Although my point of view mainly focuses on China, I believe this trend must be seen in other parts of the world as well such as in other Asian markets (Japan, Korea), Silicon Valley, and maybe even Europe.

The paradigm is most often something like this:

VP of Corporate Development or Senior VP of Corporate Development, who “runs” the team of a Massive Internet company (say US$10BN or above market cap) that has invested in all the notable high flying “unicorns” whether it is in content, or mobile commerce, or even the lessor dieties (say, US$1–5BN market cap type companies). Some huge M&A deals happen sometimes. Typically when Massive Internet Company gets involved the post cap well exceeds US$1BN, maybe even US$10BN or US$20BN!

The investment activities of said Massive Internet company is the basic talk of the town, at the dinner parties, and the drinks or tea late night. Massive Internet Company has billions on the balance sheet, and loves to do deals. Hard to find a deal they don’t like. Putting in $5, $10, $20 (million) is not a big deal if there is some reasonable way to dot-dot-dot a strategic angle with Massive Internet Company.

Let’s take a typical high flying Series B or Series C, with a startup that is giddy that it just broke, say US$100MM in market cap (Ser B) or US$500MM in market cap (Ser C). A really hyped-up company. When massive Internet company shows up to a financing party, the M.O. is classic — a white shoe law firm, if in China that means the deal-running lawyer is based in Hong Kong, and offers the deadly combination of cut rate deal to the client (massive Internet company) but unlimited service on the transaction. Redlines of every other word in every document, pushing for unreasonable reps and warranties that are one sided, etc. Often times this comes with some sort of binding development agreement, or if a online game developer, maybe a binding publishing agreement.

“Everyone’s his friend” — when meeting with any number of well known GPs in the venture community, and if you drop the name of this Corp Dev head, universally he (separate topic but is usually a “he”) is well liked. Everyone says he’s their friend. Seriously. Never can get anyone to say anything bad about him. Translation: you don’t want to cross the guy because he may be the one to buy your startup later.

Occasionally big transactions emerge. Massive Internet company wants to buy a company. Sometimes they are big, and sometimes the target is itself a listed company. Maybe a major video portal, or an analytics firm, or a game developer with a AAA title that is worth hundreds of millions of USD in revenue an year. In that case the Corp Dev head is just dripping with power. Every manner of investment banking M&A Managing Director ambitious M&A director does whatever they can to get in on the deal. Fees? Who cares. If you can’t get in on the action then maybe throw in a fairness opinion which lets the IB put the transasction on their pitchbook for future deals. A huge pecking order. The same analogy in the legal side as well.

Okay, I think I’ve painted the picture. A few observations:

• Massive Internet Company’s deal’s occur mainly because it is, well, Massive Internet Company. They always get a seat at the table, and can always crash a party even if unannounced.
• In Asia, particularly (maybe Silicon Valley is the same), the deals are mostly initiated by the Massive Internet Company’s CEO or founder. I mean, who “pulls the trigger”. The Corp Dev head is not an intellectual lightweight, but certainly the big shots are called by the CEO or the founder. The person with the supervoting shares who can put the balance sheet to work, buying companies that have just eyeballs, or a future concept, etc.
• On the other, bottom end, of the totem pole, you’ve got an entire team of Corp Dev executives, working for the Corp Dev head, who do actually all the work. They are the ones that have to negotiate with the other side, work with the lawyers, pore through the term sheets and agreements, look at the tax implications, copyrights, IP, liabilities, etc.
• So in my opinion the Corp Dev head is typically sandwiched in the middle. What is the intrinsic value they are actually providing? How much of this “skill set” will transfer out if the person ever were to depart Massive Internet Company?

The reasons to compel one to leave Massive Internet Company, from a Corp Dev head position are intuitive and linked with money. Well, making more money, massively more money, and a sense of entitlement that they, not the founder or CEO are the ones driving everything, making things happen and that they deserve more.

There are always people out in the wings, companies, people who are the Exhibit A’s of FOMO and who have capital and want to “get in”. Or, even sometimes backed by other investors who just want in their pocket someone with an inside track to a Massive Internet Company. So there are many voices whispering at the parties to encourage the person to “get-out” and start a new fund.

I would say that there is really nothing systematic that would indicate a former Corp Dev head can be a good GP especially for early stage venture. I think the world has enough “deal makers” and “transactions” don’t necessarily make for good venture investing experience.

I didn’t really think of this much but then, as it happens in the world, at least in the U.S. world, people want reference checks. So you are asked to find out more about the work, what goes inside, because your friend’s team may want to “put some money to work” with this new fund that is being established. But you talk to the people actually inside Massive Internet Company, whether it is the CEO or founder, or the working level people “in the Corp Dev team” and the feedback is usually pretty poor.

What happens if you take money from a new fund like this and your company’s business plan goes south? What if you need to pivot and retool your idea? What if your plan was fully funded but now it looks like you need another 6 months of capital? Or even more rudimentary, if you are a founder of a new company, what if what you need is a good product manager or a head of sales?

Just my two cents.

Fan Bao is the great matchmaker of China. Is it just how amazing he and his firm (China Renaissance) has been at making it “rain”, or is it a unique cultural aspect of Chinese entrepreneurship that makes the amazing happen? Admittedly, he is an amazing guy, if you get to meet him in person. He either has an incredible memory (which he probably does) or he is just so well practiced, you feel like you meet a long lost friend when you see him for the first time. Anyways, he is responsible for the three mega-mergers of tech companies in China that I mention below and which leads me to raise questions about why this doesn’t happen in the Valley.

