Allen Gu, founder of Renrencaopan.com, talks about his start-ups good and bad timing

Allen Gu Chonglun got off to a bumpy start when he launched Renrencaopan.com, an online platform that connects retail investors and professional traders in buying stocks, amid the stock market meltdown this summer. The platform allows selected “caopanshou” – traders or fund managers – to initiate fund products that invest in stocks. Investors can view details of the funds’ stock positions and returns on the website, and consult the traders and cash out their funds. Gu, 32, who was previously the chief operating officer of the mainland’s leading peer-to-peer lender Renrendai, said the timing of the new venture was bad luck. The ups and downs of the market frightened investors but it was also a challenge to pursue an ambitious vision in difficult circumstances. He spoke to Kwong Man-ki about his attempts to integrate the internet with the traditional brokerage industry amid market turbulence. 

You were in the peer-to-peer lending business before. Why did you turn to stock investment when starting your own company?

I have been working on something relevant to internet finance over the past two to three years and the potential is huge as the internet can help boost efficiency in financial services and improve customers’ experience. However, P2P lending is only part of internet finance – an alternative to bank lending. Some areas remain untapped. Brokerages are one segment offering good business potential amid the internet finance wave. A new business model that gives investors a fresh experience in buying stocks is worth a try. Our team was set up last February when the Chinese stock market was still a bull market and investors were making money. But it was out of our expectation that the market had turned bear when we launched the platform in July.

Q: What are the negative impacts launching Renrencaopan during the stock crisis?

A: If we could launch the platform in the bull market, it would be easier to get better responses from investors. The fund products initiated by our traders would be able to attract more people and help us build a user base much faster.

The model of Renrencaopan is to attract investors to follow traders who can show their stock positions, investment advice and returns through our platform. Under the bear market, it is tough to let investors know the capability of the traders we have selected. The Chines stock market slumped again at the beginning of this year after a recovery in the fourth quarter dragged by the circuit breaker policy, as you can see from our website most of the funds managed by these traders showed negative returns.

Q: Do you think the bad performance of fund products will deter investors?

A: The funds’ returns turned negative following the market drop, but compared with the general market fall of more than 10 per cent, our traders still outperformed maintaining the loss at 2 to 3 per cent.

In last year’s stock market rout, many investors were regret about buying some stocks and hoping that they had never buy shares. But for many middle class who have experience in stock investment, they will still prefer to allocate part of their asset in equities instead of just fixed-income investment. As they are some more mature investors who have better understanding about risks, they are now more willing to follow professional fund managers as they know it is hard to do well by themselves and it’s also time-consuming.

And I think it’s a learning process for Chinese investors as they need to understand that they should not care too much about short-term return but look at an annualise return which could outperform fixed-income investment products. When they can look at the one-year return, our products can perform well.

Q: What is the bright of picking such a bad timing?

A: As internet finance is an emerging sector in China, the competition is fierce. Once there are some new products or new ideas available in the market, many people will copy your business models and therefore stir up competition. The food delivery and P2P lending businesses are good examples.

If we picked a good timing to launch Renrencaopan when the stock market was hot, I would expect the business model would be copied and launched everywhere. As we are a new business model and we really need time to adjust our operations at our early stage, a too competitive environment would make it hard to do our own assessment and improve our products.

The timing was not so good, but this the macro environment is something that we cannot control. As long as we can survive, we can wait for a good timing, at the same time develop better products or business model.

The A-share market this year will likely be fluctuate this year, we are considering to add more variety of investment product such overseas listed stock and futures.

Q: How is it different between setting up a startup and your previous jobs?

A: I was in charge of business operations in Renrendai including product development and strategies, this was what I expected I should do when I started Renrencaopan. But the real situation is so different from what I have imagined as I have to take care of a lot more things from administration to financing and even the size of our office is what I have to consider about. Now I cannot just focus on products and business as what I did in Renrendai.

I also worked for China International Capital Corp and Manulife Teda Fund Management Company before joining Renrendai. Comparing with traditional financial companies, it’s easier to make some new ideas to come true in startups. In those traditional companies, innovation is not easy and it’s also hard to catch up with some new trends.

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