The launch of ChatGPT-3.5 in December 2022 triggered a global surge in interest in large-scale AI models, with major Chinese companies such as Baidu, Alibaba, and SenseTime following suit in 2023. By June, a flurry of general-purpose and specialized models had emerged, contributing to China’s rapidly growing AI landscape. By the end of 2023, over 300 large models had been released, leading to what the media dubbed the “Hundred-Model Battle.” As of 2024, the so-called “Six Tigers”-Zhipu AI, MiniMax, Baichuan AI, Moonshot, StepFun, and 01.AI-are dominating the field, with a valuation at over $1 billion each, and four of them exceeding 20 billion RMB ($2.7 billion), according to Chinese media outlet Caixin. These companies are also bearing the weight of expectations to become China’s  version of OpenAI.

Zhipu AI

Founded in June 2019, Zhipu AI is one of the few companies in China that predates the launch of ChatGPT. As one of the first companies to explore large language models, Zhipu AI has become a major player in the sector. The company’s leadership team boasts notable figures from China’s top academic institutions. CEO Zhang Peng, a graduate of Tsinghua University’s Computer Science Department, is joined by Chief Scientist Tang Jie, a professor at Tsinghua University, and President Wang Shaolan, a Tsinghua Innovation Leadership Doctorate holder. The company also expanded its leadership team in April 2024, with former Alibaba Cloud Vice President Chen Xuesong joining as Vice President.

 In October 2024, the company released GLM-4.0, an open-source end-to-end speech large language model capable of replicating human-like interactions and offering users the ability to adjust the tone, emotion, or dialect according to their preferences. Zhipu has also launched a wide range of other products related to large models, including various general-purpose models of different sizes, the CodeGeeX code model based on Huawei’s MindSpore framework, the CogView text-to-image model, and the VisualGLM multimodal dialogue model. In an announcement on December 31, 2024, the GLM technology team revealed plans to enter the field of inference models.

On the financial front, Zhipu AI has been a favorite among investors. In 2023, the company completed an RMB 2.5 billion ($350 million) funding round, with participation from major investors including the Social Security Fund’s Zhongguancun Innovation Fund, Meituan, Ant Group, Alibaba, Tencent, Xiaomi, Sequoia Capital, and GL Ventures. In another boost to its financial standing, the company secured a new round of RMB 3 billion ($420 million) in funding by the end of 2024.

MiniMax

MiniMax was founded in 2021- two years after its predecessor, ZhiPu. Before founding MiniMax, Yan Junjie, the company’s founder, spent over a decade in AI research and development. At MiniMax’s first offline event in August this year, Yan shared the company’s founding vision-Intelligence with Everyone, and revealed key user data: 3 billion daily AI interactions and 30 trillion tokens processed. In October 2022, MiniMax launched its first app, Glow, which quickly gained traction, surpassing 5 million users within just four months. The app was later rebranded as Xingye for the Chinese market and Talkie for international users, marking the company’s expansion into global markets. 

Another standout product is Hailuo AI, a video-generator that quickly gained international attention later, with video creators offering positive reviews. In March 2024, Alibaba led a $600 million funding round for Minimax.

Baichuan Intelligence

Baichuan Intelligence was established in March 2023, with its core team consisting of top AI talents from renowned tech companies such as Sogou, Baidu, Huawei, Microsoft, ByteDance, and Tencent. Less than 100 days after its founding, Baichuan Intelligence released two open-source, commercially usable Chinese language models, Baichuan-7B and Baichuan-13B. 

In July 2024, Chinese media outlet 36kr reported that Baichuan Intelligence completed a Series A funding round, raising a total of 5 billion yuan. Previously, in October 2023, Baichuan had announced its A1 funding round, revealing a list of investors that included tech giants Alibaba, Tencent, Xiaomi, and several top-tier investment firms.

Moonshot

Moonshot, also founded in March 2023, is led by Professor Yang Zhilin from Tsinghua University’s School of Interdisciplinary Information. The team includes talent from global tech giants such as Google, Meta, and Amazon. Unlike some of the large models currently on the market that aim for a one-size-fits-all approach, Moonshot’s large model, Kimi Chat, is more focused on long-text capabilities. For instance, its practical use can support a context of approximately 200,000 Chinese characters—2.5 times the size of Anthropic’s Claude-100k (which supports around 80,000 words) and 8 times that of OpenAI’s GPT-4-32k (which supports around 25,000 words). This potential has contributed to Moonshot’s valuation of $3 billion.

However, its success is recently overshadowed by legal disputes.

StepFun

StepFun is the latest company to officially debut among the “Six Little Tigers.” Many people only heard of Jieyue for the first time in March this year, but the company quickly rose to become a leading player in the large model sector. Its strong multimodal technology has garnered widespread attention from developers. According to statistics, in the past 10 months, Jieyue Xingchen has launched a total of 11 foundational model products, including language models, multimodal understanding models, video generation models, and speech models.

01.AI

01.AI was founded in July 2023 by Kai-Fu Lee, who held key positions at tech giants such as Apple, Silicon Graphics, Microsoft, and Google. In the first three quarters of this year, 01.AI launched two models—Yi-Lightning and Yi-Large—both of which ranked among the top on LMSYS and were the highest-ranking domestic large models. However, the core advantage of 01.AI lies not in the rankings, but in the cost of pre-training. Under the model co-building strategy, the training and deployment costs are impressively low. Founder Kai-Fu Lee stated that Yi-Lightning’s training only required 2,000 GPUs and took just one and a half months, with costs amounting to around 2% of those of Musk’s xAI.

On August 7, 2024, media reports revealed that 01.AI had completed a new funding round, raising several hundred million dollars. Investors in the round included an international strategic investor and several Southeast Asian consortiums. 01.AI has yet to comment on the funding news. Before this round, 01.AI had previously received investment from Alibaba Cloud, following which, the company’s valuation surpassed $1 billion, securing its position as a unicorn.

Correction: An earlier version of the article misidentified GL Ventures as Hillhouse Capital.

Signs indicate that Southeast Asia is becoming a hotbed for growth among startups and opportunities are plentiful in the region, Kenneth Tan, Vice-president of Gobi Partners, told a packed house at TechNode’s ORIGIN conference, held during Malaysia Tech Week 2019.

“A lot of startups in Southeast Asia are growing positively and this is very encouraging because it shows that the whole ecosystem is progressing,” he said during a panel discussion moderated by Navin Danapal, the SEA Director of accelerator venture capital SOSV.

As Southeast Asia’s digital economy is forecasted to triple in size to reach RMB 1.2 trillion ($240 billion) by 2025, according to TechCrunch, it has become a highly scrutinised and favoured region among both investors and businesses considering expansions. The panel discussion took off with a focus on the tech landscape synergies between China and SEA.

Chinese boom

“Firstly, there is a need to understand the reason why companies in China will consider SEA,” said Tan, adding that the situation is very much like that of China many years ago. With a young population, increasing GDP per capita and rising internet penetration rate, this region is very attractive, said Tan.

However, for Chinese companies that are planning to expand their operations down south, Tan emphasized the importance of localization and a change of mentality towards running a business in this region.

“SEA has ten countries, each with different policies and regulations and are at different market stages,” said Tan. He stresses that due to these differences, it is vital for foreign companies to pay ample attention to understanding the local market that they intend to expand into –  i.e user behaviour and income levels across different markets. Tan also shared that companies must understand that strategies that have worked back home may not work in SEA.

Key to SEA Success  

“At the end of the day, it is all about how much effort and energy you put into listening and understanding the consumer’s problem statement,” said Sai Kit Ng, Chief Executive of multi-stage technology and venture capital firm Captii Ventures. Emphasising the importance of understanding the needs of the market, Ng advises companies to always analyse the problem statement and be prepared to redesign their product to suit the customers. “Focus on the customers who are willing to pay you, this will provide you with a lot more opportunities to improve,” said Ng.

However, Ng also encourages businesses to look beyond the ASEAN market at times because through his observations, he realised that businesses from the region do produce solutions that attract a significant amount of consumers in other countries such as the US.

Ultimately, Ng encourages founders to strive to improve and to benchmark themselves against industry giants.

Local focus needed for startups

“The speed of growth of the markets, the capital investment in this region, the pace of business and the number of startups are all growing tremendously,” said Tan. However, Ng also shared an ironic observation with our audience that local startups find it easier to sell their product to a foreign market than to their own. Hence, Ng urges firms to give more opportunities to local players for them to prove themselves.

Ng shares that trends are often set in China and the US. Currently, he says, artificial intelligence is on top. “I think what is next will depend on who is able to come in and identify the key problems in the different markets and solve them,” he said.

“The short answer is the industries that the unicorns are in,” said Tan. He elaborates that given the rigour needed to start a business, for them to be able to reach the unicorn or even decacorn stage, it would signal good business operations, strong potential, market opportunities in the region and ultimately exit opportunity for investors to make money.

This article by Nina Xiang originally appeared on China Money Network, the best data intelligence platform tracking China’s tech and venture capital markets (access requires subscription).

Entering 2019, the buzzword in the artificial intelligence industry has taken a decidedly new tone. “Bottleneck” has been much talked about, from opinion articles questioning if deep learning “will be the best long-term solution” for building intelligent machines,” to startup founders openly discussing the limitations of its future potentials.

The latest such reflection came from Yuan Peijiang, founder of Chinese AI startup SensingTech. “One of the biggest challenges for artificial intelligence is that we have reached a bottleneck of the current technology, and it’s difficult to achieve more breakthroughs from it,” Yuan, a Tsinghua graduate and a Ph. D [holder] in electronics and computer engineering from the University of Western Ontario, told China Money Network at SensingTech’s Beijing office last month. “From the capital markets’ perspective, there will be a bottleneck in terms of returns. That means capital investments will decrease and the industry’s growth will slow.”

Such sobering remarks echo the broader macroeconomic uncertainties and clear signs that tech companies are bracing for a much tougher operating environment this year. Since the end of 2018, Chinese tech firms including Didi, Baidu, JD.com, Huawei, Sina, Mobike, iFlytek, Qudian and others have taken steps to lay off staff, or “implement operational optimizations,” as some companies termed it.

For AI startups, the type of breakneck growth experienced in the past couple of years is not expected to continue this year. SenseTime, among the highest valued AI companies in the world with a reportedly price tag of $6 billion, did not set objectives to “double staff” and “open more offices” in its annual year-end company gathering this year. The company touted such achievements in the past two years as a way to build up morale, according to someone with direct information of the matter. This sense of humility is echoed at other AI companies as well. Megvii, also known as Face++, is locating new staff in less fancy offices, instead of its main base in Raycom Infotech Park, an expensive luxury office space in central Zhongguancun in Beijing.

For the venture capital market, runaway massive fundraising deals and sky-bound valuation growth are expected to moderate. Though, big deals will still take place, but will concentrate on established players with entry barriers and core tech competency, Yuan reckons. A review of mega VC deals over $100 million in the Chinese AI space reveals that 2018 stood out as a record-setting year that is unlikely to be matched this year or in the near future. The window for setting up leading AI companies my be closnig, and it will be increasingly difficult for new AI startups to raise capital, Yuan said.

In 2018, there were 22 such mega deals, compared to seven in 2017 and four in 2016. In 2019, there were only one such deals so far, which is AI chip maker Horizon Robotics raising a US$600 million series B round in February. The fundraising pace has slowed to one mega deal in two months from the searing speed of almost two mega deals each month last year.

Not so cold after all

Yuan was a deputy professor at Beihang University since 2009, participating in the development of high performance bionic quadruped robots for Chinese military and aerospace manufacturing robots. Before that, he was an assistant researcher at Tsinghua University studying topics of facial recognition and smart robots.

In 2016, he co-founded SensingTech with a former colleague at Beihang Univeristy, Shi Zhenyun, to seek opportunities in facial recognition’s commercial application. Compared to the “Big Four” in China’s facial recognition field, SenseTime, Megvii, Yitu Technology and CloudWalk, which were founded in 2014, 2011, 2012 and 2015, SensingTech was a latecomer.

But the company was able to secure a piece of the public security market, obtaining government contracts in provinces including Gansu, Guiyang, Shanxi, Henan and Yunnan. The company said that its systems have also been used in important forums such as the 19th National Congress and the Forum on China-Africa Cooperation to ensure on-site security.