Merger #1 — Youku-Tudou If any of you are casual China (Tech) watchers, you know that a number of years ago Youku and Tudou, both heavyweights in the Internet video (a/k/a China Youtube, China Netflix) space merged to become one company. This was the merger of two U.S. listed public rivals.

Earlier this year, it was the merger of Didi Dache and Kuaidi Dache, at the chagrin of Uber (who partners with Baidu in China), these two car and taxi-hailing companies merged in a share swap worth $6 billion.

China's Top Taxi-Hailing Apps Say They Will Merge

Fast forward to a few weeks ago, and the leading 2 “O2O” (online to offline) service companies, Meituan and Dianping, merge in a share swap worth $15 billion!

China's Meituan, Dianping Merging to Form Dominant O2O Player

As someone who studied economics many years ago in college, this brings to mind the idea of dead weight loss. What a great idea for these three sectors in China to see consolidation of the top players and avoid unecessary carnage and a waste of investor capital?

Why don’t we see this more often in the US markets (“the Valley”)?

1. Is it because the Valley is dominated by a few big Internet players that just eat up any startup that has any marginal value, preventing companies from scaling and becoming huge? This hypothesis doesn’t make sense, because even if in the Valley we have Facebook, Google, and Amazon, if anything, in China there is even a more pronounced oligarchy with B.A.T. (Baidu, Alibaba, Tencent, and apologies to those of you I am insulting because this is such basic knowledge). So the fact that there are large players in the market can’t itself be the reason why efficient mergers aren’t happening in the US startup space. In fact to make matters even more extreme, all the merged deals mentioned above were invested by a combination of Baidu, Alibaba, Tencent, and in some cases they invested side-by-side or backed competing entrants in the space.
2. Is it because the investors are blocking the companies from merging? This premise doesn’t make sense either, because actually if you look at the shareholder lists of the six companies mentioned above (including the then-private investors of YouKu and TuDou), you see that there is a huge amount of overlap and connection to US venture capital, i.e., the “same” investors that are deploying capital in the Valley. You see Sequoia, IDG-Accel, Qiming (Ignition China), GGV (basically a bi-coastal VC SV-Shanghai) and many others. One step removed behind them, and it’s the same group of mainly U.S. based institutional investors providing the “ammunition” to chase after these venture returns.

So my thought, from being exposed to China venture and entrepreneurship in my 10th year, is that Chinese entrepreneurs have just a different mindset, and a different type of relationship with their investor backers than what we have seen in the Valley.

• Chinese entrepreneurs are more practical. There are some incredibly egotistical and arrogant entrepreneurs in China (think Lei Jun who admittedly deserves it if anyone does with the juggernaut he created with Xiaomi). But amidst that personality is a fundamental practicality and a reasonableness to think about the right way to fight a battle, and that there is much more interest alignment amongst competitors (i.e., to get rich and to win the market) than there is conflict.
• Chinese venture investors are more reasonable to their entrepreneurs and have a better, more authentic relationship with each other. The same gaggle of white-shoe or venture law firms that exist in the Valley are all out in Shanghai, Beijing, and Hong Kong. The same brand names create the same stack of “lock tight” investment agreements with liquidation preferences, vetos and the like. However there is more often than not an understanding that these docs, however enforceable they may be, are a starting point for a discussion and relationship between the investors and the entrepreneur that is based on trust and mutual understanding. I think that this also holds true to Chinese VCs amongst themselves, and the love-hate relationship of Chinese VCs with B.A.T. (and a few others like Xiaomi/Lei Jun, Qihoo 360, JD.com). Ultimately the individuals running these organizations and interacting are all cut from the same stock, are friends from prior lives (prior investment banks, or MBA programs, or the stint at MSFT China or Google China R.I.P.).

So what about the US? The following are honest to goodness questions because I don’t know the ins and outs of why something can’t happen, except I suspect a lot of this has to do with a very Western mentality of ego by founders, and Valley investors? Or is there just too much money flowing around and we are just at the cusp of the music stopping with more and more calls of “dying unicorns” being heard?

Why are Uber and Lift still competing?

Why doesn’t Pinterest acquire Houzz?

Why doesn’t Doordash and Postmates, Grubhub all merge?

I’m sure there is some better examples of companies that need to get together. But these are just a few that come up to the top of my head.

Is there some fake overly elevated sense of ethos in the Valley that shows disdain towards “Wall Street” thinking such that only later, in a much more mature environment, do you see companies like Priceline rolling up travel sites like booking.com, Kayak, Agoda? Or because it was not based in the Valley (and not subject to its “code of valor”), Zillow decided to acquire Trulia?

Wow, how quickly things change. The SurveyMonkey office right across from the Palo Alto Caltrain station now becomes Amazon? I always amazed how profitable SurveyMonkey must be to be able to afford such a nice location. My company is a customer and I love the surveys, but isn’t it like $20 or $50 per month or something like that?

There is an incredible gelato place in the SurveyMonkey Palo Alto building. I hope it stays there for the long term. A little questionable about foot traffic but it is so much better than that overrated place on University Ave. that has those frozen nitrogen tanks.