Kathy Xu sat in the sofa against the window with her shoes taken off. In late November Shanghai comes to a season when platanus begins to defoliate with grass remaining green. The two-floor villa then comes up with a sudden quiet with the cameraman busy making lighting arrangement.

Soon she turns back to the camera. “Hundredfold returns!” Says the cameraman with a smile. She laughs back with a brilliant smile on her face.

In a high mood owing to the success of JD.com’s IPO, Kathy is, in currently popular words, sound blooming. Her Capital Today invested 10 million USD during the Round A financing of JD.com in 2007, followed by additional investments thereafter. As a result, Capital Today held 7.8% of the total shares in JD.com after the IPO of the latter, and thus made 2.6 billion USD out of the initial 18-million-USD investment, which implied an investment return more than 150x, or a book profit over 10 billion RMB.

Among all the projects Capital Today has invested in, it is also the one that has generated the most return so far.

Apart from JD.com, the underwear chain brand Cosmo Lady, which is also funded by Capital Today, has also become listed in Hong Kong since June 2014. This is a company mainly engaged in fast fashionable underwear, which was founded in 1998 by Zheng Yaonan who was born in Gutian, Fujian Province, China.

Cosmo Lady embraced a boom after the investment from Capital Today in 2010, with its sales revenue up to 4 billion RMB today from 700 million RMB in 2010. It has so far established more than 6,000 chain stores nationwide covering all the provinces in China.

Investees of Capital Today only come from three markets, namely brand consumption goods, retail chain and internet-based consumption. Kathy has stuck to a fundamental philosophy that is to identify the first mover in the aforementioned markets, to fund them adequately and to have them make every effort to become a leading player respectively. As the first mover of any category, a company leaves its competitors far behind once it takes up a market share of 30% or more which in the meantime doubles the share its immediate follower occupies.

This philosophy of investment has been thoroughly justified by the case of JD.com.

Kathy met Liu Qiangdong for the first time in Beijing in October 2006, when they talked from 10 p.m. until 2 a.m. the next day. Kathy believed she had come across a dark horse: “JD.com had realized a 10% month-on-month growth in monthly sales revenue without even a cent for advertising. Liu impressed me as an honest and reliable guy. He kept himself online all day long to make a reply to users’ comments in every two minutes. ”

Liu asked for 2 million USD while Kathy offered 10 million. “Internet-based business must be expanded rapidly and will become exceptionally large or die out. 2 million USD was far to enough for a money-burning industry and he would have asked for additional investment soon.”

They mutually agreed to focus only on growth in the first 4 years and not to consider how to make profits until the last year. Kathy was confident attributable to her success achieved in similar cases. She bought flight tickets for Liu Qiangdong and brought him to Shanghai the next day to sign the framework agreement so that he had no chance to meet other investors. At that time, JD.com posted business revenue of only 60 million RMB or so and held a staff of 50, even with no accountant.

With money in hand, Liu Qiangdong became more aggressive and extended the line of products rapidly to consumption electronics such as digital cameras and cellphones, which emerged JD.com in the 3C market and significantly increased users’ frequency of purchase.

Intending to further motivate the entrepreneurial team of JD.com, Capital Today promised a provision of 18% shares as employee options if only the company could boost its business revenue by 100% annually over the first four years. In practice, JD.com realized 200% annual growth. The option pool laid a solid foundation for Liu Qiangdong to recruit quality talents and employ professional managers for corporate management thereafter.

Price war is always a hot topic while talking about the rise of JD.com. “Price war is inevitable. A war may last for one or two decades in other sectors while it lasts only one year in the internet sector where fast reshuffling reduces waste of resources. The price war is especially effective to check whether a company is efficient, since lower price is a result of high efficiency. In an enriched arena for competition, you will win or die,” says Kathy. for competition, you will win or die,” says Kathy.

Newegg, Amazon.cn, Dangdang.com and Suning are the rivals JD.com has fought sharply against along its way of growth. The price war against Newegg was merely its maiden trial, followed by a somewhat fiercer price war against Amazon.cn, while its fight against Dangdang.com made a special sense as JD.com had not only to sell books but to charge less than Dangdang.com so as to further lower the threshold of entry for fresh users.

