「Hear Her」is a weekend TV column on females’ career stories,where we interview12 females from different industries and listen to their career and life stories from their own lips – how they have chosen, broken through and known themselves at the decisive moments in career.

In Episode Three we have invited Kathy Xu, the best known female capitalist in China, as our sharer. Kathy founded Capital Today in 2005 and has funded a number of wellknown companies including Wahaha, Netease,JD.com, Meituan and Zhihu ever since. These commercially memorable cases have shown us how she, as one among the top Chinese capitalists, has indispensably benefited from her conviction and feminine intuition.

Interviewed by | HONG Hu

Narrated by | Kathy XU

Planed by | Kr Lab

Designed by | Miss Volcano

I was lucky enough to have two in-depth conversations with Kathy Xu in the past year. Among her stories on precise identifications of and persistent companies with potential founders, the one with Mark Yang is the most memorable to me, despite not being the most widely-known. In the battle in 2015 where Michael Yao’s 58.com merged with Mark Yang’s Ganji.com, she was the only companion that stayed with Mark Yang till the end. That was not simply a choice: it was about friendship, but was absolutely beyond friendship.

To Mark Yang who had just experienced the merger,“Kathy’s support was something from the angel”. Interestingly, when he later restarted up a new business, the Guazi.com, Kathy was so prudent that she hadn’t come in until his company removed several risk points long afterward, though she was the first capitalist Mark had asked for financing.

Among so many capitalists I have interviewed, Kathy is always an extremely special one. The vast majority of smart and ambitious females in the sector can hardly resist being labeled with the gender, but many of Kathy’s choices incline me to believe that her female gender also contributes a lot to what she is today. For example, despite the numerous winner patterns she has studied, she prefers to follow her intuition at the moment of pulling the trigger.And also, I see from her more desire for curiosity – more than that for wins.

Further, different lips are telling different versions of the story about 58-Ganji’s merger with Guazi, which undoubtedly contains too many contradictive and dark human natures. More than one witnesses of the event have told me,“a book will be written about the merger in the future.”

Then, before the final come-out of this book, let’s hear Kathy’s recall.

Below is Kathy’s dictation:

I gave him a blank TS

Generally I’d only like to fund the No. 1 player in the market, and would hardly fund the No. 2.

When I first met Mark Yang in 2010, they were the No. 2 player in the classified information website sector. With a bit higher market share, Michael Yao’s 58.com was leading in the sector,firmly followed by Mark’s Ganji.com. It was a close game between the two.

I went to Mark and told him my tender. Why him? Because I thought Ganji’s product was better and focused more on user experience. Essentially the internet business still focuses on products. Ganji’s most vulnerable disadvantage was marketing, which I could help him improve.

As soon as we met, however, Mark said,“Kathy, why do I have to take money from Capital Today? Can you give me a reason?” He was holding a pile of Term Sheets (TS, which refers to the investment commitment a capitalist offers) at that time and by no means lacked investment. I took a blank TS that day, and said,“Mark,firstly, I won’t fill in the price, which is left to you. Furthermore, I can do you two favors. The first one,58.com is filling every corner with its advertisements and even your loyal users believe you are the No.2. Now that 58.com is 50% more,there is still hope for you to catch up. But you will become hopeless when it doubles you.What are you gonna do? Definitely you need to advertise. But advertising is something like boiling the water. The expenses are in vain until you boil the water to 100 degrees centigrade. Then how to boil it to 100 degrees? You don’t know, but I do.”

It was already November and the Spring Festival was coming soon. I told him that he had to grab the opportunity to completely turn Ganji into a household word,or he would miss it. In this way, Mark was convinced by my boasting words.

So I brought him around Shanghai even before we signed the TS. I chartered a car and took him to the best qualified advertising marketers. Finally we employed the famous guy Ye Maozhong.The TV ad Ye produced for us was exceptionally interesting. They invited Yao Chen, the then MicroBlog Queen, to lead a little donkey, shouting repeatedly“Ganji, ganji (in English it means‘go to the fair’)” and“you can find everything you need at Ganji.com”. The advertisement made a blast among the audience upon being presented during the Spring Festival. Why do I highlight the importance of the Spring Festival? Because it is the only time when all Chinese families relax themselves there watching TV and fiddling with their cell phones. Besides, the majority of the audience of classified information websites is constituted by blue collars, to whom the period following the Spring Festival is the most critical time point to find apartments and to change jobs.

