David Chao, The co-founder of the cross-border venture company DCM speaks English, Japanese and Mandarin. But he also knows how to talk to founders.
It’s worth a lot. Keep in mind that DCM should see more than $ 1 billion of the $ 26.4 million it invested in cloud-based business-to-business payments company Bill.com in 14 years. starting with his A round. When Bill.com went public last December when its shares were priced at $ 22 each, DCM’s stake – which made up 16% of the IPO – was worth a not-so-small fortune.
Since then, Wall Street’s lust for both digital payments and subscription-based revenue models has driven Bill.com̵
We spoke to Chao today about Bill.com, where he sits on the board and whose founder René Lacerte is someone Chao previously supported. We also talked about another very lucrative stake DCM currently holds, DCM’s latest fund, and how Chao is navigating between the US and China if relations between the two countries deteriorate. Our conversation was edited lightly for the sake of length and clarity.
TC: I see that after the first round you owned about 33% of Bill.com. How did this first exam come about? Have you ever invested in Lacerte?
DC: Right. Renee started [an online payroll] Company called PayCycle and we backed it up and sold it to Intuit [in 2009] and Renee made good money and we made money. And when he was about to begin the next step, he said, “Look, I want to do something that’s a bigger result. I don’t want to sell the company on the go. I just want a large public company to be formed this time. ‘
TC: Why did he sell PayCycle if that was his ambition?
DC: That was mainly because as a first-time CEO and entrepreneur, and when a big company gives you the opportunity to make millions and millions of dollars, you’re a little more tempted to sell the company. And it was a good price. Where the company was at, it was a decent price.
Bill.com was a little different. We had good offers before we went public. We even had an offer right before we went public. But Renee said, “No, this time I want to go all the way.” And he kept the promise he made to himself. It’s a 14-year success story.
TC: You sold most of your stake for $ 900 million in the past few weeks. How does this result compare to other recent DCM exits?
DC: We actually have a new one that is phenomenal. We invested in a company called Kuaishou in China. It is Bytedance’s TikTok’s biggest competitor in China. We invested a total of $ 49.3 million and now that stake is worth $ 3.8 billion. The company is still privately owned, but we actually paid out around 15% of our stakes. and with just this sale alone we already have [seen 10 times] this $ 30 million.
TC: How do you feel about the sale of your investments, especially after a company has gone public?
DC: It really is case by case. Once a company goes public, we generally spend probably anywhere from 18 months to three years [unwinding our position]. We had two major IPOs in Japan last year. A company [had] a market capitalization of $ 1 billion; The other was a $ 2 billion company. There are some [cases] that’s 12 months and there are a few [where we own some shares] for four or five years.
TC: What types of companies are these newly listed companies in Japan?
DC: You’re both B2B. One is pretty much Japan’s Bill.com. The other makes contact management software
TC: Isn’t DCM also an investor in Blued, the LGBTQ dating app that went public in the US in July?
DC: Yes, we weren’t very committed, but we were probably the first big VC to step in because it was controversial.
TC: I also saw that you closed a new early stage fund of $ 880 million this summer.
DC: Yeah, that’s right. This was mainly due to the fact that many of our funds performed well. We’re on fund nine now, but our fund seven is 9x on paper today, and even the fund that Bill.com is in, fund four, is now more than 3x. So is fund five. So we are in a good place.
TC: What does the growing tension between the US and China mean for your team as a cross-border fund and how does it work?
DC: It’s not a huge impact. For example, if we were to invest in semiconductor companies right now, I think it would be a pretty difficult time because [the U.S.] restricts all money from foreign sources. At least you would be scrutinized. And if we invest in a semiconductor company in China, you may not be able to go public in the US
But the kind of deals we do, mainly B2B and B2C – more on the software and service side – aren’t that affected. I would say 90% of our business in China is focused on the domestic market. And so it doesn’t affect us that much.
I think some of the western institutions are investing money in the Chinese market – that might decrease, or at least they are a little more on the sidelines trying to see if they should keep investing in China. And maybe, for Chinese companies, fewer companies will go public in the US, etc. However, some of these companies can go public in Hong Kong.
TC: How do you feel about the guidelines of the US government? Do you understand them Are you frustrated with them?
DC: I think it takes patience because what? [is announced and] There is a huge gap in the news about what is really implemented and how it really affects the industry.