ZWC Insight|Yicai's Exclusive Interview with Patrick Cheung, managing partner of ZWC Partners: “Using One Passion to Kindle Another” and Seeking Entrepreneurs with “Fire in their Heart”
September 10, 2020

Written by Huang Ting from Lujiazui Magazine

Economist He Fan commented on new technology in his book “Variable.” “The market can inspire research, and the dream of research will always illuminate the market.…… The key to the combination of market and research, however, is how to use one passion to kindle another.”

Patrick is a serial entrepreneur. In the past 20 years, he successfully founded and sold two startups. When it came to being an entrepreneur for the third time, he chose to be an investor and founded ZWC Partners (“ZWC”). Why did he make such a choice? Patrick’s answer was “passion”. He wanted to inspire more people with his entrepreneurial passion and create greater value.

If we look at ZWC’s investment history, Patrick’s passion for innovative technology and brands is obvious. Five years since its inception, ZWC has become known as a “Unicorn Hunter”. It invested in unicorns like 4Paradigm, Xiaodian, Boss Zhipin, and Yitu Technology, and also jointly invested in unicorns like Souche, VIPKID, Mobike, JD Digits, Xiaopeng, Wattpad, 58 Finance, Rootcloud, etc. ZWC has won titles such as”Top 20 Annual Venture Capital Institutions of the Year 2020″ and “Top 5 Annual New Infrastructure Investment Institutions of the Year 2020” on Yicai Equity Value Investment List.

During the interview by Lujiazui magazine, Patrick was in Hong Kong, which was affected by COVID-19. Still, his enthusiasm for investment was not affected by the environment. He told the magazine that what mattered most in technological investment was optimism. One had to have faith that there was no winter that we cannot live through.

“Inside the entrepreneur’s heart, there must be fire”. The four dimensions when it comes to investing in a technological entrepreneur team

The English playwright Bernard Shaw once said, “The unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.”

Investors who have received formal investment training are known for their reason and rigor. Every investment is made based on a corresponding model. There is no room for mistakes. But Patrick himself is a serial entrepreneur. His personal experience has made him more aware of the energy and drive that an entrepreneur’s dreams and passions can bring. He believes that apart from reason and rigor, there must be a fire in the entrepreneur’s heart. Only with this kind of passion, can one build a great company.

Many investors avoid investing in scientists-turned entrepreneurs, because most scientists are highbrow. It is hard for them to go from flying kites in the sky to riding speedy unicorns on land But Patrick believes that in this process, the passionate entrepreneurs are driven to learn and hone their business skills.

The founder of 4Paradigm, Dai Wenyuan, is a typical scientist-turned-entrepreneur. He is a young AI scientist in China. He led his team to win the gold medal in the ACM-ICPC World Finals when he was still in college, and was also the youngest person to hold the title of Baidu senior scientist and become the senior scientist for Huawei Noah’s Ark Lab.

Three years ago when Patrick first met Dai Wenyuan, Patrick was impressed not only by his entrepreneurial ideals and excellent academic background, but also his passion.

“After several conversations with him, I could sense that there was a fire inside him and that he wanted to do something big, to use artificial intelligence to really change the world.” Patrick said. It was exactly this passion that sets 4Paradigm apart from the average scientist-run companies, he said. Everything went quite smoothly in the management and commercialization process, as Dai Wenyuan, driven by his passion, quickly learned how to be the operator, manager and entrepreneur.

In April this year, 4Paradigm announced the completion of its Series C+ financing. The Series C round of financing amounted to $230 million, with the post-money valuation standing at about $2 billion, making it a proper AI “unicorn”.

In an investment process, the most uncertain elements are the people. Patrick says you have to observe an entrepreneur from different dimensions. Among the four most important dimensions: 1) is the entrepreneur creating the company with a speculative mindset; 2) the entrepreneur’s deep understanding and insights of this particular field; 3) entrepreneur’s learning curve 4) if he has an “altruistic” spirit.

Why should we focus on the four dimensions? Patrick says ZWC advocates that technology investment should ideally be made with the intention of creating “innovative value”. In the future, the biggest opportunity in China’s technology sector lies in the technology enabled industry sectors, transform industries through technology and intelligent. In this process, being good at telling stories is not enough. The most important thing is to be able to ensure the introduction and success of the product. speculation may inflate current valuations, but it will be hard to succeed in the long term.

As early as in 2002, Patrick tried to change the outdoor advertising industry with the Internet.

