Livecast #8: VC Ray Hu of Blue Lake Capital on China SaaS

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Transcript compiled by Karrie Huang.

Rui: Hey everyone. Thanks for joining us. We have Ray in the room right now. Ray, first of all, thank you for being here today. The way we’re going to do this is so for the Tech Buzz insider community, you’re able to join us live on Zoom, and we will have about a 30 minutes fireside chat, and then we’ll have to open up to Q&A and for those of you on Twitter, thanks for joining us! So, Ray, I would like you to just introduce yourself again.

Ray: Sure. Thanks for having me here. So I’m Ray Hu and I’m the founding partner of Blue Lake Capital. So we founded this firm, almost seven years ago. And the premise of the firm is to do venture investing a little bit differently. So at Blue Lake, we adopt a research oriented approach so that we do thesis driven investment. And in the last couple of years, the thesis is mostly built around software, I think we are also building a very concentrated portfolio. So at Blue, we only have about 10 to 15 companies in each of our funds, even if they are early stage nature. And we try to concentrate the majority of each fund to three, maybe four portfolio companies so that we can maximize the return potential of the fund as well as maximize our time invested in portfolio management.

So that is where we are right now. We manage five funds. So three USD funds and three RMB funds. 

Rui: And I believe the cumulative AUM is somewhere around 700 million. Is that right?

Ray: That’d be 120 more by the end of the month.

Rui: Got it. Very cool. I remember when you first got started and you told me that you’re quitting GDV and leaving to do a fund. And it’s, here we are, not that many years later and you’re almost at a billion AUM, so congratulations. Very impressive. And you said that you’ve been focused on software for the past couple of years.

Especially when you started the fund, at that time, that was pretty much all consumer internet, right? In China. And you had worked on a few landmark deals but you decided that based on. The current market conditions and presumably based on their research that you did that SAS and enterprise software was the right thing to bet on, especially with this concentrated portfolio approach. Could you describe that a little bit more? 

Ray: Sure. To be honest, when I initially got started back in 2014 I knew how to build a portfolio differently.

I knew how to run a thesis driven approach, but I really hadn’t haven’t back then decided to focus the majority of our efforts on software yet.  It’s a trial and error process for us. US Dollar for one, even though it’s a very well-performing fund, I think it’s gonna eventually generate 10 X for our investors, but we spread it around.

We have some Social networks. B2B marketplace,  software and e-commerce as well. That also gives us an opportunity to experiment what we are really good at. And when we want to run our strategy to build a thesis driven kind of investment strategy what is the most powerful model that we can  leverage research to maximize?

So that is where we eventually did.

Yeah, I think initially we actually didn’t very explicitly focus on our software. It was the beginning of 2016, when I reviewed what we have done really well. When we look at the market for the next three, five years where we really do see good opportunities calming so software obviously came on top of that.

I think one really convincing and leading indicator or proxy we’ll look at is the maturity or the growth of the public cloud infrastructure. Because before that we looked at GGV like 10, 12 years ago, we looked at SAS products in China as well, but before the cloud, before public cloud was available, like those sounds companies unfortunately have to manage their own data center, the security, the storage, and everything is so complicated and expensive to build.

But with the maturity of the public cloud things become much easier. So back then in  2016, what we saw was Ali’s cloud’s growth is on fire. It’s still growing like 80% year on year right now. Question we had for ourselves back then is what applications are the applications running out.

So we spent some time getting into the numbers and talking with people and eventually figured that the trend is coming. I think this is a really important kind of boost to the entire SAS industry where the infrastructure is ready. All of a sudden, for example, SMBs can afford to use software that’s easier to access.

What we saw back then and eventually made us make a decision to focus on our software. 

Rui: Got it.  Could you explain sort of your thesis around SAS and why? I gave to the group a couple of profiles on your most successful SAS investments. For example, Jushuitan, so help us understand what you’re looking for when you made the investments in these SAS companies and what you’re seeing.

Ray: Sure. So the way we see the market opportunity it’s also in a way like where internally as a team and the investment team where our internal capability is.

