Adrian Li: Cambridge & Stanford MBA Childhood Inspiration, Indonesia VC Outlook (Pure Play vs. Small-Cap Private Equity) & China Edtech & Rocket Internet Founder Journey - E399

Adrian Li, Founder & Managing Partner of AC Ventures, and Jeremy Au talked about three main themes:

1. Cambridge & Stanford MBA Childhood Inspiration: Adrian shared his multicultural upbringing across Hong Kong and the UK, leading to a pivotal teenage moment where he decided to study his way into Cambridge University. He evolved from academic success towards the ambition to use technology for social and economic betterment in emerging markets due to being exposed to rural poverty while backpacking and his early career in investment banking. He also shared about how he used his Stanford MBA education to find a cofounder and begin entrepreneurship.

2. China Edtech & Rocket Internet Founder Journey: Adrian shared his personal learnings vs. mistakes in founding a China edtech venture that used innovative call center technology for English language training. He discussed navigating uncharted markets andthe challenges of finding the right product-market fit. He also shared about his leadership at Rocket Internet, where he led a competitive "Airbnb" online accommodations platform in China for scaling, carving out differentiation, and executing strategic maneuvers in challenging market conditions. He highlighted the critical role of timing in entrepreneurship, noting that while being early to the market offers first-mover advantages, it also presents challenges like market education and regulatory hurdles, which significantly impact a startup's success trajectory.

3. Indonesia VC Outlook (Pure Play vs. Small-Cap Private Equity): Adrian articulated his investment vision for the transformative power of digital technology. He addressed common misconceptions about the country’s tech market, particularly the belief that it's overly expensive for investors - and argued that higher valuations are justified by Indonesia's vast market potential and the opportunity for significant business growth. He also discussed Indonesia's tech investment evolution from the 2010-2021 internet boom where pure-play tech platforms like Tokopedia, Gojek and Traveloka grew from modest valuations into multibillion-dollar enterprises, to the current focus on digital transformation in the real economy. He noted how this shift implies a future where investments resemble those of small to mid-cap private equity, prioritizing disciplined financial strategies and operational efficiency.

Jeremy and Adrian also talked about the role of cultural adaptability in global ventures, the sobering impact of the 9/11 attack on his first days joining the workforce, and the importance of leadership in fostering growth among startups.

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(01:33) Jeremy Au:

Hey, Adrian, really excited to have you on the show.

(01:35) Adrian Li:

Thanks Jeremy. Likewise. Thanks for having us.

(01:37) Jeremy Au:

Yeah, it's been a long time coming and you know, you have such a fascinating journey that I really wanted to double click into that personal experience of yours.

(01:44) Jeremy Au:

Could you share a little bit about yourself?

(01:46) Adrian Li:

Sure. So I'm Adrian. Actually I was originally born in the UK, in London, but my parents, my father comes from Hong Kong and my mother's from Malaysia. So I've had quite a culturally diverse upbringing. I've lived, I've studied in the US for my MBA. I've lived in China. I was an entrepreneur that also lived almost 10 years in Indonesia and also now split my time between Singapore and Indonesia as well. So I think having that quite diverse background and interfacing with people Asian and Western has really helped me do what I'm doing today, but excited to share more today. Thanks, Jeremy.

(02:20) Jeremy Au:

So what were you like in undergrad? What career did you think you were going to do when you were an undergraduate student?

(02:26) Adrian Li:

Undergrad. So, you know, I was at Cambridge and I did Economics as my degree. I have to say, I pursued a degree in Economics because that was my strongest subject at school but at university, I was almost the complete opposite of what I was doing when I was at school, so taking it a bit further back just for some of that context, Jeremy, I went to boarding school. So I was born in the UK, lived there till I was seven. And then my parents moved to Hong Kong. And when we went to Hong Kong, I was at a day school there, but never really fit in. And so when an opportunity came up to go to boarding school, to my parents' surprise, I leaped at the chance. I said I wanted to go to boarding school. I was only 10 years old, and they shipped me off. They're more than happy to because they had three boys, and having one less certainly made the household a lot more palatable to them. But yeah, the funny thing that happened when I was at boarding school, I switched from someone who was completely undisciplined and not particularly hardworking to a complete academic.

