Why Upcoming Entrepreneurs Should Ignore What The Media Says And Do Their Own Research
Paul Schulte is the founder and editor of Schulte Research, a company that does research on banks, financial technology, bank algorithms, and credit algorithms. He has had a career in equity research which spans 27 years on both the buy and sell sides covering the Asian and emerging markets.
He also has 5 years of government policy experience in emerging markets. He has been frequently ranked in top-five positions in Euromoney, Asiamoney, and Institutional Investor. In Institutional Investor’s 2010 poll, he received top rankings in All-Asia Banks Team, Asia Equity Strategy Team, and Asia Economics, Team.
Mr. Schulte was most recently at China Construction Bank Intl as Global Head of Financial Strategy and Asia Banks Research and based in Hong Kong. Prior to that, he was Managing Director and Head of Multi-Strategy and Asia-Pacific Banks Research for Nomura International. Prior to that, he was Chief Equity Strategist, Asia ex-Japan, for Lehman Brothers.
He served from 2001 to 2006 as Portfolio Manager and Head of Research for GEMS equities at Big Sky Capital, a US$350 million global macro fund (Tiger Cub) of the Wynn Family funds in Los Angeles, California. At the same time, he was also a lecturer at the Hilton School of Business at Loyola Marymount University.
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Why Upcoming Entrepreneurs Should Ignore What The Media Says And Do Their Own Research
My belief is that when the US government officials meet the Chinese, it's often about trade wars and turf wars, and all these things. When our executives in Europe and US meet with the Chinese, they think to themselves, “This is an opportunity. How do we get a taste of this?” Especially when you've got an egotistic, megalomaniac Fortune 500 CEO at the helm. You're going to be thinking, “These companies are going full-stack industry after industry. They’re having so much power. That's inspiring.” For me, I felt there was a disconnect. I feel those who are privileged are the ones who are in the corporate world and the capitalist world in the US and Europe. They're the ones who are spending time in China, investing time in China, and learning from China.
Whereas the rest of the people, whether that's government, the middle class, or executives at smaller companies are still stuck at a small scale, getting brainwashed by what the media says. China, to me, feels like a big land of opportunity. In the last company that I founded, we acquired Chinese companies. Zynga China was divesting. We bought 30, 40 people from that team. I was one of the first people in our industry to go to China in the advertising space.
We built a multi-hundred-million-dollar revenue business just coming from China alone. I felt like every board member I talked to, every investor, and everyone else is telling me, “Don't go to China. It's not going to work. It's too difficult.” I told myself, “Screw that.” Go there and learn. To me, it was like, “This is a secret.” It's a secret still. The executives in power who travel and spend time in China are the ones that are seeing it and are going beyond what they read in the Western media in the newspaper.
Here's what I see happening. In fact, I've been talking to a number of people about visa issues. I have people all around the world in my company. There are a lot of visa issues everywhere. Singapore is difficult to get in. Taiwan is difficult. Hong Kong is problematic. The more that the US bashes China, you’re getting language that's quite insulting and sporting on humiliating China, and the more China is going to close its borders.
The more China will say, “It's not worth it. Maybe we don't want to have that many Westerners in Shanghai or Beijing.” That’s been great for everybody. Everybody's learned a lot, made money and created great companies. I feel like in the last few months, maybe not so much now, maybe we're going to put out a little bit of a delay on these visa issues coming into China. It’s COVID-related, but it's not if you get my drift.
This is a tit-for-tat. How many great companies were held up in M&A? You've been in M&A. Cepheus, the bane of our existence, and the Committee on Foreign Investments in the United States. Even in my industry, the advertising industry, we had giant Chinese companies who wanted to make strategic investments in my last startup. We're talking about $100 million-plus investments.
We weren't able to get it through Cepheus and they don't give you a reason why. National data is at stake in the company. There’s so much ownership from the Chinese. When you start to see so much of a wall, it feels like China then realized as well, “We've got a huge population. We've got some of the most talented people in the world. Let's just surface our own population then.”
