GCV Powerlist 2018: #17 Ernest Fung

Having stepped up from GCV Rising Stars 2018 to the GCV Powerlist, Ernest Fung, senior director and head of international corporate development at JD.com, has faced a challenge over the past three years.

JD is a Nasdaq-listed company and claims the title of largest e-commerce company in China by revenues but has limited brand recognition globally outside of Asia.

For his Rising Stars profile, Fung said: “While we are well recognised within China and Asia, we are still building up our profile internationally. This has inevitably created some extra hurdles when there is a competitive investment opportunity.

“Investments are also getting increasingly competitive and increasingly global (in terms of bidders), with many of our well-capitalised competitors bidding for the same targets.

“JD has a relatively nascent investment function, having only developed a formal corporate development team around four years ago. We have made a number of investments [more than 30, primarily in China, including electric vehicle maker Nio] but have made very few exits so far.”

By last summer, JD.com had five unicorn – businesses worth at least $1bn – portfolio companies, which would be extended by another three if its JD Capital portfolio company’s own investments in other unicorns were included. And JD could raise $2bn for its logistics business in a private funding round, as part of a plan to take the logistics unit public outside China, according to newswire Reuters this month.

And this list of unicorns has only grown since the summer. Last month, China-based consumer electronics producer New Leshi Smart Home received RMB3bn ($477m) from investors including real estate developer Sunac China, internet group Tencent, retailer Suning and e-commerce firm JD.com. Formerly known as Leshi Zhixin Electronic Technology, New Leshi Smart Home is a subsidiary of China-based consumer electronics producer LeEco. It manufactures internet-connected smart television sets branded as “LeTV Super TV”.

Of its exits, LexinFintech, the China-based operator of the Fenqile e-commerce finance company backed by media group Bertelsmann and e-commerce firm JD.com, raised $108m last month when it floated in the US, while Yixin Group, a China-based online car finance platform also backed by JD.com, completed its initial public offering at the end of last year.

Fung added: “Some of the key successes among our international investments include Traveloka and Go-Jek. Our south-east Asian joint ventures with our local partners have been extremely hard to structure and negotiate, but I believe it sets JD up for long-term success in the region.”

In August, JD.com invested about $100m in Indonesia-based on-demand ride service Go-Jek, Reuters reported, as part of a two-tranche round already backed by internet group Tencent set to be sized at about $1bn and that would value the company at $2.5bn.

Go-Jek manages an app-based ride-hailing service that utilises a network of more than 250,000 drivers across Indonesia, and also provides food and package delivery, event ticketing and mobile payment services. It expanded into India in May this year.

Earlier in 2017, JD had been part of a syndicate investing $500m in Indonesia-based travel and accommodation booking platform Traveloka and, in June, investing $397m in UK-based luxury online fashion seller Farfetch as part of a strategic partnership.

JD.com will supply Farfetch with marketing, logistics and technology assistance to help it carve out a stable position in China, where it already partners about 200 luxury brands and more than 500 retailers, and Farfetch will also make use of JD Luxury Express, JD.com’s then-recently launched luxury customer service initiative, and BlackDragon, a digital marketing platform that will allow it to put together automated marketing campaigns using JD.com’s data.

Such options available to support its portfolio companies reflect the pace of JD’s expansion as it competes with peer Alibaba. Alibaba and JD.com collectively have more than 80% market share in China, with the latter regarded as specialising more in fast delivery and fresh goods and owning its logistics chain.

Internally, Fung said one of the biggest challenges was “keeping up with a rapidly growing company with new business initiatives and shifting corporate priorities”.

Fung joined JD.com in 2014, and is responsible for its global investments and mergers and acquisitions across a wide range of sectors, including ecommerce, fintech and payments, logistics, retail and consumer and emerging technologies.

Regarding the most important trends last year, Fung said increasing adoption of deep tech, such as datamining, artificial intelligence, augmented reality and autonomous vehicles, across different business functions, including customer relationship management, marketing, and user interfaces and experiences and a focus on customer intelligence technologies were critical.

However, it was also increased global consolidation in e-commerce and retail, with focus on omni-channel expansion, for example Amazon buying Whole Foods and unmanned stores, that also stood out.

In this context, Fung said: “Our partnership and long-term strategic relationship with [US-listed retailer] Walmart through our acquisition of Yihaodian has proven to be very fruitful.”

In June, the Walmart said it has sold Yihaodian, its Chinese online commerce marketplace, to JD.com and would become a retailer inside Yihaodian. At the same time, Walmart bought 5% of JD.com, worth $1.5bn.

Fung’s role means looking at both the expansion of JD’s core platform into overseas markets, as well as overseas investments that are complementary to JD’s main operations in China. To help in this, JD.com partnered accelerator operator Plug and Play to launch a startup initiative in Silicon Valley in the US targeting sectors such as retail and logistics startups.

As part of the partnership the companies will jointly launch an accelerator initiative that will incubate companies developing technologies such as artificial intelligence, cloud, big data and the smart supply chain, although Fung admitted to being worried about whether or if cross border acquisition approvals by a Chinese company for sensitive US technology would be allowed.

This is part of Fung’s insights that, together, corporate venture capital investors are stronger. He said: “I think CVCs can build stronger relationships among each other to share industry insights, trends and best practices. Each corporate brings something different to the table, and understanding each other would ultimately help both CVCs and investment targets find the best match that fits their strategic requirements and drive long-term value.

“CVC provides an interesting lens for investing, bringing an investment thesis that focuses on both the financial return of an investment, as well as the strategic value of the investment to a corporate’s business.

“Looking at potential investments as a corporate has forced me to look not only at the larger trends and direction of an investment target, but given me an appreciation of the more detailed operations, founder dynamics and business synergies. These are angles that may typically be overlooked by pure financial investors.

“My professional goal is to be in a position where I can help the next generation of entrepreneurs, whether through capital support, sharing my industry knowledge or strategic advice and build the next wave of technology success stories. Before that, I think it would be interesting to step into more of an operational role to give me a better perspective of some of the key operational best practices, challenges and pitfalls, which I think would allow me to become a better investor.”

This would fit into a pattern of ever-deeper knowledge and insights for Fung.

Prior to joining JD.com, Fung was an investment banker in the Asia technology, media and telecoms team at Citigroup for 12 years, covering internet, new media and IT services sectors, although the bank missed one of the market’s biggest opportunities in the initial public offering of JD to raise $1.8bn in May 2014.

Instead, Fung’s connection to JD came through its hiring of Sidney Xuande Huang as chief financial officer in 2013 from the same role at Nasdaq-listed Pactera Technology International (formerly VanceInfo Technologies).

As Fung said: “I did the IPO and various other deals for VanceInfo over a span of seven to eight years, and covered the management team there. When their chief finance officer came over the join JD, he got in touch with me when they were building out their corporate development team.”

The phenomenal success of JD since then means the company had a market capitalisation of more than $60bn as at 22 December, having seen its share price more than double since its initial public offering at $19 per share. Tencent, which at the same time entered into a strategic partnership with JD.com, invested $1.3bn in a concurrent private placement at the IPO price to own a 20% stake and seeing a near-tenfold return on its money so far.

But while Fung’s own role has been important in its success, he has remained humble and concluded: “I am very family oriented and spend time with my kids. It helps me destress, keeps me grounded and helps put everything into a broader perspective.”