So right now in the firm, we have four managing partners. Two of them have come from an operation background, they have run companies, they have run software companies. They have run business service companies in the past in two different sectors. So one primarily focused on enterprise customers, large corporations, and the other guy focused primarily on SMB.

 So naturally that’s how we decided to divide our efforts between SMB and enterprise. It turns out to be quite effective because the software demands the type of product they need.

And on the company side, the type of go-to market approach are all very different in these two segments. So that is how right now we split our responsibility and categorize the market. So in each of these two categories, for example, SMB we primarily invest in vertical stuff because in China, there are like so many tens of millions of SMBs and to build a universal horizontal product to cover the entire universe is very challenging to do. And in a way you can also risk putting ourselves on a radar screen that the big incumbents can go back to. So that is why we are a big fan of vertical software especially in industries where there are like millions of SMBs with a large potential market and preferably on top of that in a data rich environment.

So I can explain the data rich environment later, but as you can imagine, like for example, industries. Like e-commerce online gaming and a certain part of the restaurant industry, retail industry. So thanks to the education front campaign, Meituan, Alibaba. So many kinds of merchants in those verticals are starting to adopt digital solutions to manage part of the business.

So we have a big standup that is kind of a vertical focus in data rich industries that is on the SMB side. So on the enterprise side because of the limited number of customers, we will eventually have tried to go with a horizontal solution. Plumber along and the supporting functions where we think is much easier to build and standardize the product and kind of push that out towards the entire market supporting function without being basically in a large corporation, anything in a back office, HR, finance, customer service, anad legal. So that is where we are focusing a majority of our efforts in the enterprise software world to identify opportunities to study comparable companies in other parts of the world and understand local demand to find entrepreneurs that we would really like.

So in brief, that is where we build our portfolio. We have around close to 30 companies in SAS right now. And I will say right now about close to 10 of them are already over a hundred million. 

Rui: That’s really impressive because SAS is notoriously difficult to monetize in China.

I think it’s very interesting that you said that part of the thesis is for SMBs to focus on verticals. And I would love for you to talk about one of your portfolio companies. Next, but also you said that for the larger enterprises, you’re actually focusing on back office. That is a bit surprising to me because I thought that a lot of the larger enterprises are tricky to deal with and really don’t want to pay for a standardized solution.

So they’re much more likely to push you towards a sort of a consulting task model. Is that still true or is that quickly changing? 

Ray: I’m going to drill down on that question. The short answer is that to serve a corporate customer initially when you land your product, you certainly need an amount of implementation, but that doesn’t necessarily mean that you have to customize your product to fit the demand. Usually what we see and preferably what we see is that the implementation is more for API connection training and things like that. So that is because the existing infrastructure in most enterprise customers is quite complicated.

And if you are a system that is embedded into their daily business operation, the business process, you inevitably connect to their existing HR system, finance system. So that part, I think, can hardly be skipped or undervalued. But we do see opportunities to build a standardized product to serve even enterprise customers.

If your product is first enough you can quickly use that feature to configure your product, what different kind of a user case, which is definitely doable. But it is also true. Like back to your question about the willingness to pay, in China I will say for most of our SAS portfolios on the enterprise side, when they approach a customer it is rare that the target customer didn’t have any subscription-based cloud hosted software that is already in work.

So the market has been pretty well educated. So stuff  like what about my biggest acuity things like that are already gone. People are increasingly aware that the ARDI cloud could be much more secure than their own IDC. So the question is, why now? The cheap pay or the willingness to pay.

So I’ll give you one example. Like we have an expense management software company called Clark areas that developed a very similar solution to concur in us that does expense management. So they are selling in Japan and they’re selling in China as well. So this specifically, like we have side by side comparison of customers in the same industry with similar size in China, like we can charge customers for 200 RMB per account per year.

Japan, which pricing point is close to the US as $200. So that’s relatively the difference between doing a SAS kind of business  in China versus in the developed world. But it is what it is. I think the benefit of that is hopefully I think in China engineering cost is still slightly lower.

And  if you think down the horizon, far enough, that company, if they can survive here in this kind of really competitive environment, when they eventually grow beyond the border, they can be.

