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Searching for the Next Jack Ma

Fan Bao and his ‘Alpha Team’ of investment bankers are scouring China's startup scene to uncover a new wave of technology giants.

Fan Bao's China Renaissance investment bank has advised on some $26 billion of IPOs, mergers and other deals for Chinese tech clients. Zeng Han/Bloomberg Markets

Fresh off his success as a lead adviser on last year’s $2.05 billion initial public offering of online retailer, Fan Bao was secretly dreaming of merging China’s two Uber-style taxi apps into a $6 billion behemoth. It was part of his quest to unearth China’s next big tech thing.

The problem was the dueling founders, Dexter Lu and Cheng Wei, and their equally competitive billionaire backers, Bloomberg Markets magazine reports in its June issue. “These guys were entrepreneurial gladiators who never shied from a fight,” Bao says, reclining in a high-backed leather armchair in the Beijing headquarters of China Renaissance, the boutique investment bank he formed in 2004. “But they were killing each other. I wanted them to make peace, not war.”

Bao resorted to stealth. He code-named his merger-prodding strategy “Project Rush” for the 2013 film in which Formula One racing rivals James Hunt and Niki Lauda ultimately find friendship and mutual respect. Lu’s company, Kuaidi Dache, was “Lauda.” Cheng’s Didi Dache was “Hunt.” Their powerful shareholders, Internet giants Alibaba Group Holding and Tencent Holdings were “Ferrari” and “McLaren,” respectively. “It was superconfidential,” says Bao, 44, who honed his rapid-fire English while working at Credit Suisse and Morgan Stanley.

"The Internet has disrupted many industries, and it is pretty amazing

that investment banking is the last man standing," says Fan Bao.

Choi Yong Bin/Bloomberg Markets

Bao launched his mission by persuading the founders they were reducing their own equity as they tapped cash from outsiders to escalate their rivalry. On Feb. 14—Valentine’s Day—the companies agreed to matchmaker Bao’s plan to marry them in China’s biggest Internet merger. Bao took fees from both sides as sole arranger. (He declines to say how much.) Lu says he had no compunction about hiring Bao, even though the banker had done previous deals with Didi’s Cheng. “He has a great reputation for integrity,” Lu says of Bao. “We could not have found a better guy or firm to use.”

Bao’s 15-year connection to Beijing’s thriving entrepreneurial scene, centered in the funky Zhongguancun neighborhood where Didi got its start, helped seal the deal. Now, the merging companies want to grow internationally. If successful, the combined Didi and Kuaidi could join Internet giants Baidu, Alibaba, and Tencent—adding a fourth member to what’s now a holy trinity of Chinese tech companies known reverentially by the acronym BAT. “We want to be the fourth BAT,” Kuaidi co-founder Joe Lee says. Cheng declined to comment for this story.

If the taxi-app entrepreneurs don’t pull off their global aspirations, others will, Bao says. And he wants to be the one to find them. In a nation where one-time schoolteacher Jack Ma turned his Alibaba startup into China’s biggest e-tailer, Bao is confident more Mas with world-class ideas are out there. “We are trying very hard to dig out the next Alibaba,” he says.

China’s masses and their technology frenzy are working in his favor. Even Ma, 50, the country’s second-richest man on May 8 after Alibaba raised $25 billion in the planet’s biggest IPO last year, can’t win it all. The nation of 1.37 billion, almost entirely on the wrong side of the digital divide just 15 years ago, has undergone a wildebeestlike stampede to the Internet. Some 850 million Chinese—almost triple the U.S. population—will be online at the end of 2015, up from 649 million just 12 months earlier, the government estimates.

Three of China’s four richest men are Internet entrepreneurs. After No. 1, property tycoon Wang Jianlin, 60, there’s Jack Ma at $37.4 billion on May 8. Then comes Ma Huateng, 43, the founder of instant-messaging and online gaming company Tencent, at $19.3 billion, according to the Bloomberg Billionaires Index. Robin Li, 46, who built Baidu into China’s largest search engine, has a $14.1 billion fortune.

