GCV Powerlist 2016: Zhaohui (Jeffrey) Li, Tencent Investment #1

In 2011, when Tencent set up a RMB10bn ($1.5bn) corporate venturing program, one insider said: “Overseas, Tencent is being cautious partly as the China market is so big and also because so few Chinese companies have been successful overseas. So they are developing gradually, certainly compared with US firms’ way of doing business, which is to go into a market and tell how it should be done.”

At the time, Global Corporate Venturing, which quoted this insider, opened and concluded: “It seems oxymoronic to describe a company as cautiously aggressive but these two descriptors come up most commonly when people privately discuss Tencent, a China-based, corporate venturing-backed, online media conglomerate that has this year set up the world’s biggest debut corporate venturing fund.

“That, and smart. It is an investment and development strategy that asks to be judged on actions and results rather than hype.”

Five years later and the results seem to be in. Zhaohui (Jeffrey) Li, Tencent’s investments managing partner and a co-head for mergers and acquisitions – with Forest Lin since September’s departure of Richard Peng – heads GCV’s 2016 Powerlist.

Known for its flagship social products, WeChat and QQ, Tencent is one of the world’s largest internet company with a total market cap of more than $180bn. The company said it was “committed to an open platform strategy, through which they aim to provide users one-stop lifestyle services by working with different partners.

“As part of the efforts in developing such an open platform, Tencent Investment’s team of 30+ professionals, including a post-investment management team, has successfully built out a large investment portfolio of hundreds of companies across all stages and in various sectors, including online gaming, social, eCommerce, online-to-offline (O2O) services, content, finance and healthcare, with multiple notable names like Riot Games, Didi, 58.com [and] JD.com.”

By the end of 2015, the total fair value of Tencent’s investment just in listed portfolio companies reached $15bn, the company said.

With a phenomenal estimated 100 deals last year with an aggregate investment value of about $5.5bn, Tencent effectively matches industry behemoth Intel Capital by number of deals while putting more money to work.

Li and Lin run a venturing and M&A team that draw on exceptional dealmaking experience in two former Goldman Sachs alumni, Martin Lau, Tencent’s president, and James Mitchell, its senior executive vice-president. Both Lin and Li report to Mitchell, who spent more than a decade experiencing “frequent jet lag”, as he described on his LinkedIn profile page, as Goldman Sachs’s head of communications, media and entertainment research team.

Analysing why China-based corporate venturing units had been so quick to develop their activities, Li said: “The competitive landscape of China internet space, especially the very high iteration speed of the market, forced all major players to capture future innovation.

“In that case, there might be relatively more minority deals [in China] compared with US market. And the giants might leverage their market resource to speed up the growth of the investee company.”

Li was promoted at the end of 2014 from executive director covering earlier-stage deals to managing partner and he said helping investee companies was one of his main successes last year.

Tencent said it “believes in collaboration and partnership [and] always looks to help their portfolio companies grow, and is willing to share its resources and experiences”.

The company added: “An open and supportive investor, Tencent has gained trust of entrepreneurs, which, in turn, enables Tencent to drive industry consolidation and shape market landscape. Since the beginning of 2015, Tencent Investment, directly or through its portfolio companies, has participated in all the major internet merger and acquisitions, including the mergers of Tencent-backed taxi-hailing mobile applications Didi and Kuadi in February 2015, Tencent-backed classified ad websites 58.com and Ganji.com in April 2015, Tencent-backed local business rating site Dianpin and group buying site Meituan in October 2015, as well as Tencent-backed fashion retailer Meilishuo and Mogujie in February 2016.

“Driven by the growth of its online gaming business, Tencent has also expanded its reach globally and invested in game developers in the US, Korea and Japan.

“One of Tencent’s most successful online gaming investments is Riot Games, the Los Angeles-based developer behind the world’s top multiplayer online battle arena game, League of Legends. Tencent had seen the potential for the game its inception, made an initial investment in Riot Games in 2009 and completed the acquisition of the developer in 2015. The game has over 100 million monthly players, which generate approximately $1.5bn annually for Riot Games, according to SuperData Research.