Compared to other facial recognition companies like the “Big Four” that have raised billions of dollars, SensingTech raised a modest amount of capital. In 2018, it raised a Series B round of financing worth several hundred million yuan (RMB 100 million is worth around $15 million), as the company refused to disclose specific numbers. A year earlier, it secured around RMB 100 million ($15 million) Series A round.

Though the size of the capital was not large, the investors were largely bluechip Chinese state-backed funds include CASH Capital, which counts Chinese Academy of Sciences Holdings Co., Ltd. as its anchor limited partner. SDIC Capital Co., Ltd., which is affiliated with the State Development and Investment Corporation (SDIC), is also an investor of SensingTech. This gives the company unique access and informational edge on government policy directions.

Faced with the challenging macroeconomic environment, Yuan said the company had already adjusted strategies to deal with the harsh conditions. “We are in a ‘winter’, and the best strategy is to strengthen yourself at this time,” Yuan said. “[We are growing] our management capabilities, our execution skills, our nimbleness to meet market demand, and our team’s operational efficiency.”

Though everyone will feel more pressure to deliver this year, Yuan is confident that “this winter” won’t be so cold after all. “This industry will run into real trouble if there is a lack of confidence and support. But we continue to see confidence from the government to support AI,” Yuan said, referring to recent positive interactions with all levels of governments in China. “We can clearly feel that many local governments still very much welcome companies like us for cooperation. This confidence is the most precious [for the sector].”

Looking at the industry’s growth in the long term, Yuan predicts that there will be the emergence of around five AI behemoths like today’s Alibaba and Tencent, or perhaps worth even more than them, in around 20 years. Because AI is a winner-take-all sector and dominating companies will absorb most of the resources and market share, this creation of next generation AI giants will evolve similarly to how current internet giants were formed.

Technology bottlenecks

In a recent article, Alan Yuille, a professor of cognitive science and computer science at Johns Hopkins University, summarized the bottlenecks of deep learning in its application in enabling machines to “see” the world.

These bottlenecks include the way deep learning is designed to work for specific tasks, its dependence on large annotated data sets for training and testing, and its poor performance in real-world scenarios. For example, it is very easy to trick deep learning algorithms.

On the other hand, for areas where deep learning has been very successful in, the most significant benefits have been reaped. For instance, facial recognition software got 20 times better at searching a database to find a matching photograph between 2014 to 2018, according to the National Institute of Standards and Technology’s (NIST) in the US. That pace of improvement is impossible to repeat in the future as the ratio of success rate in finding a match is already closer to 99.8%, says NIST.

“The more we are toward the end, it will cost a lot more to achieve even the tiniest improvements. It is like climbing a mountain, the higher you are, the more difficult it is,” Yuan said. But he believes there are still potential in applying AI in different industries to improve efficiencies and save costs. “It is similar to the invention of internal combustion engines. There are still lots of opportunities to create value in applying it in all sorts of scenarios.”

For SensingTech, the areas it is exploring new applications in include education and residential security. In education, facial recognition and other technologies can be used for student safety, crowd management, classes coordination, for example. Similarly in ensuring residential community’s safety.

But it won’t be easy. A recent leaked procurement document by a school in Guangdong province has created an uproar. The school wants to purchase smart wristbands for students to monitor their movements, activities, in-class behavior and even their shopping history, prompting many to voice concern that it is a dangerous invasion of privacy in students’ lives. Such public opposition is just one of the challenges SensingTech has to overcome to survive the “winter” and thrive.

This article by Nina Xiang originally appeared on China Money Network, the best data intelligence platform tracking China’s tech and venture capital markets (access requires subscription).

Even though private rocket startups in China have only started to emerge in the past three to four years, their nascency is not stopping these companies from dreaming big.

For one, Beijing Deep Blue Aerospace Technology, a startup that was founded in 2017 and secured an angel round led by Shunwei Capital this January, wants to achieve major milestones in less than half the time it took Elon Musk to do so.

The startup wants to successfully launch its first liquid-propellant rocket in 2020, three years after its establishment. Deep Blue Aerospace aims to achieve vertical landing and recovery in two to three years, and to complete re-flight in another one to two years, compared to the total of about six years that Elon Musk’s SpaceX required, from 2002 to 2008.

“We have the advantages of a latecomer. The path toward our goal is there already. We are learning [from those before us], which will be faster,” Huo Liang, the founder of Deep Blue Aerospace told China Money Network in an interview in the company’s Beijing office last week. “In addition, we are standing on the shoulders of a giant: China’s aerospace sector.”

Indeed, the Chinese aerospace industry has achieved major breakthroughs, including the landing of spacecraft Chang’e-4 on the far side of the moon in January, the first nation to do so. In 2018, China launched the most satellites globally, sending 39 satellites into orbit, compared to 31 by the United States. Other ambitious goals in China’s space program include a crewed mission in the 2030s and robotic missions to Mars, Jupiter and Uranus.

Huo, himself a veteran of China’s state-owned aerospace enterprises, believes that private rocket companies will take up perhaps over 50% of the Chinese space launch market in around ten years—up from practically zero right now—because private companies are more efficient, nimble, and innovative. “Since China’s reforms, any sector that has been opened up to private capital has always seen market share of state-owned enterprises decline over time,” said Huo.

It may be reasonable to expect that private companies will eventually play a bigger role in the launch market in China. But in order to fly high, Chinese rocket startups must escape the enormous “gravitational pull” of the highly entrenched state-led aerospace systems in China.

As much as startups can “stand on the shoulders of a giant,” they are equally beholden and constrained by it. A simple example is talent flow. Huo was lucky that he left the state aerospace systems as early as he did. Those after him are finding it harder to be let go.

To leave, or to stay?

A Tsinghua University PhD who majored in material processing engineering, Huo joined China Aerospace Science & Industry Corporation (CASIC), a state-owned enterprise with its roots in the China Aerospace Science and Technology Corporation. During his five-year stint at CASIC, Huo was involved in design and engineering work of various spacecraft. In 2016, he joined one of the earliest Chinese private rocket startups, One Space. A year later, due to differences in growth strategies, he decided to leave and start his own company.

“SpaceX’s success in reusable rockets was a big shock to us,” Huo said, recounting the process he went through before leaving the “iron rice bowl” state space systems. “Its Merlin rocket engines became the world’s most advanced in less than ten years. But it took our country over 20 years to develop one liquid-propellant rocket engine.”

Huo gradually concluded that privately funded companies, not the “planned economy” model of state-led space programs, would be the future of the Chinese launch market. So when One Space’s founder Shu Chang came knocking, it was an easy pitch. Because aerospace is closely linked to defense and national security, leaving the state aerospace sector requires an employee to undergo formal desensitization and approval procedures. Back in 2017, it was a smooth process for Huo.

But policy changes in China can be unexpected and subtle. In 2014, China’s State Council issued a directive that encouraged private capital to participate in the research, production and launch services of commercial satellites. That document opened the doors to the era of the private commercial space sector in China.

Within a short four-year window, over 60 commercial aerospace startups mushroomed in China, with specialties ranging from satellite production to space launch services. In the latter category, around five startups have emerged and secured venture financing. One Space, LandSpace, iSpace, LinkSpace, and Huo’s Deep Blue Aerospace have all received significant financial backing from top-tier venture firms, including Matrix Partners, Gaorong Capital, IDG Capital, Shunwei Capital and Morningside Ventures.

Initially, the startups planned to buy rocket engines from state-owned enterprises and to assemble rockets to provide more economical launch services. The original 2014 directive and 2015 policy concept of “military and civilian integration” did not provide any specific details as to just how much “encouragement” private aerospace companies would receive.

It took nearly three years for startups to conclude that it would be impossible for them to purchase rocket engines from CASIC and the China Aerospace Science and Technology Corporation (CASC), the two state-owned enterprises controlling nearly 100% of the Chinese space launch sector. These giant corporations, both units under the Ministry of Defense in the 1950s, had evolved into state-owned enterprises as China reformed its economy. In 2017, CASIC recorded revenues of $34 billion, while CASC’s last available financials in 2013 showed revenues of $44 billion.

hen, in September 2018, a dispute over the departure of a researcher to join the privately funded LandSpace created an uproar. Zhang Xiaoping, a researcher at Xi’an Aerospace Propulsion Institute (a developer of liquid-propellant rocket engines under CASC), decided to join LandSpace. In doing so, his salary would jump nearly tenfold, triggering the age-old debate about inadequate talent compensation within the Chinese state-led systems.

But the state-owned research institute attempted to make him stay via administrative measures, requiring him to undergo a two-year desensitization period. The related documents were leaked online. An official statement from Xi’an Aerospace Propulsion Institute claiming that Zhang’s departure will “impact our country’s manned moon mission to some extent” as a reason for forcing him to stay was widely ridiculed on social media.

The high-profile case led to Zhang successfully leaving and joining the new company, but it was a reflection of the increasing difficulties that talent encounter when joining the private sector. It is also a reminder of the immense challenges faced by private businesses in China’s state-dominant economy, especially in a critical sector like aerospace. Despite President Xi’s call for “military and civil integration,” private companies have realized that in order to shake off state-led aerospace, they will have to overcome challenges beyond market forces.

“This wave of privately funded commercial rocket startups will end this year,” Huo said. “Rockets are complex and it takes a year to put a team together. With regard to talent, capital, and technology, the existing companies will build significant entry barriers in a year’s time.”

Currently, a majority of the researchers in the private rocket startups come from the state-owned systems—in some companies, the number is as high as 80% to 100%, according to Chinese official media reports. Without that talent supply, it will be impossible to set up a rocket company.

A trillion RMB market

The global aerospace industry, including development and production of aircraft and spacecraft, is worth an estimated $838 billion, according to estimates by the AeroDynamic Advisory and Teal Group Corp. In China, the commercial aerospace sector is currently worth around several hundred billion RMB, and is like to expand to around RMB 1 trillion ($150 billion) in ten years, Huo reckons.

If private sector takes around half of that market, as Huo expects, it means this segment will be valued at around $75 billion. Because of the industry’s high capital investment, long development cycle, and scarce talent supply, no more than five private companies are likely to enjoy the ultimate reward.

“We looked through all the second-batch commercial launch startups and saw that Deep Blue Aerospace had the best team and technology capacity,” said Meng Xing, VP and entrepreneur-in-residence at Shunwei Capital; he differentiates between first-batch startups—LandSpace, OneSpace and LinkSpace, all founded in 2015—and the second batch of companies, founded in 2017. “We clearly see great growth potential in the private commercial launch sector in China.”

But in order to compete with the state-owned systems, the challenges are enormous. China’s state-owned enterprises receive massive fiscal allocations for national projects such as the landing on the far side of the moon and future crewed missions, as well as commercial launch services. Chinese state-owned enterprises are already known for providing launch services that are much more economical than international players.

CASIC’s Kuaizhou-1 orbital launch vehicles cost around $20,000 per kilogram, and could be reduced to $10,000 per kilogram, Huo has said in previous interviews. Compare that to $25,000 to $40,000 per kilogram by international launch service providers. Some industry observers say the potential for private commercial launch companies to further decrease prices is limited.

But Huo disagrees. The core competence of private space launch companies goes beyond serving as a low-price alternative. Private companies will be able to move faster, and be more flexible and nimble in meeting market needs. Their research and development will be more efficient. In the future, it will be easier for private companies to grow internationally for overseas expansion.

State-owned enterprises are spending taxpayer money and don’t have to worry about funding. People often overlook the costs behind China’s achievements in space. That is the fundamental difference that Huo and his peers believe will allow them to overcome all the insurmountable challenges.

This article by Eudora Wang originally appeared on China Money Network, the best data intelligence platform tracking China’s tech and venture capital markets (access requires subscription).

Blue-chip investors including Hillhouse Capital, Temasek Holdings and Shunwei Capital may be losing hundreds of millions of US dollars as a Chinese internet startup collapses.

Iwjw, a self-proclaimed unicorn hoping to disrupt how properties are bought and sold in China with new business models incorporating mobile internet technologies, appears to have gone into liquidation.

The company’s official website has been replaced by information about a new apartment rental app. Iwji’s mobile app, when opened, appears to display an error message, according to Chinese media outlet Yi Magazine, which is owned by the Shanghai Media Group. Yi Magazine also visited Iwji’s official registered office but found it does not exist. The new apartment rental app, which replaced Iwjw’s official website, also appears to be emptying its office, according to the report.