Rui: Thanks for sharing that. It’s interesting what you said about the enterprises being open to the public cloud as well. Adjust, share with the group, actually the iResearch report on cloud for China for 2020, and to my surprise, at least for the public cloud or the third largest industry was actually the government, so government institutes. So even the government is open to using the public cloud then that’s really good news for other enterprises, even the very traditional ones. Can you talk about what we were doing, the preparation for this call? You had mentioned that one of your fastest growing companies.

So I want to give you the chance to highlight your portfolio. And I also actually shared a little bit about this company with the community earlier, it’s JST, which is a vertical SAS business. And so I think now that I hear your investment thesis about it being a data rich environment, this makes perfect sense because it’s four equals.

Can you tell us a little bit more about that and the company and also how you got to investing in it? What excites you about the whole industry? And by the way, I do want to add  my follow up question now, which is that I noticed JST actually invested in another portfolio company of yours called LinkedIn.

Yeah. Which does cross border e-commerce even more specifically.  Maybe you could comment on that as you talked about.

Ray: Sure. So we like GST and that kind of our initial short names are easy to spell for English speakers.

So what they do is they developed a product that allow millions of e-commerce merchants who are selling on Taobao, on JD, and sometimes Amazon platform to manage the backhand specifically, or the processing and warehouse management to think about when a merchant received an order from regardless, which kind of e-commerce platform to the point where the package is shipped out of the warehouse.

That entire backend process is managed by their software. So we see this as a demand that is universal to almost all e-commerce merchants, especially when they have more than like 200, which is a very low threshold, more than good packages per day to deposit. They need software so that they don’t make mistakes in processing in the warehouse.

So that is where it kind of where the product kicks in. They’re not the first one to market that when we made an investment that they will not even be the largest, but I think the company would really always seem to be held off to the temptation that they built a standardized product and count customers who use the standardized version.

We want to have incremental or customization requirements that kicked all of them out. And at the same time, I think that they are expanding their product. Portfolio to make it more and more powerful to accommodate more and more. It was a case but they insist on selling one version of product all the time that is really laying the foundation for the business.

And this is one thing we’d really like, and the second thing we really like about a business, which back then, I think, was quite bold and innovative to do. And increasingly we are seeing that in China has been almost an industry like default for, or SAS product targeting SMB is to build a ground salesforce which back then people thought was creative, which was way more expansive floor, that low average contract value.

But we think if your customers are concentrated you can run like a pilot programs to task to IOI after Salesforce is probably doing. And especially in SMB, I think that vertical has that reputation for a low retention rate. So build a, like more touchpoint with your customer base so that you can have potentially higher retention way down the road. 

Rui: But you were in the middle of talking about the ground salesforce and I think, yeah, actually, so I looked on the website and I read some of the CEO interviews and out of the 2,500 employees, about 1700 of them are, I don’t know if they’re salespeople, but they’re not engineers. 

So they’re about half of, half of. Like half of them are sales of business development and the rest heart are implementation slash customer service. Yeah. And I saw in a couple of the case studies, this was especially helpful because a lot of the SMBs are not, they might be first to use software to manage their orders and actually need a lot of hands-on help.

I also saw that a JST was benefiting a lot from the live streaming e-commerce boom, that the live streamers basically are increasing e-commerce GMV and they also need an order management system. And so  those are really good points that you mentioned. Can you go into a little bit more specifically on the opportunity in cross-border because clearly JST went into cross border, but then you also invested in another company along with them and a company that’s even more specifically focused on cross-border e-commerce. What’s the opportunity there?

Ray: I think that might be a little surprising to people who don’t look at that space too much. Yeah. In short I think that is the one mega trend we are building. And we have very high conviction. Is that the way China products are distributed around the globe change dramatically down the road?

So in the past, if there’s how those, like trillions dollar of China products are sold in US, in Europe yeah, either sort of like Target or Walmart, those large retail chains or layers of wholesalers distributors before they reach consumers around the globe. But going forward, we believe with the adoption of e-commerce with platforms like Amazon, E-Bay, Shopy, Wish those Chinese products they can directly reach consumers or end users in other parts of the world. 