China’s expansion-minded techies are getting timely help from the nation’s rulers. Gross domestic product growth is slowing to what the International Monetary Fund predicts will be 6.8 percent this year from a searing annual average of almost 10 percent since 1978. China is promoting e-commerce and technology to rebalance an economy unhealthily dependent on investment and exports to one driven by consumption. One effort, dubbed “Internet Plus,” will use Web innovation to invigorate manufacturing. Venture capitalist Hugo Shong expects a new wave of entrepreneurs to benefit. “Every age has its heroes, and a younger, better-educated generation will definitely emerge and be even more outstanding,” says Shong, a Beijing-based partner in IDG Capital Partners. The VC firm was among early investors in Tencent, Baidu, and smartphone maker Xiaomi, which, at $45 billion, is the world’s most valuable startup.

The next tech hopefuls face opportunities and challenges as big as the market they’re targeting. In their favor, the migration to the Internet among one-fifth of humankind means the best local startups can become titans, in many cases just by adopting U.S. business models and applying them at home. If only a handful follow Ma onto the global stage, many more will build big businesses by settling for the second prize of domestic stardom.

That’s if they don’t run afoul of the nation’s official censorship. While the so-called Great Firewall of China gives homegrown companies an edge by blocking U.S. competitors such as Google, Facebook, and Twitter from operating on the mainland, it can also impede the locals. Last year, the government issued rules restricting instant-messaging apps such as Tencent’s WeChat. In April, it threatened to suspend Nasdaq Stock Market–listed Sina’s news services for failing to censor what it termed “illegal content.” While major tech companies have no option but to comply, other netizens have posted subtle online protests.

With every tech boom, there are inevitably more losers than winners—and China is no different in this respect. “To let young people have dreams and be entrepreneurial is a good thing,” says Andy Xie, a former Asia-Pacific chief economist at Morgan Stanley who now works independently out of Shanghai. “But many of them are just looking to make a quick buck and most will fail.”

If that’s true, it may bring grief to Chinese domestic investors who’ve sent technology shares on the mainland’s two stock exchanges, Shanghai and Shenzhen, into bubble territory. The CSI 300 Information Technology Index jumped 79 percent this year as of May 8. That’s almost triple the 29 percent rise of the parent CSI 300 Index, itself one of the world’s best performers. Bao himself estimates a casualty rate as high as 10-to-1 among startups that get early funding. Those who do make it may find that the size of China’s consumer base far exceeds its spending power given that the nation’s GDP per capita is just under $7,000, less than Botswana’s, the World Bank says.

Glancing across Beijing’s futuristic, ever-changing skyline, Bao sees few such clouds. Already the megacity of 21.5 million is home to 20 tech companies valued at more than $1 billion apiece, second only to Silicon Valley, according to London-based VC firm Atomico. The Zhongguancun neighborhood of incubators and coffee shops abutting the capital’s most prestigious universities spawned startups at a rate of 49 a day last year, Science and Technology Minister Wan Gang said in March.

Yin Qi, a dropout from a Columbia University doctoral program, is one of the neighborhood’s denizens. His startup, Megvii, specializes in technology he hopes will revolutionize banking security by recognizing the identity-card mug shots of the entire population. Such software could eventually allow the public to dispense with PIN codes and ATM cards and even avoid compulsory branch visits to open an account. Qi, 27, who has piqued Ma’s interest in his technology, opened a small office in Zhongguancun to be close to the universities where he recruits. “Geniuses are basically lazy,” he says. “They don’t like to travel far to work.”

Yin Qi's Beijing-based facial recognition software startup Megvii

has piqued the interest of Jack Ma.