The foundation of this five-year program is called dual circulation. China says, “We're going to have this outside thing. BSN is going to work internally with smart cities. It's going to have an external link through this company called Red Date. China will say, “We're going to have it. We're going to be opened up. We want to be open. We want to give people the chance to have goods and services in both directions. In case we have a dual circulation, the internal circulation technology will be totally independent and can be pulled apart tomorrow morning at 9:00 if we need to.” That's what China has built.
When you take that statement and then you layer on the power of super apps in your book, I quote, “There is no drive to integrate PayPal into Facebook. Google has no Taobao. There is no way to connect Amazon to civic activity like paying fines.” That's when the power happens. When you have these super apps and you connect them to use a civic activity, then you've got a beautiful partnership between the public and private sectors and the government sector.
That's when you can execute on a big organization. It feels like China's got a model down here. It's arrogant and ignorant to say China is socialist and communist. China's inventing a new model of cooperation that isn't quite capitalist. I don't know where it fits on the spectrum. It's probably its own dimension. The way they operate and do things is telling how much progress they’re making. Clearly, it seems to be working.
The shopping mall is dying. Shopping malls are going to become like lifestyle vertical farms.
The reason that's happening is China did not have a GFC. In 2008 and 2009, China was fine. China did not blow up. China did not have a disintegrating banking system and bail out all the rich people and the banks and then screw the homeowners. That's the roots of this bitter anger and rasp in America, was the banks got bailed out again. The Central Bank is out of it again. Citibank and everybody got bailed out. We were left holding the bag and paying for everything.
Three million Americans lost their homes. Homeownership went down from 69% to 64%. There was a loss of five points. It's hard to get that back. You can see even with masks. Can you imagine if someone said, “We have a neat idea? Why don't you put all your civic data on Google? That would be great for a public and private partnership?” America’s going to take out a gun and say, “Get away from me or I'll shoot you.”
I'll give you an example. I have a couple of clients in Toronto. You might be aware of that Toronto was going to have the smart sidewalk thing with Google. It was going to create a smart city for Toronto. They haggled with them and went on and on. Google finally canceled it because of data privacy issues. The data privacy issues are problematic in America and in Europe, even more so. China, not so much. Singapore, not really. Taiwan, not really. Korea, not really.
Does it come down to the public ultimately? The public is willing to be more compliant and trust the government in China. You can use technology in a way you could never get off the ground. If you look at what computer vision can do, if you look at what AI can do, you can count and track people. That's been great for China when it comes to contact tracing and enforcing rules and order in society. Before you could even get some brainstorming, there are a whole bunch of ethical issues to consider in the US and Europe. There’s a consumer privacy violation. The reason it's succeeding in China is that consumers are a lot more trusting and are willing to have their data to be used in this way.
The Chinese consumer is smart. They know the Chinese government has got everything anyways. I feel like I still got a good deal on it. America is like this crazy democratic shining light on the hill. I worked at the White House during the Reagan administration. I saw in front of my eyes what goes on. The NSA and the DIA get everything. Everything is constantly hoovered up by the Defense Intelligence Agency, the National Security Agency, and other agencies that we don't even know the names of that I know the name of. They are getting all of this data all over the place. America has lived this crazy capitalist myth, where there is an immense number of relationships between DC and California.
The founding investor in Google was In-Q-Tel, which is the private equity arm of the CIA. In-Q-Tel has about 160 funding projects in California where several years ago, a correspondent from the Financial Times told me Google stopped publishing the names of people who were visiting because so many military officers were coming in and out.
This myth of pure capitalism in America is hilarious. First of all, Edward Snowden's release of all that metadata that was millions of pages of information about what the NSA collects in American society blew the doors off this myth. If you read anything or from my background working for the White House, we can say that there's data privacy. There's not. Come on.