I was at a small prep school called Caldicott in the outskirts of London. And I threw myself into study, I cannot explain why, but all I did was study, so much so that when the tutor did my first report, wrote to my parents, he said that he thinks that Adrian has a problem of having spent too much time just trying to study for tests and do this and do that and literally ended with an anecdote of "All work and no play makes Jack a really dull boy." But, you know, I think if I think back to maybe one potential trigger back then was in the dining room, there are these kind of boards in the dining room with students' names on it. And I remember asking the tutor, because all the students were assigned a tutor back then, why these kids had their names on them And he said that, well, these are students who were at Caldicott and eventually got into Oxbridge and not really knowing what Oxbridge was or, you know, what those universities stood for. I said, Oh, it'd be nice to get in there one day. And he literally challenged me and said, well, actually, that's very difficult. I think it's highly unlikely that you would get in. And that as a trigger somehow set in my mind, I would try and aim for that many years later. And so, and so that kind of set me forth on being at a studying really hard trying to differentiate myself through academics.

I did manage to get into a school called Harrow after that. And while I had to apply for the scholarship exam, I didn't get it. I doubled down on my studies and ended up being able to stream into a class that allowed me, because they didn't let everyone apply, that allowed me to apply to Oxbridge. And then it was during that time in my fifth form that they said, well, if you'd like to maximize your chances, apply to Cambridge because all the other classmates in your economics class, which there are five kids, five students four of them are applying to Oxford. And so, that's how we had literally had decided on Cambridge. But you know what I was like in Cambridge then completely flipped 180. And I wonder, you know, was it a was it because you see I've taken a gap here. I was slightly young for my year group. So I've taken a gap year before going to Cambridge. And I spent a lot of that time in China initially to study, but later to travel.

(05:18) Adrian Li:

And I spent eight weeks backpacking across rural China that summer before going to university. And it opened my eyes to how much, how big the world was and how much of a bubble I had grown up in. Literally, I remember one of my formative moments was, we're in we're in Lhasa, we flew into Lhasa and we were going to go to base camp Everest. This is in 1998, right? So quite some time back, and no mobile phone, my parents literally could not contact me. It's not like today. And we were hiking towards one of these monasteries and one member of our group had thrown this empty can of some tuna or some food into a bin and it was just rushed upon by all these all these kids who were obviously homeless and migrant children and were hungry. The kid of stuck his hand in and cut his hand and it was bleeding and so he's shocked. We went into help, used our first aid kit and everything, but something there had triggered me ultimately to feel strongly that in the future, I would go back to an emerging market. I was thinking it'd be China at that time. And that I would hopefully get involved in something that could leverage technology to create much greater social and economic impact to people and provide them with graceful opportunities.

And you know, how that manifested later when I went back to university, I actually did a lot of things outside of my academics. I was involved in a number of societies and there was the society then called the Industrial Society. We interface with corporates. I tried to start a couple of companies. We had tried to build a alumni network for students in universities across universities, but initially at Cambridge and it revolved around sharing of essays on an online platform. We promptly got shut down by the university for plagiarism within the first week of operation. But you know, one of the other things, one of the other things we also did was set up a society that would run an annual ball and collect donations from the students and give back for education in China. So I had ended up in university spending a lot of my time and trying to form ideas, form teams, create opportunities to learn as a leader, as a team member to create some sort of change, to create some sort of impact. And I think that's one of the things I got most out of my university experience as well as thankfully I scraped by a two one and and got my first job.

(07:27) Jeremy Au:

And it's interesting because your first job was in the finance industry. So how did you decide on that?

(07:32) Adrian Li:

You know, it's funny. I didn't even plan on that. So in my second year I found that I was probably woefully behind some of my classmates who'd done applications for internships and so on and so forth. What I'd ended up doing was I applied for a JP Morgan entrepreneurship competition. The idea was that you would get a PowerPoint, you pitch an idea, get ranked, and you'd win a prize of some sorts. It was money. So what I did is I actually created a business plan for a company. I think it was called Events. And it looks a little bit like you know, the one where you can organize events and so on, on Eventbrite.

(08:05) Jeremy Au:

Oh, Eventbrite.

(08:05) Adrian Li:

Yeah. So this was, again, this was back in 2000. I don't know if Eventbrite was around by that. I don't, maybe not, but it was pretty early and they liked the idea. So they said, well done you've won his a you know, second place here's a couple of thousand pounds. And by the way, you're going to get an internship as well. The couple of thousand pounds was fantastic. Yeah. And the internship was fantastic. I had something to do. So, I had a great time in the internship and they made me a job offer. And that's how I ended up taking a place in J. P. Morgan in that first year as my first job.

(08:33) Jeremy Au:

Amazing. And what was the experience because, you know, investment banking as an analyst back in the 2000s, it was a common-ish job, but also not a popular job. So what was the experience like?

