00:00Haz was just referencing there some of the tensions between the U.S. and China, but of course you're a U.S. dollar investor in the China landscape, so you're spending a lot of your time speaking with investors in the U.S. but around the world as well.
00:12What's the fundraising environment looking like right now?
00:15Yeah, well, thanks for having me. The fundraising environment is warming up a bit compared to last year. We saw a fairly significant change around the so-called deep-seek moment when the world is re-evaluating Chinese, especially technology assets.
00:37So the overall environment is slightly better than last year. The investors who are looking at financial returns and values primarily are coming back. The geopolitical aspects of it certainly has not changed that much.
00:57With that in mind, we have been reporting at Bloomberg that you're raising right now, you've got a new fund in the works at a $600 billion valuation or size. That's down from maybe $800 million that was earlier reported. What's behind that drop and how are you going so far as well in closing out this?
01:18So I'm not going to go into the details, the specifics of it. I think the overall logic are twofold. A, we continue to see great opportunities in China and we had a fairly substantial significant size last fund.
01:35So we had a longer investment period than usual to deploy that larger size fund. And we are coming to the tail end of deploying that previous vintage.
01:50And given the opportunity, given the more challenging global investment environments, despite the warming up again since earlier this year, we felt it's probably best that we raise the right size fund and then quickly focus on investing rather than myself flying to every other continent in the world.
02:20Duane, you talked about how the fundraising environment has improved just slightly. Why not more progress than that, given that the tech clampdown has eased and trade tensions within the U.S. and China have also eased? I mean, what more do you need to see before you think international investors would have more appetite to invest in Chinese startups, for instance?
02:42That's a great question. I think the fundraising environment and the appetite for investing into Chinese technology companies have improved quite substantially from regions other than the U.S.
03:02So I travel to other parts of Asia quite a bit. I travel to the Middle East. I travel to Europe and also travel to the U.S.
03:12So if investors are looking at the potential returns of these great technology companies, investors looking at the valuation today and the potential for the future, then I think the answer is rather obvious.
03:32So in that part of the world, the investment sentiments and interest into Chinese tech has improved substantially.
03:42Now, in terms of U.S. investors, I think part of it still is that there are some longer term questions that both sides are trying to resolve, answer.
03:54So I think the capital market has improved more. It is an asset category that you can come in and out a little bit easier than in the VC and PE market where you are making a 7, 8, 10 year commitment.
04:11So I think with the capital market doing better, we do expect the improved relationship between U.S. and China, we do expect the sentiment to also improve in the coming months for the venture capital investment as well.
04:29Just to follow up on valuations, Duane, I'm just wondering why it's still pretty leg lost when it comes to valuations for Chinese tech.
04:37I mean, their valuations would be much higher if they were to fundraise in the U.S.
04:42Some say by 5 to 10 times more. What's your take on that?
04:52There are multiple reasons for that.
04:56If we take AI as an example, if we look at the amount of CapEx that's been committed to the area, it is at least a 10 to 1 differential.
05:13And so in terms of capital deployment and CapEx investment, the environment is quite different.
05:25And then in terms of investor interest into startups, the companies in China, the first wave of AI deployment globally in the U.S.
05:41tend to be in the enterprise market, whereas China excels in the consumer space.
05:47So this is a space that's going to take a little longer for market education, for consumers to get excited about AI, get dependent on AI, and then eventually cannot live without AI.
06:05So that process is taking a bit longer than the coding co-pilots and other enterprise applications.
06:15So the U.S. AI, B2B companies are having faster revenue traction.
06:25The Chinese AI companies are coming in onto the stage and the level where revenue traction will happen.
06:38It just lacks that of the U.S. a bit.
06:40So, you know, it should be and it's reasonable to have some differential in the valuation, but certainly not a 10 to 1 difference between the size of the two economies,
06:54the potential of AI that would redefine, you know, how we live, work and get our health care.
07:01So what's your investment parameters?
07:05Because I look at some of your funds or the companies that are in your portfolio, there's Step Fund, for instance, there's GPU AI or ZAI.
07:12But what made those companies stand out to you in particular?
07:16And what's your general thesis as well for how you choose amongst them?
07:19You mentioned a couple of our AI investments.
07:24Those two are in the LLM space, the large language model space, the infrastructure space.
07:30And I think our investment approach is we try to move what we call half a step ahead of the market in identifying opportunities.
07:43So when infrastructure buildup, LLMs are still a scarcity, we would like to identify these companies that could excel when this particular area becomes an essential portion of part of AI.
08:01Now, we also feel that the battle for LLMs, for the model fights, I think the players are more or less at the table already.
08:17Who will ultimately emerge as the ultimate winner?
08:21Probably too early to tell.
08:22I certainly believe that our companies have a better than average shot in gaining that spot.
08:27So going forward, our focus are more on the AI applications, AI application in the humanoids and robotic space, AI application in the social space, in how we interact with AI in the genetic space, and so on and so forth.
08:48And a lot of the tools to make AI more affordable, easier to use.
08:52So those are things that are time dependent.
08:59It depends on what time frame we are looking at these opportunities.
09:03It's interesting you mentioned sort of the industry behemoths versus sort of the incumbents.
09:07And one company you've invested in is Insta360.
09:11It's sort of seen as a GoPro competitor.
09:13They've also got a company within that, Anti-Gravity, that's recently started to build out its drone business as well.
09:22And this is sort of maybe going head-to-head in some ways with DJI.
09:27We hear that they're looking at fundraising right now.
09:30Are you looking at taking a stake in this business?
09:32And what would be the size of that stake?
09:34And at what sort of valuation?
09:35We had a long history with Insta360.
09:40I think the theme and the success of Insta360 highlights a very important investment theme and category that we focus in.
09:52And that is Chinese companies' technologies and product capabilities coming onto the world stage.
09:59They're no longer synonymous to better price for money, for values, and so on.
10:09They are leading their category.
10:11So we were happy to see Insta growing the way they grew.
10:18And when we heard the new effort in anti-gravity in this new area, we certainly are interested.
10:28So we are interested in that area as well.
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