Beside Hillhouse, Temasek and Shunwei Capital, Morningside Ventures, GGV Capital and Banyan Capital also participated in financing Iwjw. Founded in 2014 in Shanghai, Iwjw offered a business model that proposed taking the online-to-offline (O2O) business model to the real estate agency sector in China. The idea was that the traditional real estate agency business could be made “lighter” by bringing part of the home-buying process online, thereby lowering costs to buyers and sellers. If successful, a leading player in this next-generation real estate agency business could potentially achieve significant business scale.

The investors bought into the vision. Iwjw reached a valuation of $1 billion after it raised five rounds of financing in a mere 18 months, a reflection of investor enthusiasm back then for O2O startups. The company last completed a $150 million Series E round led by Temasek Holdings and Hillhouse Capital in November 2015, half a year after a $120 million Series D round from GGV Capital, Morningside Ventures, Shunwei Capital, and Banyan Capital in May 2015.

But the company’s development did not go as planned. When people make the biggest financial investment of their lifetime, the process requires significant service, trust, and face-to-face interaction. In addition, because people don’t buy homes very often—unlike the so-called high-frequency food takeout or stock trading services, for example—the classic internet business strategy of user acquisition and value generation did not work well either.

Iwjw earned revenues by charging a 0.5% commission fee from both buyers and sellers on home sales. The fees were just half of the fees charged by traditional real estate agencies.

“[The quarterly gross merchandise volume of] Iwjw can rival the one-year business transactions of our competitors,” its co-founder Deng Wei once boasted. The company recorded RMB 40 billion ($5.95 billion) in GMV across deals involving over 20,000 houses in 2015; meanwhile, its homegrown rival Lianjia, with at least ten more years experience, booked RMB 120 billion ($17.89 billion) in GMV in the same year.

But that proved to be the turning point of the company’s growth. As the broader market cooled and macroeconomic uncertainties increased, the company’s fortunes began to decline. “What I am thinking about is how to survive,” said Iwjw co-founder Deng Wei in an interview with Chinese media outlet Jiemian in November 2018.

Now, aside from the hundreds of millions of US dollars in losses, both investors and entrepreneurs have perhaps learned a valuable lesson.

Deng Shuang, a 34-year-old mother of one, wants to share baby shoes she found on Taobao to a mom friend via WeChat. Instead of sharing it directly from Taobao to Wechat, Deng has to go through a very clumsy process: she has to copy an auto-generated Taobao link for the item and then paste it in WeChat before she can send it.

A small sharing barrier between two of China’s giant apps is no small deal, especially when millions of users go through this every day. But this is more than a technical loophole that can be fixed easily with updates: This is just one part of the walls China’s internet giants construct to guard their self-sustained gardens.

Most people believe the Chinese internet is one world unto itself, but few realize there are multiple separate, loosely connected ecosystems in China’s cyberspace. Competition in China’s internet world is not about individual tech companies anymore, it’s increasingly a contest among ecosystems.  

Superapps and ecosystems

“US and European internet companies usually focus on one sector and try to be the best at it. Chinese companies, however, start by focusing and solving one problem, but over time they start to attack all the problems,” William Bao Bean, managing director of Chinaccelerator, told TechNode in a previous interview.

Chinese tech firms, especially early tech incumbents like BAT (Baidu, Alibaba, and Tencent), started from a vertical but with a vision to grow very big. This approach gradually developed into the “super app + ecosystem” model, where Chinese tech firms try to create expanded online platforms by leveraging the dominant status of their super apps.

Super apps, usually where the giants first started, serve as anchors to drive user engagement. Tencent, the parent of China’s former default messaging app QQ, continues its dominance in social networking with WeChat. Alibaba has its old turf in e-commerce with Taobao and Baidu in its search engine app.

The ecosystem surrounding a tech firm takes shape as its businesses grow; whenever a new trendy area develops, the ecosystem takes hold. Of course, the expansions still begin from the related business. Alibaba, for example, established Alipay to solve the payment problem of Taobao marketplace and Cainiao to tackle logistics issues.

Since each of the tech giants got their own areas in the early days, they were more or less out of each other’s way. Yet, as they’ve grown, their business inevitably started overlapping in a grab for new emerging markets until finally what we see is comprehensive competition on each others’ home turf.

When ride-hailing first boomed in 2013, Alibaba and Tencent invested in Kuaidi and Didi, two fastest growing companies in the area, respectively to set their food into the emerging market. Baidu entered the battlefield by investing in Uber. The head-on competition gradually shifted from markets like ride-hailing—which at the time was more about getting users onboard their payment platforms—to their cornerstone businesses in social networking, payment, gaming, and mobile e-commerce. While the tech powerhouses are turning competition in China’s tech world to their proxy wars, they also build an ecosystem to lock-in users.

Behind the Great Firewall, China has its own equivalents of services that are blocked in the country. Similarly, Chinese tech firms have gathered complete sets of proprietary apps and services under their wings to cover every aspect of users’ daily lives so that they can have their demands met without leaving the ecosystem: e-commerce, content, payment, social networking, gaming, education.

Empire formation

The expansion of ecosystems is either achieved by investment, acquisition, or inside the company. Chinese tech tycoons have earned a bad reputation in the early days for copying ideas from startups and crushing them with their vast amounts of resources, experience, and users. Tencent bears the brunt of this criticism and casts the shadow among China’s entrepreneurs who face the “what if Tencent copies me” dilemma.

Given the fast growth of China’s internet space where trends come and go almost overnight, it is an increasingly daunting task for a single company to catch up with every emerging “whirlwind”, even for the BAT trio. On top of that, diving deep with a homegrown project may leave the company vulnerable to the instabilities of market trends. Thus acquiring or investing in upcoming verticals or startups with a ready team and product has become a more favorable choice with the extra benefit of shaking off the copycat image.

Alibaba and Tencent are two of the most assiduous dealmakers in recent years, even more active than most of the angel investors, venture capitalists, and private equity. Data from ITJuzi shows that Tencent topped the venture capital list with 125 deals in 2017, while Alibaba took the fourth spot with 77 deals. Compared with Alibaba and Tencent, Baidu is conservative.

The effect of these large-scale land-grabs effectively split China’s tech world into different camps. Over half of China’s unicorns are either founded or invested by BAT, and north of 90% of the companies with a market cap of $5 billion or more are related to the trio, according to data from Ctoutiao.

But companies may have their own investment styles. Alibaba tends to take large or controlling shares and get deeply involved in the operations of these companies. Tencent takes a hands-off approach, only investing a minor stake. This explains why Tencent has more deals. But the approach also puts the social and gaming titan land in trouble. A WeChat post went viral earlier this year, criticizing Tencent for “losing its dream” and spending its time seeking investment-worthy apps instead of working on its own products.

The benefits for startups

The power of a super app and the importance of being a member of the ecosystem is best exemplified in the case of the incredible rise of Pinduoduo, which achieved RMB 100 billion gross merchandise volume milestone less than 3 years after its inception, a benchmark that took Taobao five years and JD ten years to achieve. Pinduoduo’s viral growth is deeply ingrained in the WeChat ecosystem, which offers a whole set of resources for user engagement, cloud service, as well as payment solutions for buyers to complete the purchase circle.

“If services provided by Tencent to us become limited, compromised, restricted, curtailed or less effective or become more expensive or unavailable to us for any reason, including the availability of our mini-program within Weixin (the Chinese version of WeChat), our business may be materially and adversely affected. Failure to maintain our relationship with Tencent could materially and adversely affect our business and results of operations,” the company admitted in its prospectus.

The loss of a giant backer could be detrimental. Shares of Chinese micro-lender Qudian plunged to their lowest price since its listing over concerns that Ant Financial will not renew its strategic partnership with the cash lender when their deal ends by August.

Higher walls

As competition tightens, China’s tech behemoths are raising the ecosystem wall by blocking services from outsiders or offering more benefits to guarantee user fidelity. In May, WeChat rolled out tightened restrictions on sharing external audiovisual links in its Moment feed, which practically banned links from all the popular streaming sites like Douyin, Kuaishou, Ximalaya, with the exception of those backed or developed by Tencent. Although the ban was removed three days later, the underlying principle for granting access to its most valuable traffic source is pretty clear—Tencent allies only.

Alibaba announced its all-in-one 88VIP paid membership plan in August. Alibaba users with a Taoqi Value—a scoring system calculating purchasing history and individual credit— higher than 1,000 can purchase an RMB 88 annual membership for Tmall Supermarket, Tmall Global, Youku, Ele.me, Xiami Music, and Taopiaopiao. Users with a Taoqi Value lower than 1,000 have to pay RMB 888 for the membership. The over 1,000% difference between the 2 membership fees implies that the key is to have those top buyers and frequent lifestyle services users locked in.

“Alibaba’s mission makes it impossible for us to become an empire-like business. We believe that only by creating an open, collaborative and prosperous ecosystem that enables its constituents to fully participate can we truly help our small business and consumer customers. As stewards of this ecosystem, we spend our focus, effort, time and energy on initiatives that will benefit the greater good of the ecosystem and its various participants,” said Alibaba chairman Jack Ma in an open letter before the company’s 2014 IPO.

Ma’s philosophy speaks of how all of the tech giants navigate their businesses. Tencent and Alibaba’s ecosystems are still the most developed, with Baidu’s following closely behind. Upcoming tech firms like Xiaomi, Didi Chuxing, ByteDance, Meituan are forging their own ecosystems in respective fields of smart hardware, mobility, content, and O2O. But still, they are playing catch-up. Didi and Meituan, although already unicorns by themselves, are related to Alibaba and Tencent through investments.

As 5G commercialization ambition grows and Sino-US tensions remain uncertain, startups are also joining the industry. While Chinese startups find the competition fierce and the market situation fast-changing, international startups will encounter larger obstacles such as localization and efficient cooperation building.

TechNode interviewed Mr. Pere Duran, the Event Director at 4YFN, a for-startup business platform which aims to connect emerging enterprises to greater global innovation ecosystem, to learn 4YFN’s thoughts on China’s startup ecosystem, and how the platform brings startups into high-threshold professional industries.

The name 4YFN stands for 4 Years From Now, the time it takes startups to completely validate their business models. Established in Spain 5 years ago, 4YFN will be having its 3rd annual show at Mobile World Congress (MWC) Shanghai 2018 from June 27 to June 29, supporting startups in the broader mobile industry and taking global innovations to China. Rebranded under MWC, the world’s largest mobile, telecom, and communication exhibition, MWC Shanghai is becoming a key show-stage and trend sneak-peek event of Asia’s related industries.

Chinese startups and the international ecosystem

“Chinese startups share the same tech trends as the broader international mobile ecosystem and we are witnessing VC’s focus on the industry,” Mr. Duran told TechNode. The recent ZTE case is shadowing the Chinese mobile and communication industry with political concerns, but the general technological market and innovation sides show global similarities.

“The startup market is attracting considerable attention in the 5G and IoT sectors, together with its application in vertical industries like AI, Fintech, and Robotics to name a few,” Mr. Duran added, specifying highlights of the trends.

He explained to TechNode that promoted by GSMA, the institution behind Mobile World Congress, and Mobile World Capital Barcelona, 4YFN is strengthening the entrepreneurial ecosystem. “With the support of public and private institutions, we are transforming business relationships, creating an open platform for discovery and creation.”

Connecting startups with the broader industry

4YFN connects startups with the telecom and communications industries through a series of exclusive networking activities, interactive discussions and workshops, and events like 4YFN at MWC Shanghai. Though still young in the broader Chinese entrepreneurial ecosystem, the startup business platform has had some success stories supporting startups entering greater China.

“One of the startups that comes to mind is ‘Adele Robots’. Adele Robots improves people’s lives using robotics. They have attended our events in China multiple times. 4YFN Shanghai was the environment for them to connect with investors and companies allowing them to expand their business in China.”

He went on saying, “Another example would be Mailtime, an email messenger app that makes traditional email as quick and easy as text messaging. Mailtime was the 4YFN Shanghai 2017 Award winner. Following their award, Mailtime received partnership opportunities from phone manufacturers and consumer insight subscribers.”