(08:42) Adrian Li:

Yeah. So during the internship, we got that kind of full, an armor of investment banking, the high lifestyle and so on, but when I got my job, when I entered, it was in 2001. And I remember very clearly that point of entry because I started, I think it was a week. Just after 9 11. So if you can recall back then, you know, basically, the world essentially tips into recession and fear. Obviously, the atmosphere was completely different. I, you know, I went into the fake team, the financial institutions group was a somewhat of a specialist team and corporate finance, and it was just very well known to be a team that did a lot of work.

So I'd say that investment banking as a first job was also pretty formative in terms of my experience, because it literally showed me how hard a human could work on something you know, by pulling, you know, all nighters and days, just living in the office to create PowerPoints to to pull deals and so on. I, you know, I think. Several things like one, just that sheer amount of hard work. It kind of came to me at some point after a couple of years. I'm going to work this hard. I'd like to work on something that I truly believe in and I'm passionate about. And maybe I can accrue some equity. And I think the second thing, though, was just the incredible attention to detail and the quality of presentation that was important in being able to be a successful investment banker. And I think that, that level of analysis, see the hard training, but also the soft skills of communication learning how to set yourself apart in an incredibly competitive environment as well. These were all things that I think really helped form my approach to working later, even as an entrepreneur. So I'm very thankful for that experience. I had some great mentors who had taught me at that time. But yeah, I spent about two and a half years there before applying to do my MBA.

(10:24) Jeremy Au:

And that's interesting because you went on to rotate into China actually as a geography, right? You were at Pepsi, eventually became a founder, but what was your thinking around that?

(10:32) Adrian Li:

Yeah. So how that came about, so after two and a half years in banking, I initially thought, well, first I want to get to Asia and the market was very bad then. So even an internal transfer to Asia was impossible. Yeah. I wanted to go to Hong Kong and that's what led me to think, well, why don't I do a MBA to try and transition my career? I applied to two schools Harvard and Stanford. I was only, I was unfortunately wait listed at Harvard, but as I got a place at at Stanford I obviously leaped at that opportunity to go there. Now, similarly, similar to Harvard, when you apply to Stanford, you have to write these essays.

And really, for some introspection about what matters to you, at least the two Stanford essays are what matters most to you. Why? And how do you want to use your MBA? What do you want to do with it? And I remember clearly spending during the summer when I was still investment banking, many weekends in a row, just trying to think about my collective experiences and what I wanted to do with my life. And one of the things that really came back to me was that experience in China that had spoken about and, you know, I felt that if I could kind of map out my route, my plan, I wanted to go to get an MBA, maybe become a consultant, learn how businesses happen. From there, start a company, hopefully be successful in building a business in technology.

And from there at a later point, be able to apply experience and also the capital that we've made and to invest in other entrepreneurs to create a leveraged impact. Now, some of the defining parts of my plan were that I wanted to go to an emerging market. Again, I thought it was China at that time because of the sheer size of China. And I felt that being ethnically Chinese, I would have some, so the roots there would help me be successful in that market. I felt strongly that technology, especially internet as a tool, would be something that be not just scalable, would be able to have wide ranging impact. So those were the two, the kind of defining attributes of things that I wanted to go for in the future. So anyway, when I was at, when I was at Stanford, I remember taking a lot of the entrepreneurial classes. And at one point, however, I spoke to a classmate who was in the year above me. It was a successful entrepreneur. He built a couple of companies even before school. And I told him, look, I want to start something. I think it's in language training. Actually at the point in time, it was smart flashcards on the internet to help people learn Mandarin characters.

And so I spoke to him about it and he said, look, you're like most of the MBA students, right? They keep on thinking about the, especially the MBA students, that come from corporate finance or other disciplines that are not entrepreneurial. You keep on thinking about building a business. You write endless business plans. But you've never sold anything and you've never made anything, right? You make it and sell it. And then you're going to be on the path of being an entrepreneur. I thought that was so insightful, right? So I literally went back, I went back to my, my my, my study my study room. And I searched online for Online flashcards.

And I came to, I narrowed it down to a handful of three and emailed back at that time, people was like the webmaster. So I emailed the webmaster and it turned out that the one that I liked the most it was an undergrad student at Stanford and he said, look, I've always wanted to start a company after school let's meet up. And he was literally living off down the road from me and that was in towards the tail of my first year. So, to cut a fairly long story shorter, essentially we, in my second year, we spent a lot of my classes and time together working on this business plan, actually changed the whole thing around from teaching Westerners or teaching people Mandarin using digital flashcards to actually, you a concept of applying virtual call center technology to deliver live on demand English training to students in China.