And we indeed managed to break it through, turning Ganji into a household word.58.com had to convene an emergency board meeting, in which they admitted it was out of their expectation that Ganji.com played that trick as soon as it took money from Capital Today. After the Spring Festival we witnessed the DAU surging from 2 million to 5 million, leaving 58.com far behind. It was a genuine miracle.

Having won the air battle, they were facing a close combat on land, where I did the second favor for them. In fact,when I went to their office for the first time I saw quite a few sales personnel just sitting in office – not making any business calls or going out for promotion. Then I told Mark to replace the sales director. Mark was a white horse

who had originally been a product developer while Michael, originally as a salesman, was a wild wolf. I told Mark the only way for a white horse to defeat a wild wolf was to find another wolf for your sake. However, his sales director then was a little rabbit. How had Wang Xing evolved? Meituan hadn’t evolved to an iron team until Wang Xing found Gan Jiawei.As a sentimental person, Mark was reluctant (to replace the sales director) at first for the reason that the director had worked years for him. I advised him mildly and unswervingly for three times. Eventually, he was persuaded one day, probably due to a frustration on the frontier. He said to me,“Kathy, find me a wild wolf please.”

Do you know where live the most wild wolves?At Alibaba. Gan Jiawei had come from none other than Alibaba. So I went to Hangzhou. I clearly remember it was pouring down too heavily to see anything that day and we couldn’t pull over on the highway, which frightened me badly. I couldn’t afford to die at my post as my child was still young. I made a call to Mark, urging him to make money for me since I was risking my life for his head hunting.

That day I was exhausted by interviewing three people at Alibaba for 9 hours.Why didI talk so long? Because I had to spend two hours digging into his mind to determine if he qualified and another hour persuading him to join us. Generally 7-year-experience senior managers within Alibaba share two features in common:one is exhausted body, the other is plenty of money.

I was lucky to find Chen Guohuan for Ganji.com, who was still healthy and was about to start his own business, but I took him away. How does a wild wolf benefit? It brings along dozens of wild wolves. Attributable to Chen Guohuan’s participation, Ganji.com immediately embraced an upsurge, with its annual sales growth rate up from 70% to140%, which was an exceptionally great momentum. By that time 58.com had gone public and cared much about its quarterly profit. Our price war was a dilemma to them. They would suffer a dive in stock price if they fought back and lost their profit, or would be frustrated by a decline in market share if they neglected our challenge. As a earlystage VC, we certainly expect our investee to become separately listed as well as the top brand in its playing sector.

In the event two cars are bumping into each other, the less innerlystrong driver sheers off first

I have also thought of the question: why did I become the only one to support and stand with Mark when 58 .com proposed the merger offer while the others had gradually stepped over to 58.com?

Despite with so many years in the VC sector, it was not until that merger did I see through human nature. The greed and fear of human nature impressed me much deeply that year.

Of course the merger was reasonable. So many years of fierce competition between us two cost each tremendous marketing expenditure, which would be instantly cut down (after the merger). We could form monopoly and opt to hike the price. Furthermore, 58.com was already a listed company then, which meant an immediate favorable exit and realization to Ganji.com’s investors, probably net return of hundreds of millions of US dollars. The question was Mark didn’t want to sell it. He did the business so long, almost a decade. Ganji.com was much like his child. He thought he could see greater opportunity.

Since then 58.com began to persuade Ganji.com’s shareholders one by one. They also phoned me and asked me to attend the meeting on the buyout price. I asked them why they hadn’t invited Mark. He was the largest shareholder as well as the CEO. It was not appropriate to keep him out. It seemed as if we had sold him without his own presence. I also thanked Michael for his interest in Ganji.com as well as for his acceptable quotation. As an early-stage capitalist, however, I intended to accompany a founder realizing his dream. If the founder was willing to merge, I would definitely support him. But if he was looking forward to a separate IPO rather than a merger, I would of course stay with him until the IPO. I would never sell it for less risk, higher profit or faster realization because it more or less went against our original intention of the deal.

How much pressure was Mark suffering then? He was even ignoring the phone calls from any investor but me, asking me to convey his idea. He knew those calls were made for no other purposes but forcing him to sign the merger agreement. I told Mark not to sign. He would lose all his bargaining power after signing.The signature was his last chip. Originally it had been his dream to make Ganji.com the No. 1 player as well as a listed company.As a capitalist, I had never feared to accompany him for a decade or so. If I was proved to have chosen the wrong person, I would accept my failure, ascribing it to my bad foresight. But if someone insisted buying out his dream, he should give a whopping bid, well worthy of your dream.

