Of access and conference snark

What do financial advisors have to do with the lack of tech conferences in China?

How much would you pay for access? How much time, how much money and how much effort? The questions were on my mind as I wandered around a muted SaaS conference in China this week. But more on that later.

If you've been to a tech conference in Europe or the US in the last three years, you'd know they are now glitzy affairs. Flashy headliners accompanied by lasers and booming EDM as they step on a smoke-filled stage1. Ever since Salesforce decided the best way to sell enterprise software was to make Dreamforce a middle management excuse for a rock concert, SaaS conferences have been cool in the West. Mix the flavour-of-the-month AI or blockchain buzzwords with the old favourites of a single source of truth, pricing strategy and customer churn, and you've got a party.

And speaking of parties, there were always parties and afterparties. After all, that's where the real networking got done for the sleep-deprived VC associates and cash-burning founders. Everyone was just so happy to connect. It's so good to have an actual conversation over Major VC's Organised Drinks rather than during the 20-minute founder-and-VC matchmaking sessions everyone put themselves through the day. Mind you; both conversations involve each party trying to sell themselves, their firms and their grandma (if it would help the deal) within the first five minutes of speaking.

The conferences themselves have grown longer and pricier. No respectable SaaS conference stops at a mere day. It's at least a three-day affair with pre-conference surfing retreats2 and post-conference sub-vertical mini-conferences. Founders grit their teeth and tell their board it's to prepare for the next round's fundraising while VCs reach for their expense accounts to write off the thousands of dollars in travel, ticket and schmoozing costs. 

You can chart the experience level of a VC employees by their reactions to the upcoming conference season. Excitement and giddiness when they are barely six months into the industry and looking forward to going to Lisbon for the first time. When they're a few years in, there's dread at the prospect of crunching attendee lists, nabbing prestigious drinks invites, and back-to-back to meetings while stocking up on Berocca3. Even VC partners are not immune from attendance, but they can be shielded from the main events by simply jetting in on the day and attending a few selected drinks 'for support'.

The founders' relationship with tech conferences is equally complicated. The seed-stage founder is just happy to be there in the hopes of catching some VC's eye. The cynicism increases as they ascend through series A. Most good founders stop going when series B comes around since they have actual work to do and a company to run. Until series D or later, they are invited back as an honoured speaker, and the life cycle is complete.

Despite my snark and humblebrag nostalgia about conference memories, there is a point I am trying to make. SaaS conferences (and start tech conferences in general) in the West have become formulaic businesses and ritualistic events to enable founder and VC connections. There is a product, and that product flogging potential VC connections to unconnected founders. If it's a SaaS conference, sometimes there's the bonus it's SaaS companies trying to sell to other SaaS companies under the guise of knowledge transfer. And before we get all up about the terrible parasitic fees that founders have to pay to connect to VCs, which is a very fair and valid complaint, VCs have never been what we would call 'accessible' as an industry. Conferences are one of the few ways early-stage companies can efficiently meet many investors during a short period.

But back to my recent conference.

Before the event, I noticed two things. As opposed to the prevalence of dozens of Western tech and SaaS conferences, there aren't many SaaS China tech conferences in general. Second, the fees for the conference were very reasonable. Too reasonable, in fact. The organisers were not making money off the ticket prices. My hunch was that the demand for tickets was not high. I was not wrong.

I had medium expectations for the event — the location was a respectable 4-star hotel with easy transportation. Tencent, Weimob, Tuuya and a bunch of other recognisable names were sponsoring. The speakers were not headliners but at least solid CEOs and founders. But my expectations were still a bit too high. I expected startup alleys; I got  10 booths staffed by mono-syllabic employees. I was expecting people in their 20–30s heavily skewing male; I got about an average population in their 30-40s skewing heavily male. While in Western conferences, the talks are background noise while you do the heavy lifting of networking in the lobbies, here people didn't talk. They were here for the lectures. This was underscored by the fact that half of the conference room was filled with desks on which people took notes or more likely browsed their WeChat logs.

The talks themselves had no coherent themes, often jumping from company promotion to some timeline of how Salesforce approached SaaS4. Often the 30-minute presentation ended with a screen of a QR code, which you scanned to follow the company's account and connect with them that way.

No lasers, no EDM, no chanting monks5. So I was a bit disappointed. But I tell myself that I had become spoiled by hedonistic Western conferences and needed to get accustomed to tech conferences with Chinese Characteristics. This involved flat opening talks by government association employees, and a panel where a question on the socialist values of cloud adoption got a side-eye by capitalism personified in Tencent Cloud management form. That alone was worth my ticket price.