And now that we had that as the clear opportunity, as we built our conviction by the time we graduated, we were so certain this is what we wanted to do. And that's how we ended up going off to China. The Pepsi internship was in between my first and second year, because I didn't get accepted for any of the consulting jobs. And so, somehow Pepsi said, look we'll give you your leadership training kind of internship. So I went for that. But it was just a few weeks based in Hong Kong. You know, they did make me a job offer. Actually, that was one of the first tests of whether I would really go on and start my first company and be an entrepreneur. They've made me quite an attractive job offer to be in the leadership training program or the management training program. And I remember saying, look, I want to start my, I want to start a company. I've spent a lot of time working on it. I think there's a lot of potential. And they literally came back saying, well, how about this? We'll give you a sign on offer. And when you've done your company thing, you can come and join us. And I was thinking, that's literally saying, I'm going to go do this. And of course I'm going to fail and drop out because I'm going to come back to you after a couple of years. But you know, when I was at Pepsi and he said, look, if you ever want to come back, you can always come back, but if you don't go and do this now, you always regret what would have happened if you had gone and built this company. So upon graduation, Jonathan, my co-founder and I, we literally got on the plane, went to China after, but we'd raised a small amount of seed financing and started building our business. And it was I think it was just one of the most exciting, most fun, again, one of the most formative things I've done in my career.

(15:08) Jeremy Au:

I mean, that's an amazing journey as well. Obviously, not just the Stanford MBA, but also discovering that, just the market, but also circumventing that you want to be an entrepreneur. It's interesting because both of us were actually in Beijing at the same time. I was in 2008, I was in Tsinghua, in Beijing working.

(15:22) Adrian Li:

It's down the road.

(15:23) Jeremy Au:

Yeah, so very close. And then I was 2009, I was working at Ivy schools which was also an education tech startup. I'm sure you remember. So we're actually not that far from each other, actually. So we were in the same area.

(15:34) Adrian Li:

We were in the same industry and we're the same area. Imagine that.

(15:38) Jeremy Au:

So, yeah, very, you know, because we were also doing like, you know, the English and bilingual instruction that's preschoolers rather than for adults. But yeah, you know, well, who knew we were at the same zone hanging out, probably eating at the same air quality. Probably, definitely. We were definitely breathing the same air 2008, 2009.

(15:52) Adrian Li:

It was actually pretty good in 2008. It was, it got progressively worse from there. Yeah.

(15:57) Jeremy Au:

Yeah. I know it was a wonderful time during the Olympics. Perfect air for that time period. So what was your experience in building? Obviously it was a lot of firsts for you. So it's kind of like your first building experience, full job experience in China, your first entrepreneurial experience, and obviously your first education tech experience as well. So lots of new things for you. What was that experience like?

(16:15) Adrian Li:

I mean, certainly it was full of challenges and absolutely a lot of learning. There were, as you point out, a lot of fuss. Back then when we arrived in China in 2006, we were the first team my co founder as the CTO, was the first team to bring in a coding language called Ruby on Rails to China. It is legit, right? And you can imagine. We were attempt to, there was a a well known, a proven business in the US, a company called live ops, right? And what they had pioneered was this technology that could connect people working from home in the US to provide call center services and because they lived in the US, they again, more cultural context even though they were per unit more expensive than say outsourcing to the Philippines or India they were on a conversion basis cheaper than outsourcing because just the people on the other end of the phone would report higher satisfaction, higher conversion rates, right?

So our concepts that we had actually at Stanford got introduced to the CEO at the time and he said, look initially with the idea of could we use this call center to help with English training to students in China. And he literally said, it's a great idea. It would work, but you shouldn't use what I have. You should start a company and I'll invest in you to go and do this. So we were fortunate to have this chap, Bill Trenchard as an investor, and he helped us map out how we would build this call center, virtual call center in the US and connect these live trainers to students in China. But again, back then, remember in 2006, it was when the first iPhone was launched.

So it was actually very, is a very tricky to get all the parts of the technology right where you had an interactive classroom that was PC based on a desktop you had to terminate the voice via typically a fixed line phone. So you had to have a phone or, you know, a a mobile phone, a cellular phone on staff to, to speak to the teacher. And of course the internet quality, it was not as strong as it is today, right? Certainly it wasn't a pure mobile experience. I remember starting out where we were in Udaoko, right? So just opposite Beijing language school, Tsinghua, Beidao, all these places. And we would run in, we'd go to the school and offer free live English training courses, sessions to students, bring them to the internet cafe, and then set them up on computers and then connect them to these trainers in the US and you know, I think that, so the product worked incredibly well meaning that with the practice that people got, they really improved their conversational and oral English skills, which really is the issue because these students had studied English for many years and were good at written tests and good at reading too, but they just could not express themselves and can converse.

