By Hans Tung and Zara Zhang
If there is a playbook for creating billion-dollar companies, the first page should have these words: Go Global. The most impressive entrepreneurs we meet are starting global companies.
Why go global? As Internet and mobile penetration reaches saturation in the U.S., the next big growth opportunities will inevitably also come from the rest of the world, particularly emerging economies. Consumers in Asia, Latin America, and Africa are not just getting online, but also adopting new mobile internet technologies much faster than their American counterparts. Every single one of the ten largest American unicorns have gone global (see chart below); many are seeing their business in the rest of the world growing faster than inside the US.
How do you go global? One approach is by investing in or acquiring local players, who usually have a much better knowledge of the domestic market. Take Priceline as an example. The Connecticut-based company generates most of its revenue from outside of the U.S. It is able to do so via a series of overseas acquisitions, including the Dutch site Booking.com, the Southeast-Asian site Agoda, and the European site Momondo. It also gained a foothold in the Chinese market by investing in Ctrip (a GGV portfolio company), the number one travel-booking site in China with a market cap of $28 billion. Priceline’s CEO Glenn Fogel, who previously served as the company’s Head of Worldwide Strategy and Planning, has extensive experience working with international markets. Priceline is now worth $92 billion, compared to Expedia’s $22 billion. It generated $11 billion in revenue in 2016 (compared to Expedia’s $9 billion), but is trading at a premium because it has an edge in global markets. Its international business represented 88% of its gross profit in 2016, and Booking.com is a key driver of that.
This approach may be especially practical in China, which has proven to be an extremely difficult market for American tech companies to enter. Companies that have enough courage and faith to invest in local startups in China are often rewarded handsomely. One of the greatest strategic investments in tech history was Yahoo’s 2005 investment in Alibaba (a GGV portfolio company). By the time Yahoo was sold to Verizon in 2016, its $1 billion investment in Alibaba was worth over $80 billion, fifteen times more than the price of Yahoo itself ($5 billion).
In another example, Uber sold its China operations to Didi Chuxing (a GGV portfolio company) for a 20% stake in the company in August 2016. Even though Uber lost over $1 billion in China before the sale, its stake in Didi is now worth around $10 billion (Didi’s current valuation is reported to be $50 billion) – a great deal indeed. Even so, one could argue that if Uber had struck the deal earlier, it could have bought the same percentage of Didi at a much lower price; the huge savings could have been used for strengthening other strategic initiatives such as UberEATS.
But investing in overseas brands may not fit everyone. Companies that want to operate under one single product should devote significant energy into localizing its product to suit users in different countries. For example, Airbnb (a GGV portfolio company) realized that Chinese tourists represent its fastest growing outbound market. To adapt to the Chinese market, it accepts Chinese payment methods including Alipay, and offers its customers the ability to log in through WeChat or Weibo, which helped grow the company’s customer base of Chinese travelers by 700% in 2015. Airbnb has established an engineering base in China – its only such operation outside North America – and plans to quadruple its team in Beijing.
A third, even more challenging, approach is to build a startup whose core offering involves cross-border activities from day one. We at GGV Capital have invested in one such company: the shopping app Wish, which sells low-price products such as dresses, watches, and home goods shipped straight from Chinese manufacturers. Many American e-tailers are wary of sourcing goods from China, where it takes extra effort to curate high-quality products. In contrast, Wish was willing to take a leap of faith, and took the time and effort to educate and build relationships with Chinese merchants (It helped that one of the co-founders is Chinese). Wish is now reported to be worth $8.5 billion, more than Sears, Macy’s and JC Penney combined, and has 300 million users. It is actively expanding its user base in Europe and Latin America. Globally, Wish was the most downloaded Android app in August 2017, not counting those owned by Facebook.
While going global is important, companies should think through their “product-country fit” before expanding overseas. For example, while social networks like Facebook and Snapchat have faced significant difficulties breaking into China, companies selling branded lifestyle products like Starbucks, Ikea, Muji, and Uniqlo have found huge success with Chinese consumers, especially in the age of the Great Consumer Upgrade. This is part of the reason that GGV has invested in multiple next-generation brands based out of New York, including Function of Beauty, Lively, Glow Concept, and Dirty Lemon.
When people talk about “the market”, what they are usually referring to is “the US market.” But truly ambitious entrepreneurs know that they cannot be satisfied with just serving American users. In order to stay competitive and maintain growth, expanding outside of the US is no longer a “maybe” – it’s a “must.”
Think outside the border. It’s worth it.
Hans Tung is a Managing Partner at GGV Capital. A five-time Forbes Midas Lister, he has been a US/China investor for more than a decade. He was among the first Silicon Valley VCs to move to China full time, betting on the rise of the Chinese consumer internet market with companies like Xiaomi where he was an early investor and board member. His portfolio includes 3 of the top 5 shopping apps in the App Store – Wish, Poshmark and OfferUp – with Ibotta growing fast at #12. Other companies in his geographically diverse portfolio include: Airbnb, Bowery Farming, Bustle, Dirty Lemon, Function of Beauty, Giphy, Lively, musical.ly, Peloton, Slack, Smartmi, Xiaohongshu (aka Red), Yamibuy, and more. View his full biography here and a list of his investments here.
Zara Zhang is an analyst at GGV Capital. She has written for The Information, The Harvard Crimson, Harvard Magazine, among other publications.