David Chao, the cofounder of the cross-border venture firm DCM, speaks English, Japanese, and Mandarin. But he also knows how to talk to founders.
It’s worth a lot. Consider that DCM could see more than $1 billion from the $26.4 million it invested across 14 years in the cloud-based business-to-business payments company Bill.com, starting with its A round. Indeed, by the time Bill.com went public last December, when its shares priced at $22 apiece, DCM’s stake — which was 16% sailing into the IPO — was worth a not-so-small fortune.
Since then, Wall Street’s lust for both digital payments and subscription-based revenue models has driven Bill.com’s shares to roughly $90 each. Little wonder that in recent weeks, DCM has sold roughly 70 percent of a stake that’s currently valued at roughly $900 million and was worth more than $1 billion a few weeks ago. (It still owns 30 percent of its position and says the shares are free and clear to trade.)
We talked with Chao earlier today about Bill.com, on whose board he sits and whose founder, René Lacerte, is someone Chao backed previously. We also talked about another very lucrative stake DCM holds right now, about DCM’s newest fund, and about how Chao navigates between the U.S. and China as relations between the two countries worsen. Our conversation has been edited lightly for length and clarity.
TC: I’m seeing you owned about 33% of Bill.com after the first round. How did that initial check come to pass? Had you invested before in Lacerte?
DC: That’s right. René started [an online payroll] company called PayCycle and we’d backed him and it sold to Intuit [in 2009] and René made good money and we made money. And when he wanted to start this next thing, he said, ‘Look, I want to do something that’s a bigger outcome. I don’t want to sell the company along the way. I just want this time to do a big public company.’
TC: Why did he sell PayCycle if that was his ambition?
DC: It was largely because when you’re a first-time CEO and entrepreneur and a large company offers you the chance to make millions and millions of dollars, you’re a bit more tempted to sell the company. And it was a good price. For where the company was, it was a decent price.
Bill.com was a little bit different. We had good offers before going public. We even had an offer right before we went public. But René said, ‘No, this time, I want to go all the way.’ And he fulfilled that promise he’d made to himself. It’s a 14-year success story.
TC: You’ve sold most of your stake in recent weeks; how does that outcome compare with other recent exits for DCM?
DC: We actually have another recent one that’s phenomenal. We invested in a company called Kuaishou in China. It’s the largest competitor to Bytedance’s TikTok in China. We’ve invested $49.3 million altogether and now that stake is worth $3.8 billion. The company is still private held, but we actually cashed out around 15% of our holdings. and with just that sale alone we’ve already [seen 10 times] that $30 million.
TC: How do you think about selling off your holdings, particularly once a company has gone public?
DC: It’s really case by case. In general, once a company goes public, we probably spend somewhere between 18 months to three years [unwinding our position]. We had two big IPOs in Japan last year. One company [has] a $1.6 billion market cap; the other is a $2.6 billion company. There are some [cases] that are 12 months and there are some [where we own some shares] for four or five years.
TC: What types of businesses are these newly public companies in Japan?
DC: They’re both B2B. One is pretty much the Bill.com of Japan. The other makes contact management software
TC: Isn’t DCM also an investor in Blued, the LGBTQ dating app that went public in the U.S. in July?
DC: Yes, our stake wasn’t very big, but we were probably the first major VC to jump in because it was controversial.
TC: I also saw that you closed a new $880 million early stage fund this summer.
DC: Yes, that’s right. It was largely driven by the fact that many of our funds have done well. We’re now on fund nine, but our fund seven is on paper today 9x, and even the fund that Bill.com is in, fund four, is now more than 3x. So is fund five. So we’re in a good spot.
TC: As a cross-border fund, what does the growing tension between the U.S and China mean for your team and how it operates?
DC: It’s not a huge impact. If we were currently investing in semiconductor companies, for example, I think it would be a pretty rough period, because [the U.S.] restricts all the money coming from any foreign sources. At least, you’d be under strong scrutiny. And if we invested in a semiconductor company in China, you might not be able to go public in the U.S.
But the kinds of deals that we do, which are largely B2B and B2C — more on the software and services side — they aren’t as impacted. I’d say 90% of our deals in China focus on the domestic market. And so it doesn’t really impact us as much.
I think some of the Western institutions putting money into the Chinese market — that might be decreasing, or at least they’re a little bit more on the sidelines, trying to figure out whether they should be continuing to invest in China. And maybe for Chinese companies, less companies will go public in the U.S., etcetera. But some of these companies can go public in Hong Kong.
TC: How you feel about the U.S. administration’s policies? Do you understand them? Are you frustrated by them?
DC: I think it requires patience, because what [is announced and] goes on the news, versus what is really implemented and how it truly affects the industry, there’s a huge gap.
[Correction: This story originally reported that DCM had sold nearly $900 worth of shares and maintains another 30%; the firm’s entire position is currently worth $900 million, with 30% of those shares still held.]