(18:34) Adrian Li:

​​And so, while the product was good and people are willing to pay money and we were able to make money on it, it was still tough to convert a broader audience. So a lot of learnings from this from this experience, I think one was that, while we had a great product, it was early to market, right? You know, this company, we built in '06. We eventually sold the company in 2010. It wouldn't be until a couple of years I think later that VIP kit started to get big and ultimately became a unicorn right in this live English training space. Of course, then the Chinese government shut down English training or private education and, and that, and then the company couldn't continue either. So timing is an incredibly important thing. But, you know, I would also say that product innovation, while there are certain markets that is that is kind of the core of tech, especially in Silicon Valley and these days in China as well, in emerging markets, I learned that you could create immense value from building businesses, which weren't say on the cutting edge of innovation, but rather where you could take a proven business models, proven products and bring them into the market. And so that was a second, a pretty important lesson.

I would say the third, which is, you know, a question of management. We did raise a series A round of financing which was very tough because we went several months without money before we got that in, but when we got it in and we were trying to use the money to accelerate growth particularly in a product, which was again on kind of the early, early part of the adoption curve. We made mistakes in where we spent the money. In fact, we couldn't get the traction. So we actually thought, well, why don't we take the entire infrastructure that we have, which is this kind of online learning system and teach people around the world Chinese and build The entire same product again, but for teaching Chinese not English. You know, that turned out to be a costly mistake because again, it was, while it was early for product adoption online learning in China, it was early for people wanting to learn Mandarin around the rest of the world as well. And we ended up spending a good portion of our capital on there and ended up having to, one of the really difficult decisions we did have to close down that entire department, which made up half the company at one point and then ultimately really realizing where we ultimately got traction, where we could really, truly monetize and start to scale revenues was when we zeroed in and focused on the singular customer.

And at that point, it was a customer who is an IELTS student the, kind of the IELTS exam required an oral examination, which was a live interview with a examiner. And this was what many students were failing at to get the top tier marks in order to go abroad to study or go abroad to become nurses or whatever, what have you. And you know, they were willing to pay top prices to have this training and the product would really improve their English. But, you know, by then we, by the time we'd actually found that real fit, we were running low on runway and in the end we had to end up selling the technology and the business.

(21:10) Jeremy Au:

I mean, like you said, you were very early, you know, I remember at a time, right, 2006, 2007, 2008, that was the start of the education tech. You can call it wave. I was going to say boom, I would say definitely. I think it's an aspect of it in China, but that's also the first wave of startups that, you know, the liberalization of the business laws and stuff like that. And like you said, it's been quite crazy to see the shift of that regulatory environment, 10, a dozen years on the road. But it's definitely a fascinating here, but an entrepreneurship journey.

And what's interesting is that you went on to work at Rocket Internet after that as a managing director. So how did that come about?

(21:42) Adrian Li:

So I was working on my earn out at that last company once we were acquired. And I was actually initially approached by recruiter at Rocket. Well, actually it wasn't rocket internet at the time they had. So Rocket Internet, the Sanwa brothers had sold their company city deals to Groupon and they became the international arm of Groupon. And so I was contacted by a galpeng, basically the China Groupon recruiter to go join their team in China. I remember walking in and seeing like literally they'd grown from zero to 3000 people in half a year and just thinking, Oh my God, this thing is a beast. But it wasn't appealing to me. Over that time, actually, I was already turning over my mind to start another company.

I'd heard about Airbnb. I'd seen kind of the rise of all the apartments and empty apartments in China. I'd seen in the listing sites, how people are trying to rent out apartments. And I was thinking that was a good opportunity to do something here. And as it turned out, obviously Rocket had cloned something like Airbnb in Germany, and they wanted to do the same thing in in China. So they'd started a company called Irozu and they were looking for a CEO of that business. And you know, they told me, look, You can come in. We've already funded the business. We've got a product. You need to take it to scale it now, and I thought that was incredibly interesting. So, all of a sudden, flew in. I spent half a day with him. He said, Look, you're in. You're gonna be CEO. And that's how I started working with what later became Rocket Internet. And I would say that was a really interesting experience because it was almost like the counterbalance to my experience in building my first company, right?

Where it was tough to get a product market fit. It was almost instant that this was the right product for the right time. I remember within the first six months of us commercializing and getting the product off the ground we booked something like a quarter of a million nights through the platform just because it was just it it really solved the needs so clearly. And it took away from all the other listing sites. Of course, around in China at that time as you probably seen yourself, once people hit on an interesting idea, you have just the competition is so While we had capital, we were in no way funded in the same way as some of these pure play new companies were funded by deep pockets and capital. And of course, all the traditional listing players like Gan Zi Wang and so on, they also went after this space. In fact, the level of competition that I'd observed there, I don't think I've ever seen it elsewhere. For example, we saw a web design company that literally had copied our entire site and was selling our, the content and the site.