Its tough battle against Suning was the first massive confrontation between B2C e-commerce business and conventional retailers, which marked the prelude of a new era. Despite that JD.com was complained by users for over-long delivery resulting from insufficient inventory owing to the sudden breakout of the battle, it was lucky enough to make itself known to many middle-aged and seniors offline.

To an entrepreneur, such an experience means unprecedented pressure that must be suffered within a specific period. A brutal journey where the fittest survives can never be covered without financial support. And, as a female investor, Kathy Xu never underperforms any males in terms of determination and aggressiveness.

The formation of such personality has much to do with her growing experience. Kathy was born in Dazu, Chongqing Municipality in 1967. Her father, born in Xiaoshan, Zhejiang Province, started his career in Sichuan Dazu Automobile Works as a forefront worker upon graduation from Jilin Industrial University and was eventually appointed director general of the works. He was commercially talented with good intuition and genius. Most often he was serious and august.

As director general of the works, he usually had visitors in the evening most of whom were claiming for higher salary or a bigger house due to their greater contribution than others’. Kathy prepared tea for each visitor after which she sat aside and listened to the adults’ conversation, showing much interest in business management.

She asked a variety of questions after the visitor left, and would keep asking even when her mother and brother had fallen asleep. Her father had never treated her as a child and had always answered her questions seriously: why not appoint this one? What is a quality problem? And what is a sales problem?

As a man that attempted to be No. 1 in whatever he was doing, her father had exerted influence on the young Kathy. “He thought carefully in fishing, and also tried to grow the best flowers. My personality is quite similar to his.” In her memory, every time the adults returned from fishing his father walked behind. And when children looked into the adults’ packbasket, those in the front always said: “Not many. The one behind got a lot more.”

Despite being the elder child in her family, Kathy was not obedient in her childhood. She often skipped chemistry classes in the junior school, and was catching fish in the river while her friend was reading the Story of the Stone on the riverbank. Her teacher recited three of her major misdeeds during a home visit: chatting in class, eating snacks in class and playing truant.

His father was so angry that he beat her as soon as the teacher left. He was even about to thrash her at her hand with a clothes hanger and he thrashed so powerfully that the hanger was broken off. Luckily Kathy reacted quickly enough to withdraw her hand; “otherwise my hand would have been broken.” From then on her friends dared not to go to her home. Her father sent for chemistry and physics teachers to make up her missed lessons, since when her school achievement began to improve.

Kathy faced several options upon graduation from the junior school: either technical/polytechnical school or high school. A student in the technical school would be assigned a job upon graduation and be provided with a monthly salary of 16.5 RMB. However, she insisted going to the high school with her childhood dream of being a university student like her father. Despite making little effort in daily studies, she tended to outdo herself in exams. She was admitted through the high school entrance exam into Nankai High School, a key high school in Chongqing.

There are huge opportunity in the consumer-driven business. She has been focus on herein throughout her 20-year investment career

Growing up in the small society of a state-owned enterprise in a Tier-3 city, Kathy had never seen ice cream, and Chongqing meant a little heaven to her. On the day her father took her to school for registration she saw something tapering being sold on the roadside, which seemed delicious. Her father bought her only one at 0.15 RMB without even a sip into it. “My father also bought me cold spiced duck. They are likely to be the most delicious ice cream and spiced duck I have tasted throughout my life,” says she.

Kathy was admitted into Nanjing University as a major in English language and literature in1984. She read large amount of novels. The collection of books could only be read in the reading room in case someone might take them away. Kathy could stay in the reading room all day long without any meals, which once led to her stomach illness.

The campus life in Nanjing University is a good memory. In her speech delivered during her visit back to Nanjing University in June 2014, Kathy recalled her first experience to the campus ball

together with her roommates. They were almost ignored until a boy invited Kathy for a dance, which she has always remembered together with his kindness. Nevertheless, she found English language and literature was not what she would really like to undertake in the future. Therefore she began to attend economic classes, purely out of her interest and without any academic credits though.

Once during a long vacation she did not go home; instead she stayed in Nanjing to serve as an interpreter for a foreigner who came for negotiation with a Chinese state-owned enterprise. As is known to all, the operational status of state-owned enterprises was not satisfying at that time and the foreigner kept complaining China in front of her, saying he would “kiss the land of California” when he returned to United States.