So one obvious meta conclusion and one question. Chinese SaaS conferences are nascent, just like the industry. This SaaS conference wasn't exactly a heavyweight, but it's also not an exception in the few conferences I've frequented since coming back to China. So the question is that if founders aren't meeting VCs at conferences, how are they meeting? 

This answer I know, but I never connected it to the fact China has such a dearth of conferences. Instead, startups connect with VCs in China over Financial Advisors (FA as they are generally referred to in China, their Chinese term is 融资顾问). These boutique financial services are intermediaries between the investors. While functionally similar to the financial advisors of the West, they are more akin to startup sherpas.

Tech is cliquey around the world, resulting from the information asymmetry experienced by the investors and founders for new ventures. In China, this is the case but more so. The prevalence of hot capital and the clone droves of startups means high volumes of investors and startups and bad actors on both sides. Thus, in a low trust and high context environment, FAs have sprouted up as a cottage industry for the Chinese tech ecosystem.

Part introducer, part consultant, part lawyer. A good FA will have long-running relationships with the top VC funds and know their investment preferences. They will help young startups create pitch decks and business plan models and talk them through the reliability of whether an incoming term sheet will be honoured (many VC funds may not have the available cash to draw down when the deal closes). All of this in return for 3–5% advisor fee of a startup's final round.

Meanwhile, in the West financial advisors for early startups (seed and Series A) are a no-no. They are seen as a sign that the founder can neither network nor sell, which is detrimental to its growth. But in China, where the default mode of communication is WeChat, it's hard to cold-call VCs or startups without knowing the right people. The FA's job is to know the right people, and for that, they have become indispensable to both founders and VCs.

A Chinese VC explained that his team couldn’t achieve decent coverage since the Chinese market is so big. Thus, he outsources some of the pavement pounding and first screening to FAs. As they are a vital part of the investment process, he will spend time teaching FAs what good business models and what traction looks like to know what to look for. In return, the FAs will suggest relevant companies and send back market intel on what's hot, aka what other investment firms are looking at. It's a symbiotic relationship. Made all the closer since many ex-VCs (after their fund fails) end up going the FA route.

Top FA partners earn more than second, and third-tier VC partners during a hot fundraising year. After all, an FA gets money as soon as a round closes, whereas VCs only get paid once an exit passes the hurdle rate. So it’s no different to how investment bankers can outearn private equity folks during hot IPO years. Top FA such as China Renaissance have also moved into becoming investors themselves and generate revenue from a diverse pool of services.

There is hope for my conference lust, I did spot promotional materials for an investor conference on WeChat with headliners such as Kai-Fu Lee and ticket prices in the thousands of RMB. But I don’t think FAs as an industry will go away. Through their role, just like that of investment bankers, is predicated on big rounds and founders not being experienced enough to navigate rounds themselves. While fundraising rounds has been decreasing in China, and I assume FA organisations will go with the famine just like they’ve come with the feast. The hefty advisor fees feel to me that the FA industry is not aligned to founders but buying access in China has never been cheap. 

I gave silent thanks to the FAs as I wandered around my muted Chinese SaaS conference, eyeing colourful banners that promised the world in middleware modules. However, some things about tech conferences are universal, which is mediocre swag. Despite my best Kon Mari tendencies, I did walk away with this ridiculous Tencent Cloud mascot. Now you have to look at it too.


I spoke with Toni Cowan-Brown and Benedict Evans on their Another Podcast this week — feel free to check it out. Premium members will get my notes on what the SaaS conference said is hot in Chinese SaaS, as well as a deep-dive on the Chinese Grocery market and an update on CGB soon. Unfortunately, I'm slightly behind this month on writing and pass on my apologies.

August is coming up, and I'm considering taking guest posts. So if you're interested and have something interesting to say about Chinese tech, drop me a note at lillianli@substack.com!

1

Slush and SaaStr, this is a subtweet

2

I am not joking

3

A British fizzy pill of Vit C and B12 that one VC partner superstitiously swears by. I, in turn, have also been taken in by the magical thinking

4

They started with SaaS but then moved to become a PaaS platform. This means the company is now approaching PaaS. More on this for premium subscribers in the bonus issue

5

This happened at a Dreamforce conference I attended, and surreal doesn’t even begin to describe it. Also, nothing I’ve reported thus far is satire, just to be clear