When asked what international startups shall keep in mind when planning to enter a vibrant but sophisticated market like China, Mr. Duran explained, “Our recommendation, for any overseas startup looking to do business in China, is to carefully consider your strategy, business model, market penetration and, most importantly, identify the right local partner.”

MWC Shanghai 2018 startup highlights and future plans

MWC Shanghai 2018 also has a Startup Pitching session, every day during the 3-day event. Selected startups will have the chance to introduce and showcase their projects to international investors.

“Startups will always be at the center of our platform,” Mr. Duran stressed, “We have a great line up of finalists this year at the 4YFN Awards competition.” According to him, 10 startups selected as 4YFN Awards competition finalists will each be given 3 minutes to convince professional panel judges to standout from competitors and secure cooperation opportunities. The 4YFN pitching session is scheduled for June 28 (Thursday).

Mr. Duran revealed the finalists of the 4YFN Awards at MWC Shanghai 2018 during the interview:

1. Shanghai Tuoxiao Intelligent Technology Co., Ltd (China)
2. KARR (Thailand)
3. Capture3D (Spain)
4. Elevoc Technology (China)
5. IRYStec Software Inc. (Canada)
6. Fonda Technology Co., Ltd (China)
7. Onedot Inc. (Project Name: Babily) (China, Japan)
8. Roamability (USA)
9. Sentiance (Belgium, China)
10. STUDIOINYO CORP (Korea)

“A good startup pitch should focus on key areas like their business model and the market opportunity,” he explained. Easier said than done, highlighting business models and market situations in a few minutes is more than a speech techniques and a founder’s charisma – core competitiveness is the key.

The 4YFN Awards’ finalists are also showing an increasing amount of Asian tech companies and innovation makers. Mr. Duran confirmed that Asia is a huge blueprint for 4YFN in the near future.

“4YFN has very ambitious plans in China and Southeast Asia. We believe Shanghai holds a unique position as the financial center of the country, a great tech hub with a lot of growth potential. We would like to continue to strengthen our 4YFN event in Shanghai, building on its extensive talent, software environment, public and private acceleration programs, and consumer market.”

He added, “Currently we are exploring the opportunity to host standalone events in other cities in China, Taiwan or South Korea, another example of 4YFN strengthening and connecting the entrepreneurial ecosystem.”

In April, the US announced a 7-year ban on ZTE. This China’s leading communication player was found to have violated a ban on shipping US technology to Iran. The sanctions will bar ZTE from purchasing essential US components. 

President Xi, summarizing lessons learned from the ZTE case, stressed the concept of “core technology” (in Chinese), referring to fundamental research and high-tech innovations that play a vital role in keeping China strong and independent.

“The US ban on ZTE is a wake-up call for China. China should be more focused on developing core technology, otherwise, we would further lose our voice [in technology],” said Ruan Zongze, vice-director of the China Institute of International Studies. He went on to say: “We have the talent and have resources to do it.”

Big powers will have to deal with persistent obstacles such as research, talent, and ecosystem building. Flexible startup businesses, on the other hand, may demonstrate greater potential amid steadily increasing market needs and the growing IoT field.

Inconvenient truths for big powers

To transfer core technology from thoughts to products, China has to face great challenges.

Money, however, is the last obstacle. China spent $279 billion on research in 2017, a 14% year-on-year increase. The huge volume made up 2.1% of China’s GDP. On 26 April, 2018, China’s state-backed semiconductor fund was “near to closing a $18.98 billion investment round for a second fund”, the first round of which raised $22 billion.

However, other areas don’t look that good. The overall research and talent environment is still weak. In 2015, there were 1,113 researchers per million people in China, 4,231 in the US, 6,899 in South Korea and 8,255 in Israel, according to UNESCO Institute for Statistics.

“There are Chinese companies such as Phytium and ShenWei that are into high-performance chips. The products are currently at the pre-mass production stage. Their chips do have a way to go to catch up with Intel’s best chips. To fill the gap between world leaders and our players, years of experience is one thing, and the leaders’ own manufacturing plants for key chip components such as wafers is another thing,” Guo Xiongfei, Design Director at Jinglue Semiconductor told us.

China’s desire to build up chip production can to some extent mix technology needs with nationalism. It’s rare, though, to see a state’s will absent from core technology and other strategic country-backed innovation plans.

“In terms of core technology, we can neither rely on foreign sources nor imports. The problem can only be solved by strengthening innovation power, and pursuing the spirit of scientists’ who created ‘atomic bomb, H-bomb, and satellites (in Chinese: 两弹一星) as well as China’s manned space project (in Chinese: 载人航天),” Ni Guangnan, member of the Chinese Academy of Engineering Science, said in a recent interview (in Chinese).

The state will have to inject massive funding and other resources to core technology field particularly chips. But, there are too many types of chips and it’s not quite clear where the priorities are.

Research, talent, and ecosystem building cannot succeed overnight. Setting proper expectation for or quantify the progress in the near future will also be impossible.

Wu Jinglian, China’s economic reform expert and former adviser to high-level leaders including Deng Xiaoping, said at a conference in April 2018 (in Chinese): “China should ask whether our disputes [with the Trump government] can accelerate the implementation of opening up policies. A phenomenon rising from the internet apparently implies a danger by giving in to nationalism. It’s leveraging administrative power to back industries involved. An example is a slogan called ‘developing the chip industry at any cost’.”

This can also be dangerous for players who hope to be just another lucky kid: not all will win. There is no standard or predictable measurement of material investment and non-material investment such as R&D, time, human capital or even global non-technology disputes.

Space for startups

Beyond all this, interestingly, few are talking about  the role for startups. In core technology fields, startups and emerging independent groups are already acting. Emerging players are gradually building up their power to transform a larger ecosystem.

One example is moves in instruction set architecture (ISA), the crucial interface that serves between hardware and software. ISA also defines how to program a computer. Many developers believe that RISC-V, the fifth open source RISC generation created at Univerity of California, Berkeley, will be another global standard.

Dr. Song Wei is a deputy researcher at the Institute of Information Engineering, China Academy of Science. He co-founded CNRV, RISC-V’s non-official community in China. “CNRV is a community where developers communicate and contribute,” he told TechNode. “What we are observing is that startups, small companies, and individual developers are very proactive while big companies are mainly observers.”

Guo is also the community manager for CNRV and an individual member of the official RISC-V Foundation—the first open and collaborative RISC-V community of software and hardware. The Foundation host over 70 members, including Google, NVIDIA, Qualcomm, Samsung, and C-Sky—the chip company recently acquired by Alibaba.

“RISC-V is very promising and it can theoretically do everything as long as you dare to think, everything CPU-relevant. But this needs patience and support to see more tangible results,” Guo explained. “Our people love big things. When you create, people expect you to make something among the best around the world overnight. Innovation is not defined by the rank of your creation. Our ecosystem demonstrates very low tolerance level to those who are encountering hardships. We need to accept failure and learn from rich experience to progress.”

Building the core technology

Startups and individuals can be faster than heavy hitters who are often slow to shift strategies. However, desire for quick money, huge opportunity costs, and repeated experiments hide many pioneering small players from public eyes.  Among the 151 unicorns in China, few, if any, create core technology.

“For some emerging highly-professional innovation projects, it’s common to have very small internal circles. It’s also a sad reality that in China sometimes their voices carry little weight,” Guo added.

But the ZTE case is gradually changing this situation in China.

“In the past years, China’s private equities and venture capitals valued business models. Now we are seeing both governmental and private institutions patiently moving toward core technology. ZTE’s case will further educate the Chinese risk-investment community which very often eye fast money,” Hu Linping, Director at Zhengxuan Investment and a former Huawei veteran, told us.

Investors’ increasing patience will mean a lot to Chinese startups. More importantly, an huge existing market and vibrant startup ecosystem are natural advantages for Chinese startups. Chips and core technology cannot thrive on their own. Developers’ tools, devices, algorithms, and applications all have to be there to function a complete IoT system.

According to Accenture, by taking additional actions to “absorb IoT technologies and increase IoT investment”, China can increase the cumulated GDP by $18 trillion by 2030. We are already seeing startups leveraging China’s massive social needs to empower practice of IoT ecosystem building.

“We purchase our chips from a Chinese chip-maker. The chips’ original use was far from our current use in medical sector. And the power of the chips can satisfactorily meet our needs,” Ma Jiliang told TechNode. Ma is a “Forbes 30 Under 30 in China” award-winner and CEO of Extant Future, a Chinese company that launched a wearable medical device called Modoo. Ma’s team developed their own passive monitoring technology which allows the device to continuously monitor fetal movement and heart rate.

“A chip to us is a tool. Global specialization means highly-efficient opportunities, and hence startups don’t have to be that concerned about self-made chips when it comes to serving mass social needs,” he said.

“A populous China holding massive consumer needs is a paradise for startups. The ecosystem includes startups with diverse potentials – this can be the best time in history for us,” Ma added. “We need communities like Y Combinators and WeWork that truly understand the ecosystem and resource allocation. Local communities can empower us too.”

Chinese local communities are thinking alike. Hosting innovative players will improve the communities’ mini ecosystem and establish collective identity power. Some are building close partnerships with state-backed institutions for members to maximize resource channels and reduce any unnecessary policy costs.

“We formed a strategic partnership with Ministry of Science and Technology of P.R.C’s Technology Resource Sharing Center for Engineering Technology Research,” Josh Zhang, Chief Strategy Officer at Ucommune, one of China’s biggest co-working spaces and community-based incubators, told us. “This will allow our members to use national-level big data. It’s also the first time that national-level big data has been opened for public sharing. We aim to bridge the gaps between members and research institutions to transform research into products for business.”

“More than 30% percent of our members are high-tech startups. We are also seeing rising numbers of patent-holders joining us,” Josh added.

While China’s heavy hitters will have to balance technological pursuits and politics, startups have more free space. The startup ecosystem will provide more options for emerging powers to decide for which part of the huge Chinese market they hope to play. Should there be innovations that hold potentials to grow into global solutions, there is high chance they will be from the startup ecosystem.

China presents a fascinating nation for tech entrepreneurs. The speed at which China’s technology grows and transforms is perhaps the most important aspect in defining what’s happening in the country’s startup industry: The Middle Kingdom is now the second largest arena for entrepreneurship with one startup is set up every seven minutes.

To highlight the changes, virtually every very period of the past few years has its own theme: smart hardware for 2013-2014, cross-border e-commerce and ride-hailing for 2015, VR and bike sharing for 2016-2017, and unmanned store and new retail for 2017. In China’s tech market, the only thing permanent is change itself.

China’s tech companies pivot and change at an amazing speed to catch up with the market evolutions. Venture capital—those firms financiers behind the scenes—are also experiencing its own paradigm shifts.

Chinese VC is more about RMB than dollar now

“There’s been quite a lot of changes over the past decade. China used to be a predominantly US dollar market. Although dollars is still very active here, it’s more RMB than dollars now.” said Jeff Chi, Vice Chairman of Vickers Ventures, at a panel held on Chinaccelerator Demo Day.

We saw budding signs of this trend as early as 2010, but this year has recorded the full transition of this phenomenon. A total of 3,418 VC funds were established in the first eleven months of 2017, raising a combined RMB 1.61 trillion funding ($243 billion), according to data from research institute Zero2IPO. Of the total, a 95% or 3,339 VCs—managing RMB 1.5 trillion worth of capital—are RMB funds, as compared to 79 USD funds which manage the equivalent of RMB 100 billion.

State-backed entities play an important role in this shift, the firm notes. Overall 439 state-backed funds with a capital size of RMB 756.8 billion were founded in the first three quarters of this year. The state VC coffers topped $336.4 billion as of the end of 2015.

“Also, the flavor has kept changing,” Jeff noted. “The market in 2005 and 2006 were predominantly USD because US IPOs was the only avenue for exits. As domestic IPO opens, the local RMB exchanges has become more dominant and that’s why the past few years has seen privatization of US listed Chinese companies and seek for a relisting here. The interesting thing in the last six months is that we see a reheating of the US IPO market happening. So we live in an interesting time.”

Globalizing and diversifying venture models

The intensifying favor of VCs towards RMB does not necessarily underline their exclusive preferences for local companies. In fact, it’s quite the opposite. More Chinese VC firms are developing a global or focus, partially in line with the globalization strategies of domestic firms.