So anyone who wanted to start an AirBnB type of company for a few thousand renminbi, right? So like here's 20,000 renminbi, you can go start your own company. It was so blatant, right? And then employees, team members were being poached. Literally there was a practice of poaching and firing. You'd poach someone you'd maybe double their salary and then they'd come over to the new company for a few months. And then, they would get rid of them, right? And that would obviously be hugely disruptive, right? So just there was so much competition there. That to me, competing at levels, which maybe I was not particularly comfortable in building a business operating like that gave me my first sense that maybe my long term future was not going to be in China.

We did actually end up getting both term sheets for investment and an acquisition offer of the company which the rocket, which was the majority owner of the business did not agree to the valuation. Even they, we would have made a pretty interesting multiple of their invested capital. But after that particular experience, I had decided to try and then to look at different markets.

(24:54) Adrian Li:

So backtracking a bit, what happened was around the time I sold my first company, I met a lady who's now my wife and

she is.

she's from Indonesia. Actually, we were both members of this organization called EO, Entrepreneurs Organization. I'd been the chapter president at the time. She was on the board in for Indonesia and she was visiting Beijing for her brother's graduation because her brother had studied at Tsinghua for the international MBA. And so, got to know her and we started to date and I visited her in Jakarta, and that was my first trip to Indonesia late 2010. And I thought it was a fascinating country when I first went there, but it wasn't until the second trip, I came down to, that was 2011 now, came again to Indonesia, Jakarta. And I remember going to, I think what was the very first Tech in Asia conference in Jakarta, probably like less than 100 people at this conference. And I'd met with Ferry at Traveloka, you know, I can't remember if I saw William there, but it suddenly dawned on me that here was this massive market that was ripe for digital disruption that would go through the same type of digitization that China went through. And I could bring all that experience and everything that I'd seen from China to Indonesia. And so by 2012 decided, look had it had enough China. I'm going to come to Indonesia and make this my home. And yeah, thankfully the relationship worked out because Vanessa and I, we ended up getting married and moved to Jakarta.

(26:14) Jeremy Au:

Wow. That was a big bet. I mean, you've made multiple geography bets, but I guess the relationship bet is the paid off the best I'll say for

sure.

(26:22) Adrian Li:

Yes, that's right.

(26:23) Jeremy Au:

That's interesting, right? Because you went off to build in Indonesia and what's interesting is that you chose to also rotate into kind of like investing as well. So both a geographic shift, but also a role shift in many ways. So what was your thinking back then in setting up Convergence Ventures?

(26:40) Adrian Li:

Yeah. So if you're going back to that initial plan, if you could call it a life plan, when I applied to Stanford you know, I had in my mind to always be an investor of sorts. you know, I'd thought less from a perspective of being a financial investor, more of being an active investor where I could help entrepreneurs, hopefully from lessons learned, but resources, as well as capital and my break into venture came when I was introduced through one of my classmates who was a venture capitalist in the US to one of the large conglomerates in Indonesia. And when we met, I told basically the, this principle that I saw huge potential, in the digitization of Indonesia's economy. And in particular for this conglomerate where a lot of their main businesses were in media and free to air television. They could see that Internet represented quite a significant threat to the kind of the long term sustainability of their business. And so naturally they were also interested to learn more and to be able to active investor in these companies in order to spot opportunities and figure out how to evolve their business over time.

So that conversation led to them anchoring a good portion of what would become my first fund convergence ventures. I went back to China, tapped into some of my investor network there and raise the rest of the capital and so I started working on that on 2014 and it took us two full years to raise that first fund of 30 million dollars. You know, we were thankful it we that invested initially helped get us into business. And we got on some good investments as well during that time, in particular around the FinTech space. And I think maybe that those early days in fig may be comfortable with looking at financial technologies, but really, of course, the market opportunity for FinTech, given that there's a lot of there is so much, such a large portion of Indonesia's population is underbanked, represented a huge opportunity. So we're early investors in companies like Sendit, Julo, CoinWorks IO Connect, a whole bunch of these Payfas companies that we found in those days, 2016, 17 that we ended up backing.

(28:36) Jeremy Au:

Amazing. And these are very much, you know, kind of household names, at least in the, those who are in the know, especially in the tech world. You know, what's interesting is that , you've always been early, I would say, right? I mean, you've been early to, say China in the market, early to education tech as a vertical and also frankly early to Indonesia as a market back in 2014. So I'm just curious, you've obviously seen a lot, and what do you think are some myths or misconceptions that people have about the Indonesia I'll say startup and venture capital market from your perspective. What do people get wrong from your perspective? Or you find that you have to correct them, fundamentally?