Finally Kathy felt a bit unhappy and said to the foreigner: “it was as if you visited one of your relatives who had been sick. Do you think it is good if you always say ‘I’m so glad that you are sick and I am not’?” And the foreigner felt a bit guilty hearing her words.

She had never tasted Coca Cola. She did not dare in fear of a sudden explosion when the foreigner told her to open the can by pulling the tab. The foreigner said: “you will see many new objects like this and you have to learn to open them by yourself.” Then she took heart of grace to open the can as if she had been pulling a grenade.

She was working vigorously as if she had entered into the commercial society. However, she only received 50 RMB from the state-owned enterprise as remuneration in the end, and the foreigner was kind enough to give her 100 HKD more for her service.

Kathy started her career in the Headquarter office of Bank of China after her graduation in 1988. Three years later she joined PWC Hong Kong as a participator in a Sino-British programme intended to train the first international certified accountants. In 1995 Kathy participated in Peregrine, a local institutional investor in Hong Kong. She moved to Baring Private Equity Asia Group as the managing director of China in 1998, and established Capital Today in 2005.

The entire Chinese Mainland was thawing during her high school and campus life and the era where Chinese people suffered material deprivation was soon gone forever. There contained huge opportunity in such a great tide for consumption-conceptualized business. She has concentrated herein (her Wechat signature is Focus, Discipline, Long Term) throughout her 20-year investment career and has eventually achieved a success.

“In that period in China, the middle class are growing and desiring for better products, though a little premium to be paid therefor. The Chinese are naturally entrepreneurial and prefer to be the beak of a chicken than the rump of an ox. Once you do something well tens of thousands of people will copy your model and steal your brains. What is the key to win in the backdrop of inevitable competition? It lies in a proprietary brand which enables attachment of premium. ”

“We have invested in many retail companies. For a retailer, as you know, office rental as percentage of sales grows 0.5% to 1% of sales annually and so does staff remuneration. In other words, you will lose 1% to 2% of your profits per year if you do nothing. However, these companies witness an increasing instead of reducing net profit margin because they have pricing power on the products. To this end, brand is a solid foundation for business growth. The key to secure growth is to find the opportunity for a specific new category and to act as quickly as possible to fully affect consumers’ mind-share”

Kathy participated in the investment in Wahaha during her service in Peregrine, where she was still rather fresh then compared to her project teammates. She learnt a lot from Zong Qinghou, the founder of Wahaha, who she thinks is a new category pioneer, too.

At that time Chinese people did not drink bottled water and no bottled water were sold in China. Instead, most Chinese went on travel only with a canteen. Zong Qinghou paid a visit to France and found French people all drinking bottled water, which he thought was good. He came back and quickly set up three production lines with the money invested by Peregrine, and named his products Wahaha Purified Water. In this way a new category was created.

“You see, most of our investment projects have actually created new category. Netease’s Westward Journey Online creates a new category of large multiple online game. Zkungfu creates a new category of steamed fast food by advocating ‘Steamed Food for Better Nutrition’. Liu Qiangdong also creates a new category, a model of Amazon + UPS, ” as Kathy summarizes.

Bezos, founder of Amazon, wrote a letter to shareholders in 1997 saying that the key to retail success lies in extremely abundant products, competitive prices and good shopping experience. To e-commerce users in China, good purchase experience most significantly refers to timely delivery.

Liu Qiangdong discovered more than 70% of the complaints from JD.com users were related to delivery, which helped him make the decision to build JD.com’s own logistic system. Each city was to be configurated with a dozen deliverymen and several delivery vehicles, expenditure of which was to be balanced with the profits out of 2,000 orders. It might take 9 months to break even in some cities and 2 years in some others. The total expenditure was enormous given so many cities in China.

The financial crisis since 2008 worsened the financing circumstances, and JD.com extremely desired for investment but failed to receive any after meeting with dozens of institutional investors. Capital Today had offered three bridge loans to JD.com and started to feel the pressure. Fortunately, Capital Today introduced Bull Capital Partners and Francis Leung’s private capital who decided to make capital injection in 2009, supplemented by additional investment from Capital Today.