Although he later successfully sold the company, he concluded that his original mindset of wanting to “disrupt” the industry had been inappropriate. “The mindset of the entrepreneur is important. Do not insist on disrupting the industry. You have to embrace it first.” Patrick said that it was also important that the entrepreneur had a deep understanding of the field.

At the same time, excellent entrepreneurs need to be quick learners. Patrick believes that successful Internet companies going forward should have comprehensive abilities, such as the ability to develop a product, to strategize and to operate.

As to the quality most needed by tech entrepreneurs, Patrick felt it should be “altruism”. “Tech entrepreneurs must hope that their products can truly help users and promote social progress. This is the original aspiration that they should remain true to.” Patrick said that during the process of starting up a company, the CEO must be willing to share his interests with the team and partners. Only in this way could a company grow into a great enterprise.

The race of Internet investment has entered the second half, while more opportunities lie in the industry

ZWC has always paid close attention to three fields, namely the consumer internet, the technology enabled industry sector, and enterprises going overseas. ZWC’s investment in the technology enabled industry sector alone accounts for 40% of its total investment.

“A few years ago, China’s Internet industry entered the second half of the race, the era of the technology enabled industry sectors.” Patrick said that in China Internet penetration is high. The To-C consumer Internet model has been fully developed in the past 20 years. But the development cycle for technology enabled industry sectors has just started. After 20 years of engaging with the Internet, the industries have finally started to accept the concept of technology empowering the industry.

In 2002 when Patrick came to Shanghai to establish his outdoor advertising platform, his idea was to use the Internet and technology to empower and change the outdoor advertising industry. In retrospect, he now realizes that the difficulties encountered at that time were not because of his idea, but the weak foundation. The era of technology enabled industry sector had not yet arrived by then. Patrick chose to embrace the industry. He decided to learn how to build traditional offline model and combine it with the Internet to make the business work.

Patrick pointed out that industries now competes in terms of efficiency, and AI is the way to help the industry improve its efficiency. As the technology matures and the demands increase, the combination of the two factors led ZWC to make investments into the technology enabled industry sectors in its early years.

With respect to specific investments, Patrick says first you have to identify the industries with the most powerful innovation drivers. One driver comes from the need for breakthrough innovation to improve efficiency, like technology enabled industry sectors; another comes from the need for technology breakthroughs in the field of science and technology.

“Under the influence of these two drivers, regardless of whether the need is coming from the state level or inside the industry, it will require the industry to upgrade and iterate, and this creates investment opportunities.” said Patrick.

Following this investment logic, ZWC not only invested in domestic substitutes for foreign technologies and big data technology companies, but also in a series of innovative companies in traditional industries such as automotive, real estate, healthcare, retail and others.

In the future, the competition in the investment industry is not just a competition of capital

Unlike ordinary venture capital institutions, when ZWC was founded in 2015, its investors were carefully selected. Materials show that ZWC’s investors include FOF, family offices, TMT giants, and successful entrepreneurs.

“We have been consciously selecting our fund’s LPs from day one, and our goal is that the LPs bring not only capital, but also the resources to empower our portfolio companies.” Patrick said that ZWC’s ideal is to be more like a “Founder’s Fund”, to help and empower a new generation of entrepreneurs together with outstanding and successful domestic entrepreneurs.

Patrick has learnt from his experience that the future competition in the investment industry is not just the competition for capital. In the second half of the Internet race, “burning money” is no longer the norm. Entrepreneurs need investors who can provide industry resources, help them build the brand and manage sales.

Despite COVID-19, ZWC did not stop its investments. Patrick believes that as a value investor, one should ignore short term fluctuations and look at investment with a long-term perspective.

Last year, when ZWC invested in Boss Zhipin, Patrick considered industry cycles and believed that the recruitment industry was going through tough season because of the macro environment and economic situation. However, he was impressed by the confidence of Zhao Peng, Founder of Boss Zhipin. Zhao Peng said, “Right now we may be experiencing the winter, but we are still moving forward in the winter. We have the same ideals, so we can walk hand-in-hand. I believe that spring will definitely come after the winter.”

“We have confidence in China in the long run. So winter is not so terrible anymore. Good enterprises can still grab market share in the winter.” Patrick said that from the perspective of innovative value investment, ZWC studied companies that could create real value. Such companies can survive a harsh winter because they can enhance the efficiency in an industry, helping companies’ lower cost and creating value for the society.