(29:09) Adrian Li:

Yeah. So, I would say the number one thing that I'm always told about or asked about when it comes to Indonesian tech is that Indonesia is so expensive. And I think, well, yes, naturally, some of the valuations of the businesses out here. So set aside 2021 when everything was overvalued. So we're just talking relatively compared to the rest of Southeast Asia. Yes, the valuations have been relatively higher, but I think it's simply reflective of the fact that the market opportunity here is so much larger. I think that we've seen now, one of the early theses we had when we built that first fund was Indonesia centric, so it was Indonesia first fund. We primarily invested in companies based in Indonesia and potentially could go, or potentially companies that would expand from elsewhere into Indonesia.

The other thing was that when we looked at the opportunity set of investments again at this particular era, again, looking at kind of my experience in China, where a lot of the Chinese initial early companies were copied to China though these are proven business models that went into China, the same thing happened in India, and I believe the same thing would happen to Indonesia. Now, if you look at these types of business models, they tend to be the ones which are not so product driven, but more execution driven, which requires offline operations. To be able to expand such companies, multi country is actually very expensive and very difficult to do. And so I did not believe so much in the regional nature of building businesses in Southeast Asia, more just in kind of the Indonesia market opportunity in of itself.

So that can translate to two things. So one, cause that market opportunity is so big, you know, oftentimes I have to tell people, well, things may be slightly more expensive here because it's reflective of that. But you know, actually it's justified because you can build these businesses into say, billion dollar valuation businesses, given that market size, I think on the extreme side, the other thing is that there's a, there is a clear difference between if you're say regional, even global, looking at investments in Indonesia, you're looking at something at the really at the peak, right? Where there are select few companies have gone to scale where they're large enough and well known enough that you would come to you and have a look at. And of course, those are going to be the most expensive as well, because those are the fewest number of companies. And now you've got the most number of investors who get to see those, right?

But if you look more grassroots, you can certainly find companies even compared regionally, they won't be perceived as expensive. And I think even more so now in this part of the cycle, where we're no longer in that 2021 bubble, where we're actually very much kind of post bubble in the aftermath where overall general sentiment towards these technology businesses and so on. It is very low. You can find some very attractively priced businesses now, and you're not even just talking about lower multiples. You're talking about businesses which you can price on earning on EBITDA, for example, because there is a new class of businesses which have been born in this era, which have been bootstrapped, which have had huge discipline towards unit economics and have built businesses which are ready to scale because now, the product works and they make it they can make money And now you can replicate and scale those operations, in that way. These are not businesses which are expensive, right? so, you know, I think those are a couple of things that sometimes i'm trying to correct people on.

(32:07) Jeremy Au:

I think it's definitely true that Indonesia has the market size. And I think the market as a result, will reward companies that are much more disciplined execution that are focused on Indonesia as a market. I think one criticism that's been said or feedback is that, the concern is that, the return profile such businesses may look closer to like small cap, private equity returns versus I think the classic definition of venture capital. What are your thoughts about that?

(32:31) Adrian Li:

Yeah, no, I think that's a great observation. Look, I think, so first I would say that I would separate out there are in my view, for Indonesia, there are two eras. There's the era of the pure play internet business, and that was very much the kind of 2010 to 2020, 2021. That era is more or less played out, but I would say that you certainly could get venture returns from that era. You're investing, sit in that first half 2010 to 2015 or so. You're finding businesses, which are sub 10 million pre-money and they could scale to say a billion dollar outcome. In fact, one of the things I try and remind people when I see them is that when we were building the first fund, we were underwriting for potential billion dollar businesses and what happened because of the run up companies like, Tokopedia, Gojek, Grab, they became, multi, not even a decade, billions, right? So you had like 40 billion companies that were created.

So we went way past what we had originally under written for. And I think it was some of the return dilution has actually been a function of oversupply of capital versus the market because these companies got flooded with so much capital. They kind of pursued growth for gross sake. It caused further dilution and therefore people didn't make the types of returns, but can, for example, even now, Gojek, GoTo to has fallen so much, it's still a multi billion dollar business right now. Today, if they had, would they have needed all that capital to get to where they are today? Probably not, I think and but again, if you were an early investor at some 10 million pre, you probably still make a decent venture, but anyway, so I think a lot, but a lot of those business models are done in that era. And now we're looking at the next era. And for that, I concur with you.

