stanford Law School in the early 1990s, when she got a job as an associate at Wilson Sonsini Goodrich & Rosati, the Silicon Valley firm known for its ties to the clubby venture capitalists on Sand Hill Road.
One of her early clients was Masayoshi Son, the billionaire Japanese investor who founded the Japanese telcommunications giant Softbank. At the time, she said, senior management at the firm had never been to Asia, and Son “wasn’t considered important enough” to be represented by a general partner. “So he got an associate,” she says.
The lack of knowledge about the role Asia was beginning to play in the technology industry worked to Chang’s advantage, as she was able to build a client roster and contacts that became a who’s who in Asian tech.
In the years that followed, Chang became involved in a string of deals, some of which have become lore in Silicon Valley. She helped Hank Paulson, then chief executive of Goldman Sachs, break into China. She represented Google when it acquired a stake in Baidu in 2004. In 2003, she facilitated a joint venture between network infrastructure firm 3Com and China’s Huawei Technologies -- one of the first between Silicon Valley and a Chinese company.
Today, Chang says the relationship between Silicon Valley and China has reached a turning point. In the last two years, internet giants like Alibaba, Baidu and Tencent -- sometimes referred to as the Amazon, Google and Facebook of China -- as well as dozens of private investors and state-owned enterprises have flooded Silicon Valley with cash, spending billions in a race to access cutting-edge technology. Their presence has been enticing for young companies, who see these investors as a powerful new source of capital that can keep them afloat and a path to doing business in China.
As China’s tech sector develops -- major cities are already saturated with ride-sharing, messaging and apps for on-demand services – it’s harder for U.S. companies to do business there. As a result, the reliance on networks of brokers and investors is growing, entrepreneurs said in interviews.
Venture capital firms have responded to the cash influx by building out their relationships with Chinese and other foreign investors – and growing their coffers in the process.
To that end, Chang was recruited to become a partner at the venture firm New Enterprise Associates in 2013. There she has brokered China partnerships for many portfolio companies. Her hidden hand goes beyond deals: Last year, she helped to recruit Liu Zhen, a lawyer from a prominent Chinese family who had worked for her at Wilson Sonsini, to lead Uber’s China business (NEA is an investor in Uber).
Like any other dealmaker, the China whisperers must manage the often competing interests of investors and entrepreneurs — but they do so in the context of a larger culture clash that has at times led to distrust on both sides. Chinese investors are by definition outsiders to Silicon Valley — they want to gain access to the hot deals but have fewer connections to do so. Today, it’s very common to see many Chinese investors in the audience at startup incubator “demo days” — when nascent companies pitch to an audience of would-be funders.
Still it can be tough to get in. Some brokers say that Chinese investors rarely access the early and most potentially lucrative fundraising rounds of a hot company. In the case of state-owned enterprises, some U.S. startups don’t want to take their money - or even take meetings with them - for fear that they will become too enmeshed with the Chinese government, some brokers said.
But sometimes it is the U.S. startups who perceive the Chinese as unfair. They can be seen as aggressive negotiators, said George Zachary, a partner at the venture capital firm CRV. Startups and other investors are wary of giving up too much control.
Chang says she has to manage concerns by Chinese investors that they are getting the short end of deals. Huawei recently made a deal with one of her startups, the 3-D photo app Fyuse.
“I wanted to make it clear to them that we would never treat them like dumb money or treat them differently from other investors,” Chang said. “We would treat them fairly.”
Negotiating a joint venture is one of the trickiest aspects of working with Chinese investors. In the last three years, Chinese regulations and practices have made it more complicated for U.S. companies to do business there, Chang says.
For that reason, startups usually enter the market in the form of a partnership. Today, these partnerships are often based in the Cayman Islands because China doesn’t allow foreign ownership of companies. In negotiations, for example, Chinese partners often insist that the data of Chinese citizens cannot be stored on U.S. servers and that legal disputes must be settled in Chinese or Hong Kong courts. Previously, arbitration in Santa Clara County was a sticking point for U.S. companies; now that battle has largely been lost, she says.
Around the same time that Chang joined NEA, Chan of Andreessen Horowitz began to build out a China network for the firm. Liaising with Asia is now Chan’s full-time job. In addition to making what she calls “warm introductions” that can lead to deals, she has a Rolodex of lawyers, accountants, investors manufacturers and Chinese media that can help the firm’s companies navigate their way abroad.
Often she plays cultural translator - doing things like helping startups understand Chinese products and assess the competition.
“I say, okay, here are the four companies you should track,” she says. “This is their Chinese name. Go set a Google Alert. Have someone who understands Chinese in your company do a screenshot by screenshot walk-through ... and repeat every six months.”
Chan, who is 32 and soft-spoken, is becoming known as something of an expert on explaining Chinese products and technology trends to the wider public. In 2014, she wrote an extensive blog post about the Chinese messaging app WeChat. With 549 million monthly users, it’s one of the largest messaging apps in the world.
“Few outside China really understand how it works,” she wrote, “how it can pull off what for many companies (and countries) is still a far-off vision of a world managed entirely through our smartphones.”
She went on to explain how people in China hail taxis, order food, buy movie tickets, get their bank statements, search for books at the local library and read news -- all through text messages. The blog, by all accounts a wonky breakdown of a Chinese app, went viral. It was listed by New York Times columnist David Brooks as one of the best essays of 2015.
The go-go climate has also given rise to other new players, such as Danhua Capital, a two-year-old venture capital firm led by Shoucheng Zhang, an award-winning Stanford physicist who has used his connections and fame in China to raise a $350 million fund and invest in dozens of companies on behalf of newly wealthy employees of Chinese internet giants.
Zhang, a Chinese scientific prodigy who came to the United States in the '80s, has long had a front-row seat on the China-Silicon Valley relationship: At a gathering for a Bay Area Chinese American nonprofit that Zhang founded, Jack Ma was introduced to Yahoo co-founder Jerry Yang, he says. The casual introduction led to Yahoo’s storied investment in Alibaba.
The physicist wasn’t interested in investing himself until he saw an opportunity in the number of Chinese coming to Silicon Valley with a “hunger to learn.” He says he is inspired by the idea of applying scientific principles to business.
“The bridge between China and the U.S. is one of the biggest challenges of globalization - it’s a critical moment of transition,” he said. “If we don’t do it well, it will be a great lost opportunity.”
On another end of the spectrum are people like Wei Guo, a Chinese-born, Western-educated 27 year old who has raised multimillion dollar fund from family friends and invested in over 100 U.S. startups. His investors, he said, do not care if they lose their money so long as they gain exposure to exciting technologies.
Brokers say that sometimes misperceptions arise because business culture in China is so different. In China, where there’s less rule of law and a powerful government relentlessly pushing for growth, brass-knuckled tactics are far more common. Taking ideas from a company you invest in and giving them to another is more acceptable, for example.
Chang says she has been able to be effective, in part, because she makes a point of never questioning anyone’s honesty or integrity; acting suspicious can deeply offend people and escalate conflict. In any deal, she coaches both sides to be aware of the messages they are projecting.
“I’ve told U.S. companies, Chinese people have long memories and are the ultimate repeat players, so don’t play any games,” she says. “And I’ve tried to tell the Chinese investors coming the Valley today that they are making their reputation as they go along, so they should be very thoughtful and careful about what they do.” She also only does business with people she knows well.
But Chan says some of the confusion is also a function of being an outsider to clubby Silicon Valley. When Chinese are investing in the United States, “it’s harder for them to have a full perspective of the competitive landscape or a full understanding of how to vet that entrepreneur’s background,” she says. “In China, so much of business is relationship-based.”