Zeng Han/Bloomberg Markets

Bao is counting on his first-mover advantage, and a tech-savvy squad he calls his “Alpha Team,” to spot the smartest of the smart. In a country where local investment banks have amassed easy money taking state-owned enterprises to market, he’s made private-sector tech companies his niche. It isn’t the first time Bao embarked on a less-trodden route. He studied at Shanghai’s prestigious Fudan University before joining an early wave of young Chinese heading abroad. While many chose the U.S. or U.K., Bao spent four years at BI Norwegian Business School in Oslo and then landed in London and on Wall Street. Returning to China in 1998 as a Morgan Stanley vice president, Bao covered what few technology companies existed. Two years later, smitten by the Web, he joined Beijing-based telephone software company AsiaInfo Holdings as chief strategy officer. The job earned him introductions to emerging entrepreneurs such as Ma, who was struggling to turn a profit. Bao figured many local startups were in the same boat—too tiny to attract international investment banks. He set up China Renaissance to fill the void. “They were very small back then, but you could see they had a huge potential to grow at lightning speed,” he says. “I thought: If we can start servicing these people early, we can grow together.”

The strategy worked. Since then, Bao has advised on some $26 billion of IPOs, M&A deals, convertible bond offerings, and private placements for Chinese tech clients. China Renaissance itself has built about $600 million of assets under management by taking equity in promising companies in lieu of fees.

Bao attributes some of his success to the sort of technological innovation he’s looking for in his clients. He hired investment banker and former venture capitalist Xiang Zhou, 34, to head his Alpha Team. Ruoyu Sun, 24, is the tech guru. The pair created an Internet platform based on the WeChat messaging app to match early-stage startups with funders.

Potential investors specify what they’re looking for, the amount they want to spend, and the sectors they want to focus on. They can browse for startups that match their needs on their smartphones. Bao’s bankers, meanwhile, are freed up to pound the pavement looking for the next Alibaba. Investment banking is long overdue for such a transformation, Bao says. “The Internet has disrupted many industries, and it is pretty amazing that investment banking is the last man standing,” he says.

Zhongguancun is one of the Alpha Team’s prime hunting grounds. Here, amid warrens of tiny offices, dozens of angel investors, VCs, and bankers are tripping over each other on an overcast March day. Unlike the original Silicon Valley, there are no trees, and the pollution can be so thick with particles that the act of breathing is akin to eating the air. But there’s innovation aplenty—so much that a gentrified pedestrian precinct, once filled with bookshops, has been renamed Innovation Way. “Geek is the new sexy,” screams a poster in English inside AngelCrunch, which promises “speed dating” to connect startups with investors within a week. Almost next door, the industrial chic Garage Café and 3W coffeehouse host customers hunched over laptops or deep in conversation, soliciting or offering funding.

Garage Café clientele this day includes Steven Wang, a Harvard graduate who spent nine years at IBM before returning to China. He’s now president of Shanghai Liuhe Venture Capital Partners. “It’s much more dynamic here than in the U.S.,” says Wang, who says his firm oversees $1 billion, including investments in more than 10 early-stage startups.

The E-Plaza building, at right, houses offices for startups above a disused

shopping mall in Beijing's Zhongguancun neighborhood.

Zeng Han/Bloomberg Markets

In a country as big as China, even niche players have the potential to become giants. A few minutes’ walk from Innovation Way, the far less hip 18-story E-Plaza appears deserted following the closure of a ground-floor shopping mall that once sold cheap tech knockoffs. Walk around the back, however, and the sole unlocked door leads to elevators. Several levels up, the floors are crammed with tiny offices such as those of Baozhi 360, founded by former finance industry executive Zhang Luofu. Zhang, 39, invested $3 million in savings to create a platform to match buyers and sellers of distressed debt. He’s talking to VCs about a further $30 million. “We want to become the world’s bad-asset management data engine,” he says.

In his search for the next Jack Ma, Bao often bumps up against Jack Ma himself. Ma is vying to buy stakes in promising startups, such as he did with the Kuaidi Dache taxi-app company. He even opened an exclusive business school, called Hupan University, whose 35 students were selected from among the brightest startup founders.