America has to stand by this myth and that you pull yourself up by your bootstraps and rely on the private sector and government is bad. Yet, you look at the red state ZIP codes. The redder the ZIP code, the more defense spending they have. Go look at a map and go figure out South Carolina, North Carolina, Northern Florida, Connecticut, and Orange County, California where I come from. It's all about contracts.
When you look at all this, it feels like it's the psychology of the Millennial generation and a lot of social unrest. It is blaming and pointing fingers and wanting more protection. That holds society back because we're living in an age of digital transformation. You cannot take advantage of that if you're bickering and fighting.
I want to talk about the future of PropTech. When we talk about the future of PropTech and the lens of US and China, we're already seeing some of the world's largest companies. We've got J.P. Morgan and BlackRock. In your book, you talk a lot about JLL. I’m amazed at how much JLL is doing in China, especially after reading your book. I know JLL quite well. What's the future looking like for Western companies? Are we going to go to China or are Chinese companies going to come here? What's your take on the next 5 to 10 years?
The sky's the limit here in terms of what's possible, and we have barely scratched the surface.
That's a great point. I've been talking a lot to JLL. They're doing some fascinating thing. They manage 1.2 billion square feet. The office space is going to get reinvented because of COVID. The shopping mall was dying. I have an idea that shopping malls are going to become like lifestyle vertical farms. I'm going to take a real wild swing.
What does lifestyle vertical farm, mean?
It means you can use your interior storage space for vertical farms for vegetables and fruits and have your farmer's market in the old lobby where it's all closed anyway. Vertical farming is pretty easy to use. It's just energy-intensive, the Styrofoam and new technology that you have for installation and mist. You can grow fruits and vegetables 24/7. There's no crop failure. More and more meat substitutes are going to be from foodstuffs. This is going to be a big revolution. We're going to get some fantastical, experimental new uses of office space and the integration of home and office in ways that we haven't even thought of yet.
The smart cities though are going to be the interesting ones. The purchase of a car becomes like what we would've done many years ago in terms of purchasing some item in your home. It’s like the old-fashioned water heaters that were giant and clunky, 14 feet high, and cost $1,200. Why on Earth would you think of owning a car when there are autonomous cars that will pick you up? You're using your car 5% of the time. Autonomous cars controlled through smart cities will come and get you without even a problem.
We're going to be going down that road. If you do go down that route and eliminate parking spaces, you eliminate the architectural renderings of buildings. Hong Kong is a city built for cars. Singapore is better. Singapore is beautiful park space, but Singapore is still a city built for cars. A lot of cities are built for cars. You want to have that if you have autonomous vehicles, people movers, and other ways to get people to their work. The whole understanding of the architectural rendering of a building, how you can lay out new cities, and the need for knocking down old cities and rebuilding new ones is going to be expensive. The sky's the limit.
There are many companies that we highlighted in the book. Some of these are smaller companies that are doing interesting things in terms of new ways of architectural rendering, re-imagining cities through VR, and companies that are building new types of tiles for the exterior with the interior buildings that not only give you a count of pedestrian traffic but also create kinetic energy for the building. The sky's the limit here in terms of what's possible, and we have barely scratched the surface. I would also say to you that AT&T and Verizon should have been at the front end of the spear here. They're nowhere on this. They dropped the ball here as well.
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About Zain Jaffer
Zain Jaffer is an accomplished executive, investor, and entrepreneur. He started his first company at the age of 14 and later moved to the US as an immigrant to found Vungle, after securing $25M from tech giants including Google & AOL in 2011. Vungle recently sold for $780m.
His achievements have garnered international recognition and acclaim; he is the recipient of prestigious awards such as “Forbes 30 Under 30,” “Inc. Magazine’s 35 Under 35,” and the “SF Business Times Tech & Innovation Award.” He is regularly featured in major business & tech publications such as The Wall Street Journal, VentureBeat, and TechCrunch.