You ask me why I dared to stay on his side. Firstly, what were the other shareholders afraid of? Hostile takeover. If the negotiation failed, would 58.com spent 1 billion US dollars for no other purposes than killing Ganji.com? It was a gamble. Michael was a businessman. I thought a normal businessman would never do this. Under the tension that time, however, you had to firmly stick to your intuition without any hesitation. We cared about money, too. Our capital had also invested 40 million US dollars and it would be a disaster if the investment was all lost since we had to account for our LPs. But I still bet Michael would not. It was just like two cars about to collide with each other. Which one would dodge first? It depended on who was less strong-minded. I was strong-minded enough.

More importantly, I think it was because I saw something different from what the other investors had seen. The classified information market was big, even every segment of the market was big enough. 58.com was then doing well in real estate and life services while Ganji.com had distinctly outperformed them in field of used auto trading and job hunting. Looking back today,whichever of used auto trading and job hunting segments would be big enough. And I was much confident in Mark and Guohuan’s team. We were growing at 140% while they were at only 70%. Then why didn’t we go on? Why did we feel unconfident? Why couldn’t we bear so little risk?

I still believe we would have seen greater return if Ganji.com were to go public separately. The merger wouldn’t have occurred had it been fully decided by Mark and me only, and we would have continued with the price war. We do early-stage investment not only for money. Most venture capitalists have owned plenty of money. We also hope to find an excellent founder and stay with the company from tiny to giant,

which offers us huge sense of success. What’s more, with so many years shoulder to shoulder, I was much more emotionally bound with him than the late-stage capitalists.

Early-stage capitalists have witnessed how a company grows from 0 to 100, in the midst of which exist miracles. It may almost die somewhere therein but eventually manages to survive. I believe many late-stage capitalists come in only to find the company already matured, and that’s why it’s difficult for them to believe in miracles – they have never seen miracles.

Is there anything even more horrific than the hell,which I have survived?

I have witnessed miracles. But you are in the hell before a miracle emerges.A case in my youth brought me very much pain, making me toss and turn for the whole night. It was none other than NetEase which I funded at my 20s.

It was in 1999 when we funded NetEase in it’s Series-A at USD5 per share. It conducted IPO in 2000 and its stock price surged to USD30 per share. I didn’t sell it as I wanted to hold long. It was the lesson I had learnt from Wahaha, the first case I have done in my VC career. We (Peregrine, for which Kathy was working then) invested USD40 million in Wahaha in 1995 and sold it in 1997 for 5x return. It was making billions of revenue. However, if we had hold it longer, we would have seen it making tens of billions of revenue. So I would definitely hold NetEase firmly.

But soon there came the internet bubbles and NetEase’s stock price dropped to USD0 .6,where it lingered for well over two years. It became a junk stock and was even involved in a class action.

In my memory, during that period, a Board meeting of NetEase lasted for 4 or 5 hours, brimming with bad news. I was 32 years old then, the eldest among the Directors. William Ding was nearly 30 while the others were all at their 20s. The Directors were voting to sell NetEase and I was one of the only two to object. Do you think I could see anything different, or I could foresee NetEase’s tens-of-billions-USD value today? Impossible. I simply thought we had already been in the hell and it would hardly get worse.

So I phoned the other Directors one by one, repeating that we shouldn’t sell, at least not so cheaply, let alone the USD70 million in our account which could be used to do something more or less. Furthermore, given William’s killer intuition, why couldn’t he find some model that would work again?

On William’s 30th birthday, I invited him for a seafood dinner. He told me he had two dreams: one is to make the best game company and the other is to make money for us shareholders. I was extremely moved as he still kept in mind making money for us even in such a situation where all of us were almost down. I was impressed by his prominent sense of responsibility. Then he started the game business and developed for two years and a half.The Fantasy Westward Journey was not good enough but the Westward Journey Online II was a real success. By 2003 not only NetEase had revived but also William became the richest Chinese on the Forbes. In the end the fund I was working for (note: referring to Baring Private Equity)sold it for 8x return when its market value amounted to USD1 billion. Now its market value has exceeded USD30 billion.

With the two years of experience, it was as if I had climbed out of corpses. If we had failed to hold it and had sold it at USD0 .6 per share, there wouldn’t have been the subsequent story, and I might have been as worried by (the merger of) Ganji.com as the others and wouldn’t have stuck to that belief. With such an experience, however, I realize many things may come out completely different if only you survive that very point.The NetEase case has taught me the necessity of determination and persistence in difficulty. I have learnt to stick to the belief,which decides the huge difference. Earlystage investment really needs belief as there are few things verifiable.

