The Top 25: #3 Levin Yao, Tencent Investment

Levin Yao, executive director at Tencent Investment, is the lead corporate venture capitalist (CVC) for the largest internet company in China’s artificial intelligence (AI), enterprise, automotive and security sectors “with tons of deal experience,” according to Jeffrey Li, managing partner.

That is some understatement of Yao’s accomplishments after more than six years at probably the world’s most active and successful corporate venturing unit ranging from smaller, early-stage deals to hundreds-of-million-dollar rounds for some of the most successful entrepreneurs from the past decade.

Yao cited the Yixin transaction as a representative deal of what investment professionals could do in CVC compared with those in financial investment.

He said: “In early 2015, I led the investment of Tencent into Yixin, the auto finance spin-off of Bitauto, one of the top auto media portal in China. We invested $150m in Yixin and acquired about 25% stake.

Yixin just went public at the Hong Kong Stock Exchange in late 2017 with IPO valuation of about $6bn.

“I felt the investment was a good deal in several aspects: first, the financial return was good. The initial investment had a multiple of more than six times in less than three years. Considering the two follow-on investments, the total investment of about $350m yielded absolute return of more than $1bn.

“Second, since we also invested in Bitauto, Bitauto and Yixin have become the major vertical partner in auto field in Tencent’s ecosystem.

“Since one key strategy for Tencent is connection, the cooperation with Bitauto and Yixin enabled Tencent to extend its connection to auto industry which was relatively remote from Tencent’s key businesses.

“Third, the investment of Yixin creates strategic synergy between Yixin and various business units of Tencent. For example, Yixin’s auto loan could be good financial asset to server investment needs of Tencent’s tremendous user base.

“To sum up, the ecosystem and resources of Tencent as a large internet player has enabled us to cook strategic deals like Yixin, and keep on helping its business grow and gain significant return.”

But the tension inherent in so many corporate venturing units of looking for financial and strategic returns is a challenge for Yao. He said: “As a CVC, Tencent Investment has very unique investment approach. Most corporations focus more on merger and acquisition, while Tencent focuses more on minority investments, just as venture capital or private equity does.

“Tencent looked at each investment from both strategic and financial perspective. This approach also poses very big challenge for me, which is how to balance the strategic value and financial value in my investments.

“Especially when strategic value is more or less conflict with financial value, it is essential for the investment professional to make the right judgment, which sometimes make work harder for me than when I was working in a purely financial investment institution.”

Yao was hopeful that CVCs could work increasingly with financial investors for the benefit of all.

He said: I think CVCs could work more closely with financial investment institutions. On the capital side, CVCs could potential use more leverage from outside to increase its own investment capability.

“On the deal side, CVCs should understand the needs of financial investors like PEs and VCs more, and cooperate more with them to make sure their own strategic value be better realised.”

But as Tencent has grown and its investment returns been positive the opportunities to do more as a CVC has increased.

Yao said: “My ambition is to help Tencent Investment to become one of its key growth engines, just like gaming is to Tencent today.

“As the largest internet companies in China and the fourth-largest in the world [with a $500bn market capitalisation], Tencent has a strong ambition to keep up its growth in the next decade and maintain a flourishing ecosystem.

“In internet and mobile internet era, Tencent Investment was part of the open platform strategy which enables Tencent to build up strong partnership relationships with strong vertical players. But in the future, we do believe we can do more with all the financial and strategic resources internally. For example, we can actively use investment as a tool to capture the game changing opportunities in the next generation technology, such as AI, robotics, and so on.”

One of Yao’s smaller deals in these deep technology fields so far was Oben, a California, US-based AI startup creating three-dimension and voice avatars of film and pop stars that raised $5m in July.

At the time of the deal, Yao said: “As technology rapidly evolves and moves towards applications using AI, we are excited by Oben and its AI solution, which is poised to enrich user experiences across different online platforms. Oben’s vision of creating a new form of entertainment and content driven by celebrity AI is inspiring.”

On the larger deals, Yao’s team has led Tencent’s investments in electric car makers Nio and WM Motors, flying car maker Lilium Aviation and ride-hailing service Ola.

Given the high-profile nature of these deals and their success, it was perhaps no surprise that Yao was the star speaker for Tencent’s MBA recruitment campaign at Stanford Graduate School of Business in October.

Yao, a keen skier, surfer and basketball player, said: “For the presentation in Stanford, I feel the feedback was very good. I feel more and more students from business school, including international students, are paying a lot of attention on China’s Internet industry and are willing to join a high-tech company like Tencent rather than going down a traditional career of banking or consulting.

“Our international expansion needs talents with strong international background and perspective, that’s why we started to go to US for MBA hires a long time ago and will keep on doing so since strong talents are the most valuable assets of our team.”

Prior to joining Tencent M&A in 2011, Yao worked for investment bank Deutsche Bank where he was responsible for principal investment in Greater China.

Yao said of his time at Deutsche Bank: “The investments were very much event driven, which means we do not focus on any specific industry.

After three and a half years, I felt that I have not gained much in-depth understanding in any specific industry as we always hopped from one industry to another seeking for opportunistic investments – the lack of focus and industry root had limited my ability to build up strong domain expertise in any industry.

“After careful consideration, I decided to leave the company and pursued an MBA in Insead. I thought a one year gap will help me figure out what I am truly passionate about. During the gap year, I decided to join CVC as compared with financial investment institutions, it provides an investment professional better edge to be an industry expert. My first job after MBA was in Mindray, the largest medical devices company in China, doing corporate investment. After eight months, I figured internet is a more exciting and dynamic industry, so I decided to join Tencent Investment.

“Although back then Tencent or Internet was not as popular as today, I do feel I made the right decision and was able to witness the fast growth of China’s internet market as well as Tencent itself.”

Yao received his MBA from Insead, and masters and bachelor degrees in finance and information management and systems, respectively, from University of International Business and Economics.