So those e-commerce platforms. So we see that trend inevitably will come. So we see that in China, already for the domestic part of retail and and on the international scale, we think that should happen as well. So given the scale of the potential we decided to do, looking at a space like technology was like the software infrastructure that can help this kind of a major shift in international trade. And so Lingxing was a company. I think it was initially first invested by JST. So they knew the space really well. They are interested in pursuing that opportunity, but don’t really have enough resources or talent internally to do that.

So they founded this gifted entrepreneur who used to be a product manager at Tencent. Give them the right amount of resources and the know-how to build a common software and put ideas into work. And obviously it’s been really successful. So we jumped down to the opportunity and in a serious route and invested again together with JST.

Rui: Oh, that’s super interesting. I didn’t realize it was incubated by JST because they had said that their cross-border e-commerce business was booming, but I suppose they probably want to keep most of the resources towards the domestic and very competitive environment. Okay. That makes a lot of sense.

So now diving a little bit away. I want to leave plenty of time for Q&A, but I also wanted to ask you this question because I did not include just SAS  and the topic of this chat, which is, I also included automation because you have some robotics companies as well. 

I did a lot of research on some of your SAS companies. It was less familiar with their robotics companies. Could you talk a little bit more about them and what have you been investing in? I saw they arranged from what seemed like robotics software too. A mopping robot. Yeah. Tell us more.

Ray: Yes. For us. I think that they’re not necessarily like a subscription-based SAS company, but they are a software company as well. So as long as they can see other product within six days, 70% gross margin, I think that is a software business at the core of that, at least. So we are seeing this like machine learning, AI adoption in almost every vertical in some of our SAS partners as well.

And we think they can be applied in the physical world in a powerful way as well. So that is why we looked at autonomous driving four or five years ago. And have invested in autonomous driving since five years ago, actually the company I think I met in Vegas a few years ago. It’s called momentum, right?

That’s fine. That’s why. So that is where we really have given us an opportunity. It’s an eye opening experience for us as well. What autonomous, what AI and machine technology can really do, can be applied to change our daily life. So we think that this is a really cool and innovative element that can be applied in many applications around us.

So if we can find our path or use it or we really would like to find such opportunities so that they can use machine learning AI to change our life experience. So in short, I think that really is what inspired us to take a hard look at automation to be applied to somewhat following a software product, like customer service payment processing contract management.

And we also see them in some consumer user cases, like autonomous driving marketing machines. 

Rui: Okay. I wanted to actually give people in the room a chance to ask questions.  I want to ask one or two more questions, but then could those of you who want to ask questions, raise your hand.

Let’s go back to SAS, right? So SAS companies try to, in the US, you had said earlier that your expense management software company was actually active in Japan, as well as China.

What are you seeing in a lot of your other portfolio companies, the opportunity to internationalize? And if so, is that typically towards other East Asian countries or maybe Southeast Asia, or are they trying to also come to the West? So that’s my first question. And the second part of it is just the reverse.

Do you think that this is less a question about your portfolio, but based on your assessment of the strength of domestic Chinese SAS players, do you think foreign SAS players have a chance in China or they should probably not come because number one, they’re not going to be able to sell their products for very much money and they’ll need to hire a very large on the ground salesforce it sounds like. So yeah. Your thoughts on that international expansion? 

Ray: So for China, for Chinese companies to expand out of China, I think that trend is still very early. I think the product domestic SAS market is also in the early days of development. But with that all being said, we do see a couple of companies, somebody, our own portfolio, some kind of in the, in a broader SAS community are starting to attract customers from other countries.

Cloud expense management. We’ve met, we have another business intelligence, software product for gaming companies specifically that really allow game studios to optimize, to use a ton to spend on user pay on the under on the product based on analytics.

They are attracting customers in Japan, in Europe as well, because some of the Chinese they’re so good at monetizing the game. And that ability is building to the software, which a lot of foreign game companies are trying to leverage as well. And even at an infrastructure level like pink cap, which is a very high profile open source database company in China, they are also generally, actually right now, majority of their revenue outside of China, like in Southeast Asia and in the US as well. Kujiale is a portfolio in my previous TGV which is like a home designer focused solution. They’re also doing very well outside of China.

