Tech Capital Partners Blog

The three people who follow me on twitter (@andrew_abou) know that I have spent the last week in Hong Kong and Shanghai. So in an effort to be more hip I thought I would turn the mandatory Tech Capital internal trip report into a blog post. That way when I get asked for either, both will be done!

In Hong Kong I spent a bunch of the time with money managers, bankers and a collection of other CFA type finance geeks. The mood was dour. Portfolios… hence fees are down by 50 odd percent. Real estate prices, while still out of sight, have been cut in half from a year ago and the high-end retail shops in Pacific Place looked like a post neutron bomb era scene in a sci-fi movie where all the people have been vaporized but everything else is intact.

Even more striking, several CFA charter holders were openly questioning the highest tenet of modern finance theory, the efficiency of capital markets. While sounding esoteric, to the great theoreticians of the past century this talk is akin to stoning the high priest on the steps of the temple!

Surprised, and frankly worried about what all this implied about the prospects for a near term economic recovery, I prepared for my next adventure in Shanghai. I diligently packed my bags, making sure to include all my preconceived notions that had been so generously provided me by western media and prior life experiences.

Here is an inventory:

1. China is poor, crowded and dirty. Check.
2. Like in East Germany of old, everyone has a job assigned by the government but they know they will never advance therefore they approach the job in a zombie like state. Check
3. I will get shoved around like in Toronto’s Chinatown on a Saturday morning. Check.
4. There will be armed military on every corner. Can’t forget that one!
5. Chinese people are prisoners in their own land, never able to leave. Check.

Arriving at Pudong International Airport I was immediately struck by the size of this beautiful modern facility. It was well organized and the immigration line moved more like a Disney attraction line than a state border… especially a border of a communist country. Imagine my surprise when I got to provide the border guard with real-time feedback on his performance by pushing an electronic display with a 1 to 4 ranking on it! Providing feedback on service quality is basically my favourite thing in life and here I get to do that for a border guard of a dictatorship! Wow. Make my day. Now wouldn’t that system be great at Pearson International Airport going into the United States. Maybe I will mention it next time I am passing that way.

Shanghai is a city of 9 million people. Is there traffic and smog? Sure. Did my personal space get infringed on a bit? Sure. But no worse than the Toronto subway system. I may have been spared though because many were too busy gawking at this non-Darwinian biological freak show mountain man crossing their path to even think of shoving!

It is also a city that proudly displays its history in layers. Traditional Chinese, English, French… In fact during parts of this history, the Chinese were not on the top of the socio-economic pig pile. For certain governments that would be reason enough to expunge it from the history books.

The current aesthetic is interesting. It is modern, urbane, creative and dynamic but it does not even hint at the traditional architecture that is the stuff of postcards. The current aesthetic is expensive — very expensive. And it is absolutely not just for tourists. In fact, I think the tourist spots are cheaper than certain other parts of the city. And, unlike Hong Kong, these places were crowded.

I did find that species “The communist zombie worker” that I was expecting. I had to look pretty hard though. More often I saw diligent people trying their hardest to serve you. I saw energetic people working to get ahead. And from my conversations, I concluded that there is a belief within the current generation that they can draw a direct line from hard work to achievement.

Three days later, as I was packing to leave, my bags were much lighter because I was leaving many of my preconceptions in the hotel. To be sure, China has massive challenges: unemployment, pollution, human rights to name a few. While they talk about increased openness and change my sense is there are some issues that won’t go away for a long time. But the people I met truly believe there is opportunity. They have hope and drive. That is a pretty powerful combination.

As I enthused on Twitter, my friend Derek Smyth, who is particularly adept at cutting me down to size, observed that I was “only 10 years late to the party.” He is not wrong. Some VCs have been active in China for over a decade. Indeed, some are pulling out because they don’t believe the returns are there. I haven’t done the research to understand why, nor do I think that is a good use of time. Deals that work in Shanghai may well be different from deals that work in North America. Am I going to be proposing a Tech Capital office in Shanghai at our next Monday meeting? Absolutely not. But China is a large, wealthy and growing market. It needs to be considered. We will be well served to nurture meaningful local relationships that help us fine tune product offerings and provide access to markets. That is what I will be proposing in the next Monday meeting.

As my plane climbed away from Shanghai I looked out the window and down there in the Huangpu River was a congo line of ocean freighters, as far as the eye could see, heading to the ports of Shanghai. Debate all you want about the economy, capital market efficiency, and whether I am late to the party but, like parking lots, congo lines of ocean freighters piled high with shipping containers never lie.

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