January 2012


Mónica Muriel, Managing Director of DaD Asia Seed Capital, opens her diary

I moved to China thinking about working with start-ups, and the internet is a space I found very interesting. But almost no foreigner has ever succeeded here, so I felt like it was not going to work. I was connected to DaD in Spain before I came, so I talked to them and decided to try to open DaD office in China. They agreed to give it a try, even though we didn’t know if it would be successful. But we were certain there seemed to be good business opportunities, so we tried.

The internet in China has big figures and big growth. It’s very interesting and innovative in terms of business models, how to make money, and how to monetize users. The Internet here is actually more advanced than in the western world, which is surprising, usually China is not the most innovative, the western world normally goes first and then China follows. The internet in the West is really about innovation - you have to offer something new, something to capture the attention of the users. Here there is a lot of space that hasn’t been occupied yet, its like the far west of the internet, there is still land out there that has to be occupied.

There are a lot of people interested in the internet right now and many more who are able to raise money. There are many internet businesses that suddenly become very trendy and everyone is willing to put money in them so it becomes a race, it is not about execution any more, its about who raises more money, faster, because they can spend more on marketing. This is true with the Groupon buying model. It suddenly became very fashionable and everybody wanted that space. In these situations, it no longer becomes about the execution, it’s about just who can raise the money the fastest.

In China, there is a lot of money around looking for a return, but traditional Chinese investors are usually only willing to invest closer to the exit point of a company. They want faster returns and want to make safer investments, so are not drawn as much to the start-up space. It’s very important to create an environment of investment at a point we call the “Valley of Death.” Most companies die in this gap after financing from friends and family because there is not enough investment, so we position ourselves in this space.

We know how to clarify their business models, make their first revenues, contact bigger investors and prepare them for those meetings. We structure and formalize the company from a legal and financial point of view. This is what we know how to do and that is why we are just in this start up space.

China is kind of cruel with the entrepreneurs who have failed. It’s not like in America where if you have been an entrepreneur and have failed this is considered okay, or even good. The US perception is that you have made mistakes and so now you know, and so you will make it better. Here it is not that way, so hiring entrepreneurs who have been relatively successful, but not super-successful, presents a great opportunity for us.

Our investment managers are young, and have been entrepreneurs themselves, so they are able to feel close to and relate to the entrepreneurs we work with. When your starting up, most of the people are young, if somebody comes to them in a paternalistic manner, they tend to be put off, so you need young people who can be close to them and work with them hand in hand.

We never take a majority stake in a company. When we invest, the entrepreneur and the founding team is key. You can help them with the business model, and help them build partnerships, but its really about execution and motivation. When you take a majority stake, it most likely won’t work. For us it’s very important that they keep a huge chunk of the company, because they will get diluted after several rounds and it’s important that they remain motivated after this dilution. Also if it’s a good team, they could be earning more money somewhere else, because there are a lot of companies looking for good people. These companies are able to pay them much more then their own company will pay them for a long time, so they have to be prepared for that. We have to make sure the individual opportunity cost is not too high at any point.

We like companies with a business model. We always say, its kind of shame but we would most likely not have invested in Twitter. It’s just not our thing. But for every Twitter, there are 100 successful e-commerce sites. We invest a lot in e-commerce and vertical social networks. We also like to combine a little of bit online and offline, for some of our companies it’s a lot easier to generate revenues offline, especially in China.

Our industry is getting more competitive. There are a lot of government entities putting up money. There are more and more venture capital firms that are going upstream, and starting to invest in start-ups. There are also some people that have made money in traditional industries that need to reallocate their money to newer industries. In terms of direct competition, there are only a few companies that have the same focus and size as us, and we have only two or three companies that compete with us directly.

Mónica Muriel, is Managing Director of DaD Asia Seed Capital in Shanghai