So we do see that trend is as calming and at a cough that as is basically the Chinese engineers below the, to iterate the product fast. I think that is basically at the core of every SAS, every competitive SAS product offering. So back to the second question: do I think US or international SAS products can be successful in China?

Yes. Only if they are willing to invest in a kind of local R&D and product development, we really need to listen to the local customers and adapt to that quickly. So if all the low demand needs to be picked up by the CEO’s office, sent back to Silicon Valley, and wait for another three to six months for development, then that’s hopeless.

Rui: But I think that contradicts almost a little bit with what you were saying earlier about the Chinese companies going abroad. Cause it sounds like to me that they’re not necessarily following their abroad which happens with some other software companies. But they’re actually organically getting new, they’re acquiring entirely new customers because they actually have a product that fits with Japan or fits with a European gaming company.

Basically asking that you were saying that you think foreign companies can wouldn’t try to, they, are much more localized, but at the same time, what I’m hearing is that the local Chinese companies are actually winning abroad, not necessarily because they are they also when, winning in Japan and Europe, because they are localizing for the market there, or actually because by accommodating the needs of the Chinese clients, they’re finding that those needs are the same as their international clients.And therefore it all the same solution will be — 

Ray: Both in the gaming solution. I think that demand for the customers, domestic and abroad are fairly similar and expense management products, like which selling in Japan, as you can imagine, like the tax codes and a lot of the regulations are very different in the Japan market.

Even the go to market approach is very different. So we do need to set up specific resources to localize our product and to make that kind of a fit to the Japanese market better. Yeah, various parts of byproduct, but you do need to have that mentality to invest in resources and we act quickly to whatever feedback customers give.

Rui: And you’re saying that’s an advantage of the Chinese companies, at least in your portfolio? 

Ray: I think across the board, yes. I think we just think about so far, what type of Chinese, like software, are successful abroad? Tik Tok is one of them. And then maybe hundreds of Chinese games is another set. I think both of them are basically very good at iterating on their product and adapt to local demand.

And in the core of that is actually the engineering resource and their mentality. 

Rui: Cool. All right. We have questions from the audience. Hey Ray, thanks a lot for taking the time to speak today. So my question is so in the US within the cloud market at times of see competition from some of the infrastructure of cloud providers who will end up moving up market or develop their own sort of SAS product themselves which can sometimes have a tense relationship with some of the SAS companies based in the US I’m curious whether you see anything similar in China or how you can think about that longer term in terms of benefiting from the infrastructure that’s being sold, but also potentially seeing them as a competitor.

Ray: Very good question. I think we are increasingly seeing big public cloud players step into — in the last one one to two years develop the tools like low code tools security tools and and in the last 12 months, there’s I think certain applications where they see a lot of potential are they are trying to build some of their own proprietary applications for their customers including some of them verticals. I mentioned like expense management, hiring management, and contract management. So when they have like millions of customers, if they see this is a common demand, a lot of their customers asking for yes, that is one kind of trend we are increasingly  did that worry us?

Yes, but does that mean our portfolios are out of business. I don’t think so. So as long as they can really build a solid product with high customer satisfaction with it, I think we should be able to do fine.

Rui: David, you have a question.

David: Great. Thank you, Rui and Ray. I had a question about the customers, if you will, you mentioned earlier about how you’re going after the SMBs. So the question I wanted to frame is what are the big pain points today that these customers are you’re trying to sell for and, maybe frame that in terms of how their current day-to-day workflow is and how the softwares that you’re backing comes in to help them.

And, maybe you can finish off with talking about how, what are the biggest problems that these customers are facing today that aren’t being addressed? 

Ray: Yeah. So in general, I think that is also not something we analyzed top-down and then applied. Our investment thesis is actually the other way around when we observed what type of software, like which part of our software portfolios are doing better than the other.

And why is that? So one common pattern we have identified is that for SMB software usually if you are addressing their sales and marketing demand, or if you are positioned as a solution to help them increase sales it’s much easier. Selling process is much more welcomed by the market.