The greatest happiness comes from pursuit for truth

When Mark restarted a business, the Guazi.com (note: referring to Guazi Used Auto, the former of Chehaoduo Group), I was his first option for financing. Used auto trading was a project he had hatched within Ganji.com, but fell in an unattended dilemma after the merger. In that period we often brainstorm on the phone,constantly PKing the idea. Do you know which part of an investment deal do I enjoy best? Just this part – not the Board meeting where there are too many people only focusing on historic data, making it not interesting. I like imagining the future and seeking some unprecedented truth together with the founder. Like a pair of classmates, we learn and pursue the truth together, which offers great happiness.

But I didn’t fund Guazi at the very beginning. Actually I knew it hurt him a lot. It was also a difficult decision to me. Other capitalists also asked him then,“why hasn’t Kathy funded you in spite of so good relationship between you two?”

At that time we interviewed a large number of used auto dealers and visited many used auto marketplaces. We could feel some problems in the initial model of Guazi. For example, his slogan was“no price difference for dealers”. Initially, however, probably1/3 of auto buyers were dealers. According to Gresham’s law, it was highly likely that you had tried hard to establish a C-to-C connection but only to find a vehicle still bought by a dealer,who then resold it at a higher price.What could you do?Another example, for a deal of thousands of dollars, the buyer and the seller made a date for vehicle inspection but found no convenient place for waiting each other – why haven’t there been any very big companies engaged in C-to-C business across the world? Just because the deal is featured by high uncertainty and less good user experience.

Although I hadn’t funded him, I talked to him continuously,with an in-depth discussion every two months. One day during that time Mark said to me,“Kathy, why not accept my offer of some options and come in?” But I didn’t think it appropriate to make profit at his expense like this. I told him to believe me and that I would hold the money for his business model and would definitely fund him in the subsequent round, eventhough the price would become higher.

Later we came in when Guazi was valued at USD3 billion and both of us were happy with it. Mark and his team were so great that they perfectly overcame the three pain spots in the model which I had originally considered to be risky:they adopted AI pricing, established offline stores for new retail purposes, and started Maodou for new vehicle sales. I have also replayed the event within our team. If I had the opportunity to remake a decision, it would have been the same one: I wouldn’t fund it when it was valued at USD1 billion, because the risks and concerns we had identified were proved to be true later. However, Mark was good enough to overcome them. My decision to invest at the3-billion-USD valuation instead of the 1-billion-USD one significantly reduced the risk and allowed me to invest more.

Speaking of VC’s business model, you have to either hold more share or invest more money if you want to make a fortune. You must achieve whichever of the two – you may come in earlier and hold a share large enough even with less absolute amount of investment,or you have to rely on the size of funding with regard to a late-stage project which is valued over billions of US dollars. An example of the former is our JD.com case, where we were the earliest investor offering it USD10 million in Series-A Round supplemented by another USD8 million in a later round. And an example of the latter is our overweight in Meituan with total investment of hundreds of millions of US dollars. It’s least wise to hold little share and offer a small size of funding, which will not bring you too much return even if the investee becomes a success.

However, I insist that as a capitalist,the greatest happiness doesn’t come from profits. When I established Capital Today in 2005, I held a Dongshan Meeting where we determined our mission, vision and ambitious goal. We argued sharply at that time. A fellow suggested the primary pursuit of a VC must be for maximized gains or return for our LPs. I said no. I was already rich. I wouldn’t focus on money only, and I wanted something more than money. So our goal should be to build business for China,to find great companies and the top brands in China.

Nevertheless, it is a matter of luck to seize a great deal. Wang Xing once assimilated running a conventional business with climbing a mountain – the runner only needs to try his best to go upward.The internet economy, however, is like surfing, and you have to catch up with the tides. But you don’t know when the next tide comes. Sometimes you still miss it even you have worked hard. Reviewing my 24 years of VC career, I feel I’ve been very lucky to the extent that we have seized quite a few great tides(laughing). However, it’s unlikely that there is a great tide every year. So when there is none, you just stay in water in case you miss the tide when it comes. I’m a person full of curiosity and still like doing due diligence now. I make a number of phone calls everyday. Someone wonders why Kathy does so much dirty work? But in my opinion, isn’t it the most effective way?Anyway, I am always surfing there. So even if there are no great tides, I have continuously come across ordinary ones.