Chinese tech giants BAT, the once startup steamrollers, are playing an active role in driving this trend by investing in a massive line of rising verticals across the world. For example, Alibaba has invested a total $21 billion in M&A in the past two years, of which overseas market and O2O are the two top fields in this effort, Alibaba Vice President Joseph Tsai disclosed at an investor conference held in mid-2017.

Compared to tech startups, however, the VC business model hasn’t changed that much, but that doesn’t means VCs are not trying their best to reinvent themselves.

“Ventures has been around for quit long now, we have been talking about the new business ideas that would be considerable replacing the venture model, and incubators and accelerators come to the scene. But if you drill down deeper, it’s still a model that works, the cost and production for investors show it is still a viable model,” said Jeff.

Despite the hiccups in China, the recent rise of ICOs is providing a new way of fundraising for startups worldwide, but it will remain an interesting alternative rather than a mainstream funding channel in the long run. “I don’t think ICOs will replace venture capital; it will just play a different role. If you are a company going for ICO or an investor planning an ICO, I recommend being cautious because there’s very few regulation to protect this,” said Jeff.

Melody Zhang from Artesiann Capital Management echoed Jeff’s opinion. “ICO has lowered the barrier for very early-stage investments from incubators and it will be an interesting alternative for fundraising,” she said.

Deep technology is sexy again

The time and age for the “me-too” concept where we copy US companies, innovate behind similar concepts and create a Chinese version is gone. “Companies and investors are shifting to a strategy that is going deeper and deeper into tech. Technology as a competitive advantage and having very deep technologies is becoming increasingly important,” Jeff pointed out.

The government has recognized this. As of June 31st, 2017, Chinese AI companies received RMB 63.5 billion or 33.18% of the world’s AI funding. President Xi Jinping has said that China not only tries and aspires to be, but will be a globally AI country by 2020. The government have very bold ambitions for technology, which is well reflected in its rising presence in the VC arena.

“As a firm, we soon move away from consumer industry where you focus on acquiring user cheaply. The cost for user acquisition is increasing. . . therefore we take technology as a competitive advantage. There’s really the way that you upgrade yourself,” Jeff said.

“There’s a few barriers, one is you have to understand the technology, you need people onboard to have a deeper understanding of the technology before, rather than someone who just got a general understanding of how the market goes. Invite some PhDs and researchers on the team. Also, technology is a global phenomenon, you can’t just say that I have this best technology because we are in China. You need to have a view point as to how similar technologies are developing across the world.”

The team is still the top

The team is what every investor talks about when being asked to give a recipe for their successful investments. Panelists at the discussion gave their own definitions of an amazing team.

“[An awesome team] combines a lot of things. Integrity, capability, passion, drive are some of the major attributes that we look for. But a lot of this is about being able to connect. You are going to be partner with this guy for the next five years. If we don’t like each other that would be an disaster. Is there a chance to have a decent conversation and messages across each other, is there a level of mutual trust, the likability and whether can we connect and work together are the most crucial matters,” according to Jeff.

Nicholas Ducray from Cathay Capital cites Pinduoduo, a social e-commerce platform which creates WeChat Groups to buy goods at discounts, as an example. “There are two co-founders of the team. One is from the mobile game company and the second is from a Taobao Partner company. What’s amazing is that they come across the idea by merging what they are good at together.”

How would you introduce your startup to an 80-year-old lady? And to your blind date? We asked around at the Startup Alley at TechCrunch Shanghai 2017, where about 200 startups showcased their latest products about AI, IoT, and Fintech, etc.

If you can’t see anything, try QQ video instead.

If you didn’t know it yet, tech is the new sexy.

There has been a surge in the development and take up of a wide range of new technologies. Many long-established industries are now using them to their advantage to make their offerings more convenient and efficient. The newest batch at the Shanghai-based Chinaccelerator has witnessed the latest addition to innovations in this trend, addressing problems in traditional (sometimes boring) industries like tradeshows, hospitality, and catering.

After closely tracking Chinaccelerator’s development over the past four years, we also noticed that there’s a general trend towards enterprise-facing or 2B businesses in its project selection. A total of twelve teams pitched to a hall-full of investors and entrepreneurs last week, eight of which are 2B services, each of them targeting a vertical solving very specific problems.

ExpoPromoter – Tradeshows

Expos in China are a $10 billion market. The success of Chinese trade shows depends on the value of exhibited products purchased, and yet, local organizers do not know how to attract relevant provisional buyers from overseas. Started by a Russian team, ExpoPromoter allows the buying and selling of booths online through targeted digital companies and its own affiliate partners network.

The company has signed contracts with 800 exhibitions and delivered 1 million attendees to date, according to Simon Zagaynov, China head of the firm.

Portier – Hospitality

Modern hotels have lost $12 billion in revenue to Airbnb alone and are squeezed on revenue from online travel agencies. Portier provides hotels with a fully integrated hotel marketing platform, coupled with a service platform on cell phones to increase hotel guest revenue on products and services such as booking the hotel spa or ordering hotel meals.

“The majority of the communication between hotels and their guests happens around the hotel and if the hotel wants to take more advantage of this they need to build stronger relationships with each one of their guests. Today we see that relationship is built around the front desk or concierge desk, but that’s not enough,” said company founder Deniz Tekerek.

Freshchefs – Corporate event catering

Although online food delivery is in full swing in China, there are few online platforms that offer high-quality catering service to large-scale business events because upscale restaurants and chefs lack the service capacity and logistical network to deliver at scale. Freshchefs’ network of kitchens in Shanghai offer deliverable and tasty dishes from multiple restaurants around town. The platform can deliver from many restaurants in a single order. And best of all, it issues one receipt for the organizer for expenses purposes.

“To get every order delivered on time, we have delivery and capacity matching algorithms to match the size of the orders to the capability of delivery drivers as well as the restaurants,” said Clement Lee, CEO of the firm.

Hi-In – Career planning

There are more than 1.3 million Chinese students studying outside China. Since 2015, around 80% of them, often referred to as sea turtle (海龟, a pun on 海归 meaning to return from overseas), have returned to China and yet 90% of them are unable to find the jobs that they want.

Hi-In uses AI technology to create personalized career action plans for these students that intelligently match online and in-person courses and internships. Experienced mentors on the Hi-In platform guide these students to execute the action plan until landing their dream job. After uploading their resume and answering questions, the platform provides a visualization of past and career future in real time and tells the user what they are missing.

A graduate of the University of Cambridge, Carter Zhou, founder of the company, has entrepreneurial experience ranging from the technical to the creative industry. He is also the founder of Air Media, which organizes Asian celebrity events and student entertainment events.

TechCrunch Shanghai 2017 gathered over 110 VCs and 400 entrepreneurs at the VC Meetup, where each startup had 10 minutes to chat with a single VC. Watch what they have to say before meeting the VCs.

If you can’t see anything, try QQ video instead.

Have an idea? Looking to start your own startup? Well, we have some good news for you. Techstars Global Startup Weekend is coming up soon with an opportunity for (would be) entrepreneurs to get inspiration, education, and guidance, as well as move on to the next step on a global scale. The new edition of the event will be held between November 10 and 12 in two Chinese cities—Shanghai and Suzhou.

This Startup Weekend will gather between 60 and 80 participants at the very beginning of their journey, typically people who might have an idea, looking for co-founders and insights into creating a business, Matthieu Bodin, Regional Manager for Greater China at Techstars Startup Programs told TechNode.

“Startup Weekend is not a conference, workshop or a panel discussion. We expect participants to actually work and that’s why we call it an experiential learning experience. People learn how to create a business by actually doing it,” said Bodin. Participants will be pitching ideas, forming teams, learning basic concepts about entrepreneurship, but they will also go outside of the venue to interview customers who might be random strangers, he added.

“We will also encourage them to build an actual prototype so by the end of the event they will have to prepare a presentation and pitch it in front of the judges.”

Startup Weekends are organized by volunteers all around the world: local entrepreneurs and community builders who want to create opportunities for entrepreneurs to get started on their journey. The events are a part of a big event Techstars Global Startup Weekend in which 15,000 participants will compete within 200 editions similar to the ones in Suzhou and Shanghai. Judges which come from the lines of experienced entrepreneurs will hear a 4-minute pitch, provide feedback, and decide which teams will move forward. The winning team will first have to face rivals from the Asia-Pacific region and then move on to competing against winners from other regions worldwide. So what is the prize?

“First, it’s a lot of visibility,” said Bodin. “Startup Weekend is a global organization, we are in over 150 countries. Being able to say that you won against so many other participants is a good way to kickstart your own project.”

In addition, there will be perks such as gifts and prizes from sponsors. On average, 12% of the projects coming out a Startup Weekend will be moving forward while 30% of the participants will be creating their startup or join one within 18 months. Techstars also accelerates and provides venture capital to the most promising companies. Some of the successful startups include Shopline, MailTime, Aftership, and Carousell. Now, how would a potential entrepreneur go about winning these prizes?

“What is really important is to be open-minded because there will be a lot of content available to them, they will be meeting many new people and getting feedback from mentors,” Bodin explained. “The second thing is having a lot of energy because it’s just over two days and a half and it’s surprisingly intense as an event. When you have a fair amount of energy you’re able to cope with the changes of mood, different team dynamics, and all the different workshops and tests that will be thrown at participants.”

Lastly, he advised participants to be curious and ambitious: “It’s really about connecting with different people, testing ideas, so being on that mindset would totally help.”

More information on the event available is here.

Editor’s note: This was contributed by Rachel Daydou. She has lived in China for 7 years and has been evolving in the Shanghai startup scene for 3, as co-founder of Lihaoma, managing member of Startup Grind Shanghai and leader of Shanghai University’s entrepreneurship program. She specializes in training programs for founders to make their startup profitable.

With money getting thrown at innovative initiatives, the government willing to reimburse venture capitalists for their loss and the eco system maturing as a whole, Shanghai is starting to look like the entrepreneur’s heaven.

Wantentrepeneurs, incubators and co-working spaces are growing like mushrooms. Being an entrepreneur is the dopest thing you can wish for in this booming city. But it takes much more than that to develop a mature startup ecosystem and build sustainable companies.

We have compiled a list of resources beyond co-working spaces and venture capitalist funds. But first, ask yourself those four questions in order to find out WHICH support is most suitable for you.

1. What’s the founding team nationality, core competence, and commitment?
2. What’s your company stage?
3. What are your immediate needs?
4. What do you want to achieve in the next six months?

Now that you have answered these questions, here is a curated list of support for foreign entrepreneurs in Shanghai.

1. 

   TRAINING – Step up your game in the long term without giving away equity

Training program: Concept Lab, Le Wagon, Startup Leadership Program

University courses: UTSEUS, NYU, EMLyon, HULT

Workshops: NextStep Workshops, MotivateShanghai, CoderBunker

MOOCs: Digital Innovation by Telecom Paris Tech, Digital Marketing in China by Xnode, Koudetat by the Family

1. COMMUNITIES – Great to share tips, tools and find business opportunities

Nationality based: French Founders, French Tech, National Chambers of Commerce

Interest based: La Ruche, Female Entrepreneur Worldwide, Feiy, Made In Shanghai

Mentoring: Mentors’ Walk, HerCentury, Divii, EO network

Fablabs & Hackerspace: XinCheJian, Fablabo, XinFab

1. SERVICES – From office to hiring we need services catered to startups

Office: naked Hub, theXnode, WeWork, Sandbox, UrWork, Soho 3Q, Impact Hub Shanghai, People Squared, Spaceyun, Cowork, Sandbox, BaseCo, 创邑SPACE (Creater), Agora Space, Full list

Spaces: Impact Hub Shanghai, PWC experience center

Hiring: QLC, Le Wagon, CoderBunker

1. INVESTMENT + VISIBILITY – Raise and learn how to sell

Accelerators: EO accelerator, Chinaccelerator, 23Seed, Innospace, Shanghai Valley, BitsAndBites, Plug and Play

Crowdfunding: Kickstarter, Indiegogo, Purple Spread, hubbe.rs

1. EVENTS – Meet your co-founder, first employee or advisor

Networking events: Networking Matters, Startup Grind, Green Initiatives, Meetup, entreprenr

Hackathons: Startup Weekend, TechCrunch Hackathon, Fail Faster, Full list

1. INSPIRATION – Get going and keep going when it gets tough (i.e. all the time)

Events: Startup Grind, Ladies Who Tech

Videos: Ted Talks

Entrepreneur Blogs & Magazines: Technode

Books: The Lean Startup

1. INVESTMENT – If you’re building the next unicorn

Private Funds incubators: Caohejing Innoclub, theXnode, QiaoLab, istartvc

Foreign friendly Investment funds: Sequoia Capital, Mailman Group, ShanghaiVest, ZhenFund

Angels: AngelVest

Contributors: Adja Sy, Sylvain Joandel, Debo Omololu, Stephane Monsallier, Ryan J. King, Erik Walenza-Slabe, Stephane Vernede.