On the other way around, if you are targeting corporate customers boosting sales is a very hard value proposition to deliver. It’s usually helped them to increase efficiency or lower cost. So watching them be segments or vertical and most of the products like we’ll  back, are doing well, usually targeting at somewhere along develop a positioning of helping them to increase their selves, like marketing efficiency, let’s say sales efficiency, and even in GSTs case other price and their warehouse management has basically helped them to increase the bandwidth after of of their backhand.

We also have a, kind of a customer service part called a Le Yan that uses an LP to address usually presales inbound queries that really allow like millions of merchants to answer. Questions basically pick up inbound leads in peak hours where they’re essentially out of capacity or during off hours after 11:00 PM or before eight o’clock in the morning.

So if you can clearly position that and it delivers value it’s usually easy. It’s usually an easy sell. 

Rui: I had a question about what kind of entrepreneur that is appropriate for starting SAS in China today. For example, we had talked about Kujiale on our WeChat prep call. And basically I looked up the founders’ backgrounds and they’re actually from China originally, but they studied in the US and then worked at Big Tech here. And they have a very highly technical background, delved really deep into a technical solution. Do you think that is the type of entrepreneur background to succeed in China today or is SAS and China more like consumer internet and that the go to market strategy matters a lot more and being able to manage the, on the ground salesforce?

Ray: We have enough data in our portfolio. I would say the education or work background of the entrepreneur is an important element, but I don’t think it’s the most decisive one for us. I think the most important one is, now they’re patient and customer focused, so if they can really build this culture and the mentality for themselves and for the entire organization to really focus on customer and the product I think the business can eventually prevail because in, in the SAS business, I think the beauty of the business is retention of the current revenue.

And what’s driving that is basically kind of customer satisfaction. So if they can really make that kind of the Northern star of the organization and build every effort around that, how to gradually and over time increase customer satisfaction. Wait, I think the business can be successful regardless of their background from an Ivy school, like a local engineering school with a background from Alibaba Tencent, or have come from nowhere.

Rui: Okay. Yeah. The reason I ask that is that because a couple of VCs I was talking to had noted that now was a better time than five years ago for returnee entrepreneurs because now, deep tech or just hiring more technology and less operation intensive companies, were more likely to succeed.

And then, so that’s why I was asking. I should some of the listeners who are listening to this, who are, diaspora like living abroad and want to start companies, do you think it’s a good time for them to go back and start SAS companies given that they don’t actually are probably not very familiar with how Chinese businesses operate, but it sounds like you’re saying that’s not as much of a deterrent as long as they’re quickly iterating the product and focused on customer satisfy.

Ray: Yes. I would say, yeah, given the market opportunity and the potential here, definitely think about that. You have to have the packaging idea in mind. Definitely think about that, but don’t underestimate the challenge of the go-to market in China which I think in other parts of the world as well, like a go to market, how to sell to customers is always a very tricky problem to solve.

And that is the part I would say probably needs more like local wisdom and a lot of help fund local talent. 

Rui: You mentioned one of the beauties of the SAS businesses, the retention which I completely agree with, one of the things that I’ve struggled a little bit with at least with SMB in China for one. I looked at has been quite high churn rates or low retention just by nature of the fact that the SMBs stick around as long. What have you seen or what do you look at or think about when you’re thinking about those retention rates for the SMB focused companies? 

Ray: Yeah, I’m glad you asked.

I will say there are actually two retentions. One is logo retention was dollar retention. So logo retention in SMB market, that is that is tough in general, SMB is they have a certain task ratio. Usually like 20 to 30% every year. That is the nature of it.

There’s no way a software company can change it. Pick up customers really carefully and you can maybe increase net like increase your log retention rate by five and 10% that’s it. And how to increase your dollar retention ratio. And so that process is for us, I think the more important questions to understand our experience so far has been how to price your product.

So if your product is priced in a very old fashioned way, like a proceed, account per year, then your tolerance changing will pretty much be similar to your logo retention. But if you use a kind of a usage based pricing. And it can grow with the more successful, like subset of your customer base. I think that tension can compensate for the lost logos and can have more than a hundred percent dollar retention ratio now, which is a very good result.