Then Kathy said to Liu Qiangdong it was not because he had failed to do a good job but because others had changed their minds. Suffering losses in a number other investments, investors would not make more investments as they were leaking their money. Liu Qiangdong survived the crisis with grey strands of hair emerging in front of his forehead.

This is what the capital market is. A startup has to raise as quickly as possible when it can, not when they need; otherwise investors may not necessarily make any investment when the startup is indeed in bad need for money. Those that have survived a famine never forget the feeling of hunger and what they have to do is to ensure they will no longer fall into the same dilemma. JD.com made several huge fund raising later (a financing as much as 1.5 billion USD in 2011) and maintained a secure position thereafter.

We usually hear that investment should be made into the right person. Apart from confidence in her own intuition, Kathy also makes decisions through some details.

Before being funded by Capital Today, Liu Qiangdong had signed a contract with a Renminbi fund, which had promised a 5-million-RMB investment but refused to go on after an investment of 1 million because JD.com kept on losing money. Kathy decided to offer JD.com a 2-million-RMB bridge loan with 1 million for redemption of the equity previously sold and 1 million for working capital loan. She asked for a look at the investment contract previously entered into between JD.com and the RMB fund fearing that there had hidden any time bomb therein.

Liu Qiangdong was stubborn then and insisted on rejection of her request saying the contract had been attached with a non-disclosure agreement. They both stuck to their respective attitude, throwing the negotiation into a dilemma where it was almost terminated. In the end, Kathy gave in and suggested the contract be reviewed by her attorney and the agreed terms and conditions would not be changed if there was no time bomb therein. Despite being badly short of money, Liu Qiangdong would never compromise when it came to the crunch. Kathy likes those with such personality.

Capital Today has also invested in Beststore, a chain enterprise engaged in leisure snacks sales. Kathy learnt from her conversation with the entrepreneurial team that Mr. Yang, founder of Beststore, stuck to a principle that is to destroy all the expired products. “Only be a man with good integrity and high ambition rather than someone purely striving for profits may the entrepreneur be willing to afford such a big loss,” says she.

Hardly any entrepreneurs of retail business are not strong-minded. It is a complexity for strong-minded investors to get along with similarly strong-minded entrepreneurs. Kathy is fastidious in making investment decisions but will believe herself to be a foil to the selected entrepreneur once her mind is made up. “We occasionally look into industries while entrepreneurs are fighting in the front everyday. Why do we fund him if he does worse than us in making strategic decisions?” she answers with a question.

Sometimes, however, if a deep hole is visible ahead where the company may fall in if the entrepreneur is not reminded, you have to remind him in a gentle but firm voice. Sharing common interest in general, the investor and the entrepreneur must not break the bottom line that any failure possibly suffered shall never be so severe as to bankrupt the company. Keeping this in mind, both parties shall stride ahead by leaps and bounds.

For another example of investor who has a preference for consumption companies, most people think of Buffett. Kathy enjoys reading about Buffett. Her biggest pity throughout so many years of her VC career is the impossibility to hold blue chips long enough due to the limited life of the fund(10 years). Hence Capital Today has recently launched a long-term fund which lasts for 28 years.

“There are not many truly great companies in this world and you must hold their shares as long as possible if you are lucky enough to invest in them. Besides, you have to make additional investment in every round of financing for a great company. Buffett maintains strong faith in the power of compound growth where the key is to hold long enough. Many others lack patience in holding good companies while I am exceptionally patient in this regard, ” says she.

While she was still serving in Baring Private Equity Asia in 2004, Kathy borrowed 300 thousand USD to buy in 5 stocks, with the money largely allocated on two namely BYD and Tencent. She has never sold any of the shares she holds in the two companies ever since then.

She has two sons who are 11 and 8, respectively. She and her husband often bring them for climbing and fencing. The elder is fond of cyber games and wishes to do some game-related business in the future while the younger, who is a delicacy addict, sometimes recommends to her some investment-worthy projects, say, a thriving puff shop.

Kathy has carried out commercial training on her sons since their childhood. While taking them out for a meal, she may ask them which one to go to among so many restaurants. The elder said, “go to the one that is most crowded.” And the younger said, “go to the one that gives out most fragrant smell.” F