NB: this guide is tailored to foreign founders of Chinese and foreign companies alike. We have curated the support most actionable for you, particularly on the investment side because we know it’s tough for foreign founders to raise from purely Chinese funds.

Steve Hoffman, Captain and CEO of Founders Space, made his visit to Beijing, China on March 13, 2017. Before becoming to known as Captain Hoff, he wore numerous hats such as serial entrepreneur, venture capitalist, angel investor, mobile studio head, computer engineer, filmmaker, Hollywood TV exec, published author, coder, gamer designer, manga rewriter, animator and voice actor.

He shared his experience of coming into Shanghai to bridge the divide between Silicon Valley and the startup ecosystem in China. Founders Space is one of the world’s leading global incubator and accelerator with 50 partners in 22 countries.

TechNode, in partnership with Startup Grind Beijing, hosted a fireside chat with Steve on growth hacking strategies for startups in China and the US. The following are edited highlights from the chat.

Why Shanghai first? Why not Beijing, which has been called the Silicon Valley of China?

That’s what Shenzhen and Hangzhou say as well, that they are the startup hub of China (laughs). I knew Beijing is a really important startup hub and therefore didn’t want to mess things up in Beijing. I started out in Shanghai, and things have worked out there. I built more Founders Space in other cities, and we are almost ready to open a branch in Beijing, finally. Beijing is much harder in a lot of ways and Shanghai is much more international, making it a bit easier for us in the beginning.

What are some of the biggest difference you see between China (Beijing/Shanghai) and Silicon Valley?

There is more genuine competition in Silicon Valley than in China. Although China has lots of talents and skills, often times competitions are unfair or hindered by non-business-related factors. But there is little doubt China is outcompeting Silicon Valley in terms of innovation.

Why is it so important for larger companies to innovate?

Big corporates have their rigid structure and procedures to go through, and therefore it’s harder to bring about new innovation. Small enterprises, on the other hand, are less restricted and therefore have more creative ideas, but often times they lack the adequate funding. That’s why we focus on education – educating startups and corporates how to build products, how to be innovative, and how to acquiring funding, etc. And larger companies tend to be more traditional. People are averse to change when there already exists a solid structure, which took them years to establish. So “disruptive strategy” or innovation is nearly impossible to come across in big corporates.

When you’re looking at founders and CEOs, how can you tell if they’re going to be successful? What gets you interested?

My advice to most founders and CEO’s is to fail faster and to destroy their visions as soon as possible. You must be able to see the flaws in your product and business plans because everything you planned is going to go wrong. If a startup CEO’s can break out of their original vision, that gives a room for them to build something better. Recognizing and acknowledging their product/strategy is difficult, but is a necessary step. That is why disruptive innovation is hard. Change is inevitable, but often times painful. Psychologically, people are meant to fall in love with that they build. Doing things with your own hands creates attachment. But founders must learn to develop a keen and sharp eye for their products/business and learn to break out the attachment they build. If you can betray your business plan, then you are one step closer to success.

Another point I focus when accessing a business is what team members they bring into the team. A successful company cannot be established without the right people. Strong managers will hire and bring strong team members who will make things happen together as a team. Building products and establishing the right brand image, they are all important factors. However, in the long run, nothing can compare to having the right people to make an elephant fly.

We are seeing more and more large technology companies open their own VC and/or incubator divisions. Are those effective in creating the innovation they need?

From my past experience, building incubators within large companies does not work well. There may be some room for individuals to work on creative projects or products in the incubator, but to appeal that project to the higher officials in the company do not work very well. Some big tech companies like Google encourage creative contributions from employees. However, to cultivate that kind of culture within a corporate is immensely difficult. I still encourage people to always think outside of the box and be different. However, being different also requires tremendous grit and perseverance.

More of Steve’s insight into startups can be found in his new book Making Elephants Fly.

The winner of TechCrunch Beijing 2016 Startup Competition is Ruff, a startup that established an IoT development system where developers can more easily code in JavaScript.

There are many startups that create innovations to better serve the consumers, but not many to better serve the developers. The platform that Ruff created is to service the developers.

“Our focus is all about making embedded development easy. We allow developers to build with JavaScript, but also provide a powerful platform Rap Registry for developers to share your drivers, frameworks, and libraries.”, said Roy, the founder of Ruff during the pitching on stage.

 A lot of developers encounter obstacles when coding an application to be used on a hardware device. That is because there is a lack to compatibility and standardization among hardware devices and internet environment is becoming more and more complex. By using Ruff’s platform, developers do not have to double-compile or go through another kernel development. With the procedure of coding an application simplified, Ruff hopes, more developers come up with greater diversity of applications.

Their business model is relatively simple, developers are provided with application development tools for free, but those applications must run on Ruff’s system. Developers then will be charged with a certain level of fee for guaranteeing the stability and safety of their applications within the system.

Besides Ruff, there were five other startups that had presented in the finals competition; Pica, Landian, Poputar, Hooli, Staro. Among them, the third place went to Hooli, corporate data analysis platform founded in August last year that prevents the system failure through application of big data and AI technology. The second place went to Staro, a 360-degree panoramic camera which they invented using their own technology that took six years to invent and successfully prevents distortions from fisheye angles.

Image credit: TechNode

When looking at China’s startup hubs, the first names that pop up in our minds would be Beijing, Shanghai and Shenzhen. The advantages are obvious. They are China’s first-tier metropolises both in terms of startup community and economy, offering easy access to investors and mature startup communities.

However, the rocketing housing fees and human resource costs as well as big-city pitfalls like pollution have forced entrepreneurs to weigh the pros and cons of these cities more carefully before calling them home.

The fact is that more and more entrepreneurs nowadays lean towards second-tier cities thanks to lower operational costs, nicer environment and local government support. The change is so fast that one of the uprising tech hubs — Hangzhou might overtake its sluggish peers as the new “Silicon Valley” of China, a recent report from Vision Plus Capital pointed out.

Alibaba IPO Triggered Startup Frenzy

Apart from being a scenic spot, Hangzhou, in the startup community, is more commonly known as the city where Alibaba started its legend more than one decade ago. Alibaba’s jaw-dropping IPO has inspired millions of Hangzhou entrepreneurs, a great portion of whom are former employees of the e-commerce behemoth, to follow Jack Ma’s footstep in starting their own companies.

The report shows that the number of new startups in Hangzhou surged 107% YOY in the second half of 2014 due in no small parts to the bolster from Alibaba’s IPO which was finalized in September of the same year. To put this number into some perspectives, the growth rate for Beijing and Shanghai in the same period is 64% and 53%. The city maintained its growth momentum straight to the first half of 2015 with a 38% YOY jump as compared with 9% and 8% for Beijing and Shanghai, respectively.

Since 2013, the funding raised by Hangzhou-based startups rocketed 160%, higher than Beijing (121%), Shanghai (119%) and Shenzhen (143%), the report showed. As of present, more than 58 billion RMB ($8.6 billion USD) of capital flowed into Hangzhou.

As startup craze cools down in the second half of 2015 and 2016, Hangzhou’s startup environment perseveres, partially because e-commerce still dominates the city. E-commerce companies have more practical goals in generating revenue, so they are more tenacious when winter capital arrives, according to Chen Hongliang, partner at Vision Plus Capital.

E-commerce Still Dominates, But Enterprise-faced Business Catching Up Quickly

Given that Hangzhou is the hometown of Alibaba, it’s no wonder that e-commerce takes the lead in all startup verticals. The sector has no equal in the city’s startup landscape with around 20% of all the companies in the city falls into that category. But it’s far from the only option. The percentage of enterprise-faced services, fintech, local lifestyle and social networking startups are rising over the years.

Credit: Vision Plus Capital

“This shows the entrepreneurial environment of Hangzhou is diversifying and maturing,” commented Chen Hongliang. “In the period of economic restructuring, companies face challenges from business upgrading to cutting costs. These needs will foster enterprise-faced services, of which cloud and data service might form the next booming market.”

Chen believes that Alibaba, Ant Financial and Zhejiang University have educated abundant technological talents for the prosperity of local startup scene, which is particularly important for cloud and data services. “The first generation of entrepreneurs has their expertise in business operation and entrepreneurs with technological backgrounds are going took the helm since this year.”

Hangzhou is just among a plethora of rising cities that’s ready to replace the current tech hubs like Beijing. Other top alternative startup hubs in China worth looking into include Chongqing, Chengdu and Xiamen.

Credit: 123RF Stock Photo

It’ s a cut and dried truth that China has an overwhelming appetite for foreign goods. With immense strides forward in living standards, and increased recognition of foreign brands, Chinese consumers’ insatiable appetite for cross border commerce, or “Haitao” has fostered a plethora of  e-commerce verticals–Ymatou, Metao, Hitao, Bolome, jostling for marketshare with larger players.

By now it’s hard to argue that Chinese shoppers more than enough options to get their Australian infant formula and Italian handbags. But these expat entrepreneurs disagree. They want to kick things up a notch and further unleash China’s penchant for exotic brands.

Cool Hobo

Cool Hobo is about a exploration of new European foods and the stories behind them. Imported food on the large cross border sites are still largely limited to big international names like Nestle or Danone.

Operating through WeChat web app, Cool Hobo delivers each month a box of 7 or eight assorted items -snacks, drinks and gourmet food–to subscribers’ doorsteps. The company believes that curious foodies as Chinese people are, they will naturally  enjoy discovering niche items like chai coconut milk, pure birch water and beetroot energy bars.

The founders Flo and Loic, both French, feel there a lot of opportunity in the long tail of imported food. They aim to bring premium, boutique names from Europe to Chinese consumers that are progressively looking for quality and exotic tastes, while in the meantime helping small and midsize European food and beverage companies get a foothold in China.

“There are thousands of mid to small food brands, dreaming about the Chinese market, but it is too complicated to crack and difficult to communicate a solid brand image here. Consumers want it, but brands don’t know how to do it”, says Loic.

However, at price of 200 Rmb, Cool Hobo’s contents had better be pretty memorable for shoppers to keep coming back for more.

Trust Luxe

For years, sporting luxury items  has been a way for the affluent to show off wealth in China. But when the receptionist girl fresh out of school is sporting a Louis Vuitton, women who have been carrying these brands for 15 years want something one of a kind, a statement of superior taste.

“The brands in malls over the past 15 years are largely the same, they have not kept up with the Chinese consumer who has acquired a taste for craftsmanship and items that make them feel more unique”, says co-founder of Trust Luxe Ricardo Ferrer.

Together with the Carmen Busquets, fashion pundit and creator of Net-a-Porter, the Trust Luxe team is introducing small but beautiful brands from Europe to China– the likes of handbags from Barbara Bonner and fine jewelry by Brazilian Designer Fernando Jorge.

Just like everyone else, small brands want in on the Chinese market, but they don’t want to be cheated in such a complicated market, or outrun by their own knock-offs. “They are all extremely protective about their brand, but because of the trust that Carmen Busquets’ name carries, we’ve almost never been turned down when we invite these brands to our platform” says Ricardo.

Trust Luxe is obviously catering to a paper thin slice of the market:  the Fuerdai ( second generation rich), or older women from the upper-middle class. China’s market is complicated indeed, and getting customers to pay for a 10 thousand Rmb pair of earrings through a mobile web app, may prove difficult.

Group Mall

The “Tuan Gou” or group buy model has nearly ground to a halt, but Group Mall is planning to restore this natively Chinese strategy, selling imported foods. Group Mall offers weekly deals featuring a handful of heavily discount products, from live lobster and crabs, yak milk, Belgian ice cream, to truffle olive oil and lemon liquor.