I think that there are increasing opportunities here. Now in this market where the returns will look a lot more like kind of this small cap or mid cap private equity, but nonetheless, I think they're fascinating because you're talking about a lot of real economy businesses that are going to get digitally transformed or adopt technologies in ways that gonna, that is going to help them scale faster, help them reduce costs and become more efficient and effective businesses as a whole.

And you know, this could be everything from , a retailer selling online to, for example, a business incorporating generative AI technologies to better target their customers or to reduce even just customer service costs, and these could have great benefits, great impact on underlying margins and therefore the profitability of businesses. Now, the key for these businesses, therefore, is also how you come in, right? You can't be coming in and saying, I'm going to go pay three, four times revenue on these businesses, and expect to make a return. So, you know, in this category and not just this kind of era, but in this category, there needs to be a lot more discipline in how you're underwriting those businesses and valuing those businesses.

And, when you look at businesses, which actually have cash flows, and there's more to work with as well, but nonetheless, it still represents a great opportunity. And especially when you think about the next 10 years, you intersect with both the digital transformation of these with an inflection point of the Indonesian consumer, where if you're growing at 5.5 percent per year, your Indonesian GDP per capita is going to cross $10, 000 per year per person within the coming decade, and that's going to unlock a lot of disposable income. For the economy and Indonesians being I think what I've one things I've observed, I think it's a cultural nuances that Indonesians tend to consume a lot. That's much more a consumption economy versus a savings economy. That's as opposed to, say, India or China. And therefore you know, I think that there's going to be a lot of potential here.

(35:46) Jeremy Au: Amazing. On that note, could you share about a time that you personally have been brave?

(35:50) Adrian Li:

Yeah, so I would say when would you know you're brave? I suppose when you feel like there's some fear, right? When there's some fear there and I've gone to a lot of different countries where I've been driven so much by conviction and belief in the opportunity where it's going to China or coming to Indonesia. I would say I actually didn't feel fear there. I just was so engrossed with the potential and the opportunity and the excitement to get somewhere earlier to create something. So I probably wouldn't talk about that.

But yeah, as you know, I'm not I'm not particularly athletic as a person. I'm not on a big build or anything, but I have spent a fair bit of time in an endurance sport you know, I would say that when I decided you know, after I'd learned about the Ironman triathlon and something in my mind said, look, you know, do you want to challenge yourself and really want to do this? You know, what is an Ironman triathlon? It's a triathlon. It's the longest single day endurance event. You do a swim of four kilometers. You cycle for 180 kilometers, and then you finish with a marathon, 42 kilometers, and you have to finish it within 17 hours and you know, I remember when I signed up for my race in 2013, I just moved to Indonesia in 2012 the commitment of time, of resources. And the support you need to elicit from people around you to go and do this there was a certain amount of fear in being able to commit fully, to be able to do it without knowing, even if you put in the time, whether you finish it, because it's just such a long event, but, you know, I'm incredibly thankful. The training went well, I put in a lot of time, I think they were doing at one point over 10 hours of training a week to go and do this my family was with me when I cross the finish line, I think I did it in just 13 hours and one minute or something.

But you know, it really gave me a sense of a reinforcement where if put your mind to something and you set aside the time and you put in the hard work, you can really control that outcome. And I think that in the toughest situations or something that I can go back to, whether it's professional, whether it's personal, whether it's family or whatever else, that gives hope, if you kind of put everything in, then you should have a really good shot of getting what you want out of it.

(37:45) Jeremy Au:

Wow. That feels like also a perfect metaphor to describe, I think, your entire career as well in terms of endurance and control around the variables for the outcome. On that note, I'd love to summarize the three big takeaways I got from this conversation. First of all, thank you so much for sharing about your early childhood, about your education and how you were inspired by someone telling you that it's unlikely for you to go to Oxbridge and saying, Hey, you know, I guess I could get my name up on that wall. And I think it's very inspiring to hear about your early decisions about the schooling that you're going to go for, but also the career choices and exploration interests that inspire you the early days.

Secondly, thanks so much for sharing about your time in China and also choosing to be an entrepreneur after your Stanford MBA. I thought it was a fascinating and very real insight into how your thought about it, but also how you size the risk and how you are so excited about opportunity to build And explore the market, but also explore the different product market fit iterations about what it means to be a founder.

Lastly, thanks so much for sharing about Indonesia. I think it was a very quick, but also succinct way to describe, I think the questions that people have and what they need to learn about Southeast Asia and Indonesia, but also some thoughtfulness around like you said, the discipline needed on the investing side in terms of pricing and judgment, but also I think the execution discipline that needed by founders to build out the next set of opportunities in Indonesia. On that note, thank you so much, Adrian, for sharing.

(39:02) Adrian Li:

Thank you, Jeremy, so much for having me.