One wunderkind Hupan attendee is Megvii’s Qi. Another is Justin Sun, 24, a University of Pennsylvania graduate who’s among the 20 entrepreneurs Bao’s team has discovered in the past six months. Sun launched a company called Raybo, which offers currency-clearing systems for banks as well as more-exotic exchange services. One lets customers trade loyalty program incentives, such as swapping airline frequent-flier points for hotel rewards. Sun turned to Bao’s bankers to raise early funding and is now using them again to seek a further $10 million. In total, he’s raised $25 million from investors, including Shong’s IDG.

Sun’s office features what’s become a symbol of protest against Internet censorship: an alpaca plush toy. The Chinese name of a mythical species of the animal sounds like an expletive involving one’s mother. Sun says he wants his company to have the same international impact as Alibaba. “It is very easy for Internet companies to become global,” he says. “You just need to do it in different languages. This is a huge opportunity for Chinese companies.”

Raybo founder Justin Sun holds a toy alpaca, a symbol of opposition to Internet censorship.

Zeng Han/Bloomberg Markets

Bao has already discovered one mini-Ma—Richard Liu, 42, the billionaire founder of In March 2014, Bao advised the e-commerce operator when it sold a 15 percent stake to Tencent in a complex transaction CFO Sidney Huang says was worth billions of dollars. After the deal, invited China Renaissance to join Bank of America, UBS, and Barclays as underwriters of the company’s Nasdaq IPO, which, until Alibaba, was the biggest Chinese offering in the U.S. last year. “Fan advised our side, but he knew the other company very well,” Huang says. “His access to the senior guys at Tencent helped a lot.”’s $46 billion market value makes Liu China’s 11th-richest man with a $9.5 billion fortune on May 8. was one of six Chinese tech companies Bao helped take to market in the U.S. in 2014. That record, measured by deal count, ranks China Renaissance fourth, ahead of the likes of Goldman Sachs and Morgan Stanley, in underwriting China-related IPOs in New York.

Skeptics question how genuinely innovative China’s new tech companies really are. Michael Pettis, a former head of emerging markets at now-defunct Bear Stearns who teaches finance at Peking University, says many new-economy giants have merely copied U.S. highfliers. Baidu is China’s Google. Alibaba is a mishmash of Amazon and EBay. The merging Didi-Kuaidi is a Chinese Uber. “That’s not really high tech,” Pettis says.

Bao doesn’t underestimate the challenges facing Chinese companies seeking to follow Alibaba’s path. Could Didi-Kuaidi eventually make it globally? “They need to kill Uber first,” Bao says. “The U.S. market could be tough, but there are other markets around the world up for grabs.”

Bao and his tech squad point to numerous companies they say are indisputably different from what’s come before. The Alpha Team’s Ruoyu Sun singles out SZ DJI Technology. Founded in 2006 by Frank Wang, a model-aircraft enthusiast, DJI designs and manufactures more than half the world’s small drones and exports 30 percent of them to the U.S. Wang, 34, was born in Ma’s hometown, Hangzhou, and then set up shop in Shenzhen. His drones, mainly used for aerial photography and as “eyes in the sky” in disasters, turn up in unlikely places. In January, one caused a security scare when its owner accidentally landed it on U.S. President Barack Obama’s front lawn. The following month, a love-struck Chinese musician, Wang Feng, used a DJI drone to send his girlfriend, actress Zhang Ziyi of Crouching Tiger, Hidden Dragon fame, a diamond engagement ring. (She accepted the proposal.)

As Bao unearths and promotes China’s startups, he’s convinced at least some of the now-little-known enterprises will achieve Alibaba-style dominance. His clients certainly don’t lack the confidence to become the next Jack Ma. “We have these thoughts,” says Justin Sun, whose idea to trade frequent-flier points as well as currencies found backers with the help of Bao’s Alpha Team. “There are now two superpowers in the Internet world,” Sun says. “One is the U.S. and the other is China. The rest of the world will just be like colonies of these two powers.”

This story appears in the June 2015 issue of Bloomberg Markets. With assistance from Haixing Jin in Beijing and Belinda Cao in New York.

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