Chinese SNS Douban Raises Close to $10MM in Series B Round

The following is my latest post on Digital East Asia.

The recent Google Inc. (NASDAQ: GOOG) – China spat has made Chinese web news much less interesting to read lately, as there is a flood of officially-toned articles criticizing Google and the US government (after Secretary of State Hillary Clinton’s Internet Freedom Address last week). And honestly, many Chinese netizens are perhaps fearful of tougher crackdowns from the government as a show of strength. It is therefore great news, then, to hear Douban raising close to $10MM in its Series B round of VC funding (via Chinabyte article, link in Chinese).

The Series B round of funding is led byTrustbridge Partners, founded by formerShanda Interactive Entertainment Ltd.((ADR) NASDAQ: SNDA) CFO Li Shujun in 2006, and Ceyuan Ventures, which invested $2MM in the Series A round in 2006.

Founded in 2005, Douban is China’s leading SNS when it comes to books, films and music – organized around such interests, it’s distinctively different from the other Chinese social networks (Renren – the college kids, Kaixin – casual games etc.). The crowd that Douban attracts may be smaller in size, but it is much more skewed towards the highly educated (and perhaps elitist) rising middle class, commonly termed “xiaozi” (literally meaning petty bourgeoisie). And since most topics are centered on the various arts, discussions are generally less sensitive, though Douban had to do some heavy self-censoring in the summer of 2009 to comply with the Chinese government’s regulations.

The site seems to have been picking up significantly over the half year, with over 33MM registered IDs now, versus only 10MM in September 2009. This could partly be due to a partnership withTencent Holdings Ltd.’s (HKG: 0700) popular IM platform QQ, where Douban was listed in the books section. However, like most SNSes, Douban is still on the path to profitability. The site currently generates income from book recommendations (linking to online retailers such as Dangdang and Amazon Joyo), ticket booking services and brand advertising (Ford, Converse, Ray-ban etc., full list of brands here).

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Twitter’s $1B valuation and what it means to China

Twitter’s valuation at $1B in its recent round of capital raised has generated a lot of discussion. One topic is what it means to the VC industry. I think that’s a very lively discussion topic, and it is fundamentally a challenge to the entire VC business model (a recent Techcrunch article provides another angle at looking at it, and is also a challenge to the industry). However it’s not really something I can comment on since I have so little experience to VC.

What I want to talk about, and this is totally going off on a tangent here, is what Twitter’s valuation means to China. When I started this blog I had wanted to stay away from politics; but today I will make an exception because I do see it as a revelation (at least personally).

A few questions to cover here. First, does Twitter create real economic value? The $1B valuation, however over-blown it may be, seems to suggest so, despite the fact that Twitter has no business model (yet). And of course, looking at the fundamentals, Twitter is essentially a service that offers a more efficient way for web-users to consume certain kinds of information – for example, real-time info on current events, and articles that are deemed to be worth reading. It’s a development in how information on the web is organized. Thus, even though users are not willing to pay for the service, there is real economic value being generated (consumer surplus).

Secondly, why then, is a tool that creates real economic value blocked in China (side note, Twitpic was blocked today)? And not just Twitter, but most of its Chinese web clones. The direct and obvious reason is that these tools create headaches for the censorship program of the government. They could be used to cause social movements, as was effectively demonstrated in Iran. But by shutting down these tools for the sake of social stability (in the short-term), the regime also creates a deadweight loss (sorry for all the econ jargon… I’ve been studying hard) – or, in other words, productivity of society at large is held back.

Going back to my high school history and politics classes, the Marxist view to social development is that once the political system does not fit the needs of productivity, the political system will have to be changed (evolution or revolution). Slavery was the best way of organizing production, once upon a time. Then it was feudalism. Then capitalism. Or, using a business school analogy, if a company’s business model doesn’t fit the market, that company either adapts or go out of business.

I feel this is where China’s regime is at. We’ve had 30 years of rapid development where the political system was mostly left untouched. Now it is getting closer to the point where it will have to change, or development will be held back. The fact that value-creating tools like Twitter are forbidden is simply sign that change has to come. I can envision at some point in future society at large will force the change, simply because otherwise the economy cannot grow. So today I’m especially optimistic about that change, even if it’s just ironically due to the Marxist view to the world.

(Apologies this is not really a tech post… But I did feel excited about this train of thought.)

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Vinod Khosla Speaks at Haas

This evening I attended the Dean’s Speaker Series at Haas. Tonight’s guest speaker was Vinod Khosla, who was, among other titles, one of the co-founders of Sun Microsystems, a partner at Kleiner Perkins, and the founder of Khosla Ventures (his bio here).

Mr. Khosla’s speech is lengthily titled “The Innovation Ecosystem and Its Role in Shaping Our Renewable Future” (or, elegantly titled “Punditry / Invention” on the presentation deck, made by Mr. Khosla’s daughter who was also present). The presentation material had a distinct marketing flavor to it (think Al Gore’s An Inconvenient Truth slides, or Steve Jobs’ keynote slides, as opposed to conservative consulting / banking slides), with most slides containing only a few words or phrases in massively-sized fonts.

And Mr. Khosla’s argument was as concise as the material he was using. His core argument is that the advancement / adoption rate of technology will always be substantially underestimated – there is simply no accuracy in any forecasts of what will happen 10-20 years in future (examples presented: computer and mobile penetration rates, compared to expert forecasts in the past). He therefore implies that while clean-tech appears cost-prohibitive and unfeasible for massive adoption, there will almost certainly be technological breakthroughs (“black swans”) that completely transform the industry outlook. The conclusion – instead of trying to predict the future through extrapolation of the past (which is a futile exercise), we should simply invent our own future. In Mr. Khosla’s case, he is very optimistic in clean-tech will continue to invest in this area.

I think the takeaways for me from this one-hour presentation are three-fold. One is the concept that Mr. Khosla was selling, the mindset of optimism about change, which in other words is a call for action. Second is perhaps some observations on soft-skills, through his style of delivery and general on-stage presence. Probably the third takeaway is a reminder to myself to be always open to new ideas – personally, I’ve been somewhat of a skeptic on the clean-tech trends, and if Mr. Khosla is such a firm believer in it (he is certainly putting his money where his mouth is), I should probably re-examine my own thoughts and beliefs.

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