“Tencent was also probably the first large online gaming company to shift its focus to mobile, and investments followed. In 2014, Tencent acquired 28% of CJ Games for $500m, a leading game developer and publisher in Korea.

“Going forward, Tencent will look beyond consumer internet companies and further explore opportunities with cutting-edge technologies and traditional sectors.”

It is a model developed from looking closely at itself and how Tencent had been funded and supported by corporate venturing units, initially International Data Group (IDG) then South Africa-based media and e-commerce company Naspers, which still owns about a third of the company.

When Li was asked to give a sense of how Tencent might have taken its own experience of venture investing from its shareholders, such as Naspers, he said: “Yes, absolutely. The relationship of Naspers and Tencent demonstrates how much value could be generated from such strategic investment. And their trust of entrepreneur and support of long-term decisions also influenced our way of making investment.”

For this year, Li said openness would be extended to thinking beyond, mainly consumer internet companies to more traditional sectors and cutting-edge technologies and helping the parent company scale after its investment back into the business operations since 2010 when its CEO, Ma Huateng, laid out the strategy.

Its NextEV deal last year reflects this broader intention. As a China-based electric car maker, NextEV is in a traditional industry with highly-regarded technology going after a global market.

As well as Tencent’s $125m contribution, according to data provider Zero2IPO, on its investor list for a reported $500m round were storied venture capital firm Sequoia Capital and asset manager Hillhouse, which made a name for itself after Yale University backed one of its interns, Zhang Lei, who then invested in ride-sharing app provider Uber, online retailer JD.com and homes rental app Airbnb.

Tencent backed NextEV’s founder William Bin Li, who had also founded New York-listed BitAuto in 2005, after connections built with Tencent’s Li through this earlier deal.

Li joined Tencent in 2011 and has been focusing on early-stage and early growth-stage investment in interactive entertainment and gaming, social, online to offline (O2O) and online finance. In particular, he leads Tencent’s worldwide gaming industry investment and M&A. In recent years, he launched and led Tencent Investment’s efforts to penetrate key O2O sectors, including automotive, education and healthcare. He was responsible for Tencent’s investments in Huayi brothers, Zhihu, Netmarble Games, Howbuy and many others around the world.

Before joining Tencent, Li worked as an investment principal at Germany-based publisher Bertelsmann’s Asian corporate venturing unit run by Annabelle Long for two years.

He led deals there for BitAuto and others, such as Phoenix New Media, in which Bertelsmann invested $2.8m for a 2.9% stake as part of a $25m round. Bertelsmann sold its stake in Chinese automobile industry content and marketing services firm BitAuto to unidentified buyers for $65m at the start of 2014. Bertelsmann had reportedly invested $12m in BitAuto in 2009 and it floated on the New York Stock Exchange a year later, a year before Phoenix New Media.

While the majority of its deals have been in China, Tencent has reached out internationally.

Its Tencent Exploration (TenX) Team is described on crowdfunding platform Angellist as a “small group based in Palo Alto [California] that works with and funds innovative companies in the technology and internet sectors. With the future in mind, the team seeks out leading entrepreneurs building products in emerging areas such as AI, Space, VR, healthIT, Fin Tech, and others”.

US deals – Tencent lists just 39 – have included messaging company Snapchat and charitable giving site Watsi’s angel round. The US team’s “chief exploration officer” and senior executive vice-president is David Wallertsein, with Eleanor Chang and Steven Fan as directors of and Louis Fu and Kyle Kurpinski as partners. Earlier, Wallerstein had helped Tencent invest in deals in Asia, including India-based online travel company Ibibo, which Naspers had originally incubated in 2007 and followed up with a $250m investment in February.

For Li to have excelled and risen to the top venturing role reflects both his dealmaking and importance in helping Tencent diversify away from gaming – which still makes up about 60% of its revenues – to O2O sectors. Li launched and led Tencent Investment’s efforts to penetrate key O2O sectors, including social commerce, automotive, education and healthcare.

Before Bertelsmann, Li worked for Google and Nokia in various product and business roles, where he gained substantial experience in the Internet and Mobile arenas.

Li holds a bachelor’s degree from Peking University and an MBA from Duke University’s Fuqua School of Business.

Tencent’s investment activity since the beginning of 2015