Marco, the Italian founder of Group Mall was inspired by a personal pain point. Despite having worked with food importers for most of his time in China, he has had a hard time finding affordable imported food sold retail. “Brick-and-mortar imported food super markets mainly target higher income families. The mark up is so high in these shops that I ended up buying directly from importers” said Marco,  revealing that the wholesale price is sometimes only a fourth of the price label in markets like Ole.

Tapping into relationships with more than 50 importers the platform gets hold of inventory at clearance prices because of warehouse relocation, because products are switching to new packaging, or simply nearing the end of their shelf life.

Though it is offering convenient and smart deals–unwanted inventory was previously grabbed by individual “vultures” to be scattered among small marts and shops–Group Mall is not exactly causing any large scale disruption per se. Just how much demand among the average Chinese consumer is still a big question mark, after all, the vast majority of Chinese don’t cook western food from scratch, so tomato paste, cheeses, pitted olives is hardly a necessity outside the expat community.

Image credit: Cool Hubo, Trust Luxe, Shutterstock

Beijing or Shanghai have long been the top picks for those looking to startup in China, bolstered by the communities of existing tech companies that call them home. However as housing prices soar and big-city pitfalls including pollution make starting a business increasingly complex in these centers, second tier cities begin to look more attractive.

As a startup founder, saving cost is a big issue, and that’s where second tier cities excel. Multiple second-tier cities are now forming startup hubs in China, including Alibaba HQ Hangzhou, and the central city of Chengdu.

The cost of living is much lower in second-tier cities, as well as lower cost talent, including engineers. All of China’s second-tier cities are still large enough to hold a university, often multiple universities, meaning that human capital is quite often abundant. It is reported that 67% of engineers in first-tier cities earn 10,000 RMB ($1,570 USD) in monthly salary, when the engineer in second-tier city can cost 2000 to 5000 RMB. 

There’s also abundant support for tech from government in many second-tier cities who are hoping to boost their tech profile. They often incentivize new startups by setting up funds to support them or giving away free office spaces. 

We’ve put together a list of eight first and second-tier cities to help you decide where to startup in China.

First-Tier cities

Beijing

Beijing is the home of China’s most vibrant startup scene. There are a big number of events held in the area throughout the year. Internet technology is changing fast, and those who want to keep up with up-to-date news about happenings in tech gather in conferences, which easily attract thousands in Beijing. Zhongguancun is a must-visit centre, hosting some of the country’s biggest tech brands including Baidu, Xiaomi and Lenovo. You might want to either visit startup cafes like Cheku cafe or 3W cafe to talk to budding entrepreneurs there. 

A lot of VC firms headquarter in Beijing, which makes Beijing an attractive prospect for new companies. In fact, Beijing has received more than two times the total VC investment of Shanghai in the past, according to a 2012 Cyzone report. 

Shanghai

Shanghai is probably the most international city in China, attracting a lot of foreign capital. For that reason, there are a lot of foreign startups here. Multiple accelerators attract expat entrepreneurs to set down roots in the city and supports them in building up the networks needed for their business. Shanghai Free Trade Zone is another attractive feature of the city, facilitating economic transactions and import/export operations which are restricted in other areas. Foreign companies do not need to register a company in order to sell products in China if they work within the Free Trade Zone.

The city is HQ for some of the country’s biggest startups including Dianping & Ele.me. To check out young startup scene in the area, head to Daxue Road in front of Fudan University, where you can meet young Chinese entrepreneurs with interesting projects like Kickstarter-funded skateboard maker Stary and website creator Strikingly. It’s like a little village for young entrepreneurs, where they gather to exchange ideas. Shanghai embraces software companies, finance, retail, media, advertising companies and more. Office space and housing remain costly however, as the country’s most expensive city for expats.

Shenzhen

If you’re a maker, Shenzhen is the best destination to build your business. You might want to take a look at Huaqiangbei, the world’s biggest electronics market. HAX, the hardware focused accelerator, sits one block away from there. The city also closely neighbors with Hong Kong, which gives an advantage to entrepreneurs looking for business support. 

In 1979, the previous fishing village was named China’s first Special Economic Zone, to attract a flood of investment into the region and newly constructed factories. Since then, Shenzhen has become home of Tencent, Huawei, ZTE, Lenovo, Oppo, TCL, OnePlus and with the current boom of hardware, the cost is constantly rising. The local and national government have been strong supporters of the region, while crowdfunding websites such as Kickstarter and Indigogo are also helping out the makers to start their business in Shenzhen. E-commerce and gaming companies are also particularly prevalent here. 

Guangzhou

Guangzhou, also known as Canton, is just one hour’s train ride from Shenzhen and two hours from Hong Kong. Guangzhou is the center of global trade in China and ensures immediate access to manufacturers. The city serves as an important national trading port, and hosts the country’s largest trade shows like Canton Fair, a trade show that is held twice a year in April and October. 

Given their geographic and historical role as a trade hub, Guangzhou is now the home of fintech startups and an expat community focused on trade. There are co-working spaces like Yi-gather and Innovalley, and incubator programs like 6cit.com are helping out entrepreneurs in the city. 

Second-Tier cities

Chengdu

“Chengdu is the optimal place for a testbed for B2C targeted startups,” says Shanghai-based entrepreneur Max Henry. Well-known for pandas and spicy food, Chengdu has become a popular spot for cheaper manufacturing. More than one-third of iPads sold around the world are assembled here.

The city also offers a lower relative labor cost and is now a home for game companies like Ubisoft, ATTA game and Meet Studio as well as popular photo app Camera360. Sino-Singapore Innovation Park (SSCIP) is reaching out into the biomedicine industry as well as other high-tech and emerging industries. The Go West program also offering startups one-year interest free loans, giving them incentive to settle down in the city. 

Hangzhou

Hangzhou, where e-commerce giant Alibaba was born, is only two hours away from Shanghai. Aiming to be an e-commerce hub, the Hangzhou Cross Border eCommerce pilot zone was launched in March to attract effective and qualified e-commerce platforms and curb the problem of counterfeit products. Hangzhou is also trying to adjust taxes on products sold online in order to reduce transaction costs, which will help both customers and the companies. 

In addition to Alibaba, other e-commerce companies and logistic firms are located in the city, such as online retailer JD.com and Shenzhen-based logistics company SF Express. 

Chongqing

Chongqing, a major city in Southwest China, is now positioned itself as a cloud computing city. As part of “cloud computing plan” at the end of  2010, the city is trying to build an industrial base for cloud providers. After Tencent set up a cloud computing center in 2013, the internet giant is also looking to establish an incubator for tech startups in Chongqing in partnership with the government.

Liangjiang New Area is now leading startup incubation in Chongqing. The Internet Industry Park in Liangjiang is base for web-based financial startups while the Mobile Game Incubator Park is base for mobile game business starters. China’s largest crowdsourcing platform Zhubajie.com is based Chongqing, meaning a new O2O internet industry cluster is also forming in the area.

Xiamen

Image Credit: Shutterstock

This is the first post in our series: Say Hello To China’s Expat-preneurs, where we will talk to a mix of foreign founders who have tackled China’s growing tech space and won. Stay tuned over the coming three weeks as we talk to foreign founders from Beijing to Shenzhen about what it takes to thrive in China. You can follow our updates at @technodechina, or check back here for new stories in the series.

Moving to China is a daunting project for anyone, but moving to China to grow a business from seed to superpower is a whole new level of terrifying.  So why do foreigners leave home, learn one of the world’s most mind-bending languages, and brave the smog and paperwork of China’s entrepreneur scene?

Over the next three weeks, Technode will be asking a spread of successful foreign entrepreneurs exactly that.

The term ‘Expat-preneur’, coined by Yvonne McNulty, has become a loose moniker for those people crazy (or brilliant) enough to pack their bags and look for a new base of operations abroad. Connectivity has changed the way we think about our borders, and an increasing number of entrepreneurs are heading to China, seeking to disrupt virtually every step of tech production as we know it. Gone are the days when we scratched out designs in our own backyard, sent them off into the unknown abyss of China’s manufacturing hubs, and forgot about it until the finished product arrived on our doorstop in a box full of foam pellets.

From localizing innovation to shortening distribution channels, China-side tech is becoming an increasingly attractive business option for foreigners, especially in hardware. Innovators are making the decision to head to the mainland to either increase supply-chain efficiency, or to edge into the Chinese consumer market itself.

The process is far from simple. As many optimistic go-getters soon learn, it’s a mean myth that you can log onto Alibaba and within 30-days be shipping a polished, world-class tech product across the globe (but by all means, take that as a challenge). And even for those who’ve taken the time to set down roots, breaking through the expat barrier and understanding a business ecosystem as complex and well-established as China’s is challenging.

While a handful of the country’s cities have been offered the title of ‘China’s Silicon Valley,’ it’s a poor categorization for a market that is unlikely to ever mimic America’s tech trends. According to Cyril Ebersweiler, founder of Shenzhen-San Francisco accelerator HAXLR8R, recognizing China’s unique offering is key for those looking to head east.

“You can’t replicate the Silicon Valley and it was a mistake trying to do so in the past few years,” Cyril told Technode. “Instead we should all focus on creating new kinds of ecosystems. In Shenzhen we are working toward making the city a place where starting hardware startups is easier and more flexible.”

China’s tech scene is in many ways an ecosystem of contrasts. It’s a market that has largely bypassed desktop computing, meaning that in 2015 there is a significant chunk of China’s population who experience exclusively mobile internet. Despite a sluggish start for local innovation, e-commerce functionality has arguably surpassed America in a big way. And while Xiaomi is taking the market by storm with incredibly affordable smartphones, the iPhone is taking a near-equal share with a completely contradictory model.

If China’s unpredictable appetite isn’t already sufficiently challenging for foreign founders, the tech landscape is also changing incredibly quickly. Remember a time when you’d never heard of Xiaomi and Weibo was the lone-wolf of China social media? Probably, because it was barely 24 months ago.

The pace of China’s tech industry is one reason why foreigners set up camp locally, it’s virtually impossible to stay ahead of any market if you’re not immersed. Conversely, it’s easy to shy away for exactly the same reason. Tenacious competition and copycats have a history of scaring early-stage startups offshore. It’s a phenomenon that many groups, including the Chinese government and their budget, are now working hard to reconcile.

Incentives including free office space, economic subsidies, international incubators and special trade zones have been popping up in China like neon arrows pointing toward a casino floor. And though the barriers are still significant, it’s becoming less of a gamble bring business China-side.

In that spirit, we at Technode have scraped together a selection of our favorite foreign founders for a series of interviews looking at what it’s like to set up shop as an expat-preneur in China’s tech scene. You can check back here to see the stories unfold, or follow us @technodechina.

Feel free to reach out @catecadell for feedback or to suggest a great China expat-preneur story. You can also follow our contributing reporters @evayooare and @emmalee12345 for updates.

In our next post, Eva Yoo will kick off our series with the Top Three Musts For Foreign Founders In China, as decided by our expat-preneurs.

Image: Shutterstock.com

China can be a great place to do business. But setting up shop in the world’s largest consumer tech market can be a lot more difficult than it sounds.

From the southern manufacturing cities of Shenzhen and Guangzhou, to the finance hub of Shanghai and the culture capital of Beijing, there are many great cities in China, each with a unique offering. However with great cities comes great rivalries, and it’s no different in the world of entrepreneurship where startup founders vie to build a solid base of operations.

While Beijing has previously been dubbed the centre of startup culture in China, new waves of investment have seen semi-gentrified southern cities develop burgeoning innovation hubs closer to manufacturers. At the same time, Shanghai’s foreigner-friendly atmosphere has made it an attractive proposition for the growing number of startups doing market entry. We asked five entrepreneurs to share their experiences in China’s various startup hubs.

Beijing

Matt Conger of SeekPanda

“Beijing Welcomes You” is a go-to karaoke song for most foreigners in China. When it comes to foreign entrepreneurs, I’d say this song’s title is 70% accurate.

We founded SeekPanda​, an O2O network of on-demand translators and interpreters, in Beijing because the city naturally attracts both sides of our network: business travelers and high-end language professionals. We evaluate our “pandas” with in-person meetings. No other city can match Beijing as a magnet for the talent we recruit.

