Star angel investor Cai Wensheng: How entrepreneurs find investors in China

(Photo from
(Photo from

In China, Cai Wensheng knows more about grassroots entrepreneurship than anyone else. The Meitu Xiuxiu Chairman, and co-founder of Longlin Capital, shared his views on entrepreneurship and investment at Chun Xiao Capital’s 2016 annual meeting on Saturday.

Cai nicknamed the “Grassroots Angel”, has been involved in the tech industry since 2000. His investments span the gamut from gaming website ‘4399’, to selfie-editing app ‘Meitu Xiuxiu’, to internet video website ‘Stormer Player’ and classifieds website ‘’ among others. Industry website reports that his investments have affected over one billion people.

Below are excerpts from a speech Cai delivered at the Chun Xiao Capital 2016 annual meeting.

The direction of entrepreneurship and the position of the product

First of all, there are always three principles to follow regardless of product: Demand-centered, Competitive, and Added-Value.

1. Demand-centered

If entrepreneurs can improve a product or provide a new service to the market, then there will be demand in the market. We know WeChat is the best, Taobao is good, and the Baidu search engine is great, but new products and services won’t be in high demand if entrepreneurs work on existing categories like messenger apps, e-commerce marketplaces or search engines.

2. Competitive

Entrepreneurs should combine strength with passion to do the things they like. The more expert the entrepreneurs become, the better they will be able to position themselves in a competitive market.

3. Added-Value

The definition of beneficial is the product or service has added value and attracts users. Google, Yahoo and Facebook are examples. In China, the early days of Baidu and Tencent in 2004 saw them not being so popular. But how did BAT become the tech giants that they are now? This is because of users.

How entrepreneurs find investors

After defining your product and setting a direction, the next step is to find investors. Strictly speaking, entrepreneurs need to be dedicated to make the best products even if they can’t find investment. I have a few suggestions:

1. Fully learn about potential investors and understand what they’re looking for.
2. The pitch deck should have accurate information and data.
3. Be honest about business metrics, don’t fake them.

Three steps after securing investment

1. Standardization

In order for a startup to grow quickly, a startup should decipher stock ownership, financial affairs, intellectual property rights as early as possible. Otherwise, costs will go up later.

2. Marketing

Effective marketing can help build a brand, and therefore help attract more users.

3. Building a team

Entrepreneurs should hire the right people to work on specific parts of the business, in order to form an effective team.

Sharing my experience

1. Entrepreneurs should assess how the market and industry will likely change over three years. When entrepreneurs first start a business, especially when they are working on their deck, they often forecast revenue, how many people to hire and how many users they can get. To be honest, I used to do that too, but to tell you the truth, this method is wrong. Why? That’s because the market is constantly changing. For instance, this year’s head count is 20, but predictions will be 50 next year and then 200 the year after. All these predictions are not right. When I worked at Z-com, a wireless networking company, SIG invested in us, but our project failed eventually. That was the only time I burned all the money from an investment.

In short, entrepreneurs should work backwards from desired results, to figure out what the structure of a company should be, including goals and strategies.

2. Entrepreneurs should not ignore the power of grassroots alliances. China’s third and fourth-tier cities are powerful, the gaps have narrowed compared to 50-60 years ago. If entrepreneurs can form alliances effectively, they will become valuable.

3. There is no awesome technology. Awesome technologies are accumulated over time. Platforms are not made overnight, this includes websites and mobile apps. Once your product or service has gained traction, people will depend on it. Then your product or service will become the platform for the category.

4. All killer apps define new categories by virtue of being able to direct users to them. (For instance, Uber and Airbnb created the “sharing economy” category.)

5. Entrepreneurs should always seek investment while working on their projects. Instead of securing investment then starting a project.

6. Founders and executives should not take a high salary. If they do, it’ll be hard to grow a big company.

7. Today’s investment market in China is not like 10 years ago, where investors were hard to find. Investors are everywhere these days. Entrepreneurs need to secure better investment, in order to make the best product, to expand their business quickly.

To sum up, entrepreneurs need to understand human nature. All successful business models derive from finance and all companies end up working in finance. If entrepreneurs can better understand human nature and combine this with financial know how, this will lead them to the most preferable business model.

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