So in GSTs for example their pricing model is the charge of their customers around like 10 cents. RMB per order process. It’s a very typical usage based pricing model that allows them to grow with the most successful customers. And it also makes your sales and the customer adoption so much easier.

When the customer is asked for small things, if they’re only shipping 200 packages a day, take myself here for free. You only pay 10 cents per package, which means like 20 IMB per day for the software, which is nothing. People are willing to pay. People are willing to use the product, but when they get to 20,000 packages per day, they cannot leave you.

For them just like a tax, they have to pay every day and they have to pay it. So that is something like we are. Encouraging many of our SMB SAS companies to consider. So if they can see a way not to really overcharge their customers, but also design the pricing scheme to a usage place, what we think can be really powerful down the road.

Rui: Thank you. I did see that when I was researching JST I’m curious, like what would you be able to share? What are some of the reasons why other companies cannot adopt this kind of usage based pricing mechanism? Sometimes it’s just that a use case that makes it hard like back office or something.

Ray: Yeah. Or sometimes it’s customer education. Let me take one step back, for example sometimes user tests means finding what kind of right usage to track and the price upon it can be tricky. So for example, like we have a product that does supplier.

Helping customers to manage supplier qualification to contract, to invoicing, that kind of thing, high process we, we’ve struggled thinking about this option, to find what’s the right kind of usage figure. We should use a kind of fluctuation, universally applied to all our customers and to place upon it.

Yeah, sometimes it’s just, it’s hard and sometimes it’s because of competition and a placing routine in that industry customers are only willing to go with a pro account or put employee model.

Rui: I always like to end with a question of basically as an expert in your space, China, SAS, especially early stage investing, what’s a common misconception that people have that you would like to correct?

I think we have touched on those two points already. One year is the retention rate in SMB. We think it can definitely, when you think about a dollar retention, it can be definitely higher than a hundred percent. That is a wrong perception or the perception is Tam like a potential market size for a SAS product? Investors, what we found really funny looking back is investors really like to talk about Tam. Most of the successful entrepreneurs don’t even think about Tam. They’re really focusing on what’s the sales opportunity ahead of them and how to cash them and how to use that product to expand their customer base.

So what that tells us, yes. Even in today’s China market, given the early nature, it’s really hard. To predict the adoption rate of a certain product which we can calculate change to Tam a guesstimation. And if you think far enough China is not really the limit of where those SAS companies can grow. So in a way that if you’re really building a powerful product for a strong user case, I think the business can eventually become very big.

So that is my message to many of my entrepreneurs as well. So when you are doing fund raising the goddess questions a lot to ask them to gauge or to calculate the template investors but that is only the investor class. We don’t think that’s really an entrepreneur. 

Rui: Gotcha. So you’re, it sounds like you’re saying that, you’re very optimistic that a lot of these, if you serve the right use case and you can go find it all over the globe and you could be a global company, basically.

I think we’re out of time. So I do want to thank you again, Ray, for joining us. And if you have any last comments or thoughts how about you want to share any more information about your company, where if they’re entrepreneurs listening, where they can find you all that good stuff.

Ray: Oh yeah. So if you are interested to learn more about our company, what we have invested, take a look at our website  It should be very soon that we are going to publish a SAS index on our website, where we track some of the most successful public software companies.

Not all of them are like a hundred percent status. But we think that is a representative set of companies for us to track where the fraud in the industry is heading towards by a market valuation. So this is an index we will continue to build and attract.

And hopefully I think over time that can be used as a proxy to tell where the China SAS industry is heading. Got it there, there are lots of I guess I’ve seen several of these indices for the U S markets, but you’re building one specifically for China, for the China software market. Okay.

Rui: Thanks so much again for joining us, Ray, and congratulations on your new soon to be announced fundraise and all your great portfolio companies that I think some of them are probably going IPO soon.

So thanks again for joining us and thanks everyone on Twitter and Zoom. Bye. 

Ray: Thanks for having me.