Beijing Pros:

Beijing has a startup culture resembling Silicon Valley, with Garage Cafe acting as the type of nexus for VCs, entrepreneurs, developers in the same way that Coupa Cafe does in Palo Alto.

There’s also a very high concentration of VCs, and an incredibly high concentration of universities. On top of this, several government-run programs supporting foreign and domestic entrepreneurs are based in the capital.

Beijing Cons:

Beijing as a startup hub is somewhat inefficient. The community is split, not by the traditional English / Chinese language barrier, but by distance. Zhongguancun and the East Third Ring Road are two centers of gravity for startups that are quite far apart.

A rule of thumb, B2C startups should be in Zhongguancun, and B2B along the East Third Ring Road. Here’s hoping new co-working spaces like the Manning space in Liangmaqiao help overcome this gap and can make “Beijing Welcomes You” 100% accurate.

Shanghai

Guan Wang of Amanda

Guan Wang, the co-founder and CEO of Amanda was born in China but moved to Sweden at the age of 10. In 2011 he went back to his roots in China, and settled down in Shanghai.

“As China transforms itself into a leader in the global economy at such a rapid pace, I saw the opportunity to create a platform where people from around the world can learn Chinese and get plugged in to the dynamic, complex, and modern culture in China today.”

“As an important mark of the first step of our journey, we recently released the first version of the Amanda app on iOS, and have received quite a lot positive user feedback. The app lets users learn Mandarin through trending stories in Chinese social media.”

“Our product targets a global audience, and Shanghai is an international hub where you can find target users, foreign talents, and potential partners across all industries. We are also located very close to universities, which makes it convenient to recruit fresh grads.”

Shanghai Pros:

Shanghai is a very charming and livable city, definitely the most western style offering on the mainland. This means attracting foreign talent is comparatively easy.

Shanghai Cons:

As far as the mainland goes, Shanghai has the highest cost of living in China, including both residential and office space. While the city’s foreign focus is attractive, the industry is still very focused on finance and retail, not tech

Shenzhen

Mike Michelini of Unchained Apps

“My name is Michael Michelini is the VP of Business Development at Unchained Apps Ltd. They have produced a series of mobile apps, including Chinese learning (WCC Dictionary), to task management (TaskLabels) and social media (Social Agent).”

“We chose Shenzhen as we are right on the Hong Kong – Shenzhen border, some of our team is based in Hong Kong, while others are in Shenzhen. We get to maximize both sides of the border with access to China’s large talent pool as well as the network of business development contacts in Hong Kong.”

Shenzhen Pros:

As a manufacturing city undergoing rapid gentrification, Shenzhen still has a relatively low cost of operations and living for the time being. The big draw of Shenzhen is its dual proximity to manufacturing hubs, consumer electronics markets and factories as well as Hong Kong, a hotspot for innovation. There are also lots of young entrepreneurs, both Chinese and Western, not to mention warm weather.

Shenzhen Cons:

While the city is still developing, costs are rapidly rising. There is also enormous competition for developers in the region, with giants like Tencent and Lenovo scrabbling to grab them up as quickly as they can.

Chengdu

Matt Vegh of Cloud Time

Matt Vegh is the quintessential old China hand, but more specifically, ‘the’ old Chengdu hand, which no one else gets to say. Fifteen years of boots on the ground in China’s most dynamic interior city will confirm that.

Everyone from Chengdu city governmental agencies, multiple municipalities and the provincial governments rely on Matt to help create strategic framework models across the full spectrum of the industry. He also penned the 12 step Eden report; an internal white paper for the internationalization of Chengdu, all of which has been implemented.

His startup CloudTime is a stealth-mode global messaging platform, streaming video, gaming and multi-language, real-time, in-stream chat message translation in over 90 bi-directional language pairs. It is now utilizing patent pending micro-chip based technology that will change the mobile advertising world and propel the company on its way to being the very foundation of the IoT on a global scale.

“The essence of Chengdu is ‘confluence.’ The city blends so many important factors together and does it so well, that it is hard to imagine a more suitable location for an entrepreneur. Urban and rural integration, tradition with modernity, business with leisure, industry with the environment and the list goes on.”

“Blend these things with centers of excellence in education, with UESTC, SWUFE and Sichuan University, among others, churning out a highly educated supply of recruits, especially in the IT sector, to fill what is – as far as I am concerned – the most ambitious, well-laid-out, and business-friendly technology zone in China. Finally, add to that, Chengdu and Sichuan as the center of the arts, both historically and in modern times.”

Chengdu Pros:

Chengdu boasts excellent transportation systems and infrastructure, with both public and private auto use very convenient. The living is much more affordable than eastern centers, resulting in lower HR costs without sacrificing any quality. The lifestyle is also very well developed in the inland city, including unsurpassed natural scenic areas within an hour’s drive.

Chengdu Cons:

Despite being a very large city with a well developed manufacturing and distribution presence, Chengdu suffers from its general ‘under-the-radar’ perception, and can present a steep learning curve for foreign investors unfamiliar with the city. Chengdu also has a lack of established tech savvy regional equity pools. In terms of lifestyle, the only big downside in the humidity and gloomy weather given that the city is surrounded by mountains.

Guangzhou

Nick Ramil of Enter China

Nick Ramil is the co-founder of Enter China. Enter China is the leading community for entrepreneurs who want to manufacture products in China.  We help entrepreneurs around the globe develop, validate, create and launch their products.

“We chose Guangzhou as it’s the capital and epicenter of the manufacturing province – Guangdong.  Guangzhou is the center of global trade in China, and hosts the largest trade fairs and the immediate access to manufacturers is unbeatable.”

Guangzhou Pros

As both a manufacturing city and a trade and commerce hub, Guangzhou is a very attractive option for startups looking to enter China. Like Shenzhen it has an advantageous proximity to Hong Kong, as well as a burgeoning expat community focussed on trade.

Guangzhou Cons

Unlike Shanghai and Beijing, Guangzhou is not a Mandarin focussed city, with most people talking in cantonese, this poses some barriers. The pollution and extreme weather also make it a bit less attractive for long-term residence.

Author Bio: Michael Park is the CEO and cofounder of LipSync, an on-demand translation startup based in Hong Kong.

With just a swipe, Azar can help you meet a French lady before you visit Paris, or a university student in the U.S. studying English. With this killer feature, it took less than a year the app to achieve 13 million downloads and US$2.3 million in turnover. Launched in 2013 on GooglePlay, Hyperconnect‘s flagship app Azar has been of interest mainly in emerging markets like Southeast Asia, Latin America, and the Middle East. AppAnnie, the app analytics team, shows that Azar’s users are most commonly from Kuwait, Saudi Arabia, Turkey, Eygpt, and Israel.

Altos Ventures, the renowned VC in Silicon Valley and Korea, invested US$2 million in HyperConnect upon seeing its potential. CEO Sang-il Ahn said that the investment is solely for penetrating new markets, since wages and operations can be covered by their increasing sales. He added that about 85% of revenues come from sales of their advanced features, which lets you select specific country and gender.

Key Technologies

What Azar does might seem so simple, but the technology behind the app is key when satisfying over 13 million users worldwide. When Azar was first launched, Ahn said the power of GooglePlay helped it spread out so quickly. There are three key points how Azar differentiates itself from other competitors.

First, Hyperconnect is an expert on WebRTC (Real Time Communication). WebRTC is a free open project that provides browsers and mobile applications with RTC capabilities via simple APIs. When Google opened WebRTC in 2011, Hyperconnect’s current CTO, then an employee at Korea Financial Telecommunications & Clearings Institute, was interested and started digging into it. He mastered the technology and developed his own version of it, HyperRTC which can be applied to smartphones as well as the web.

Second, the company has accumulated data on connections, networks and devices from many different countries. Founded on March 2014, as the company has gained so many users in a short amount of time, they have learned from experience how different telecom networks and devices affect the service. The accumulated information from oversea countries has helped the company grow even more.

Third, the company can keep its server costs low, regardless of numbers accessing the service globally. Normally a large number of users means high server costs, leading to financial burdens. However, the company pays only US$500 per month for its servers, thanks to their technology.

Last year, HyperConnect’s software developer job opening was eye catching, since it offered a US$200K wage, more than double the average for Korean software developers and equal to those in Silicon Valley. However, due to the high requirements of the post, none of 70 applicants were hired. The job was later occupied by a professional, Ahn said.

Why should we hyper-connect?

“Our vision is simple: World peace. I believe that conflicts are rooted from lack of communication. As you communicate through Azar, you might be able to meet a patient with Ebola. With the low cost, high quality video communication we provide, we want to hyper-connect the world,” Ahn explained.

The service name ‘Azar’ actually comes from Sang’s favorite soccer player, Eden Michael Hazard. However, later he found out that Azar is also a common given name in Arabic countries, which means it unintentionally attracted many users from the Middle East.

Azar is currently available in GooglePlay and on the web. Ahn said the company is developing an iOS version, to meet a Chinese audience. Ahn also said the company will create a messenger feature, since their users have been asking the company to add it.

Editing by Mike Cormack (@bucketoftongues)

Shanghai-based startup 24tidy is one of the pioneers in China’s fast-moving on-demand laundry industry. Yao Zongchang, the man behind 24tidy, recently shared his entrepreneurial experiences and lessons learned along the way with TechNode.

Yao was born in 1983, making him a member of China’s post-80s generation characterized by optimism for the future, entrepreneurship, and individuality. When Yao first decided to strike out in 2003 at the age of 20, he opened Beyoon, an ad innovation firm targeting foreign companies. By 2009, the company had established favorable world-of-mouth and most of its clients were Fortune 500 companies. At the end of that year, Yao sold out to his partners for around RMB2 million (around US$327K), thinking the startup environment for the traditional ad industry was deteriorating.

During interactions with CITIC Bank, one of Beyoon’s clients, Yao found out that the lack of funding is a common business problem. So he invested all the money he earned from the first startup to set up Hahadai, one of the earliest P2P lending platforms in China, in September of 2009. The platform enforced rigid risk control policies and acheived a zero bad debt rate.

Hahadai received angel investment in 2009 in exchange for a 60% stake in the company. But, it failed to raise further rounds after the capital was burnt out in the second year, as too much share capital were given away in the angel round. Some investors suggested Yao start another P2P platform, but he declined. Hahadai was closed in 2011.

“When I started 24tidy in 2012, I was penniless”, he said. As an art major, Yao self-taught himself programming to construct the website and did part-time design work to sustain the company. After surviving its toughest year in 2013, 24tidy secured RMB10 million of Series A financing from SIP Oriza Seed Fund Management, an early-stage investment platform under Oriza Holdings.

[Update] The startup announced that it netted eight-digit  USD in Series B financing from Sequoia Capital on Nov. 13.

24tiday is now available both on web and mobile, ready to enter new regional markets in Beijing and Nanjing. It claims a monthly order total of over 10,000.

*

Lessons learned from Yao:

Giant competitors that are more established and better-resourced are a danger to startups, but their omnipresence in every vertical means that they can not be the best in each and every sector. This is an opportunity for startups if they stay focused and make the best of every detail. 

Another competitive edge of startups is the ability to act and respond quickly to market changes, thanks to their small size and therefore greater agility.

Entrepreneurship can be a tough journey for many, especially those who are bootstrapping their businesses, but for Yao, it is the feeling of loneliness that bothers him most. As a leader of the group, founders should think at the edge of the curve and it can be isolating to stick to the ideas you believe in despite enduring challenges or even ridicule from families, investors, and colleagues, according to Yao.

‘The startup journey has changed my characteristics to some extent. I am becoming more rational and letting the data talk.”

Originally from: Zhu Guilin

Be honest, I may go to Israel for holiday, but for business? I’ve never thought of that. When I asked a few friends if they were willing to do their startups in Israel, they thought I was joking. For some reason, safety is always the first concern for people including Chinese to consider going to Israel.

However, I do know a few friends who are originally from Israel and now doing great in web business. And when I met Saul Singer, the co-author of Start-Up Nations: The Story of Israel’s Economic Miracle, he even told me this,

There are ~500 startups in Israel. In terms of the number of Venture Capital companies by population, it’s even 2 or 3 times more than the States. So Israel, actually has a very good environment for startups.

And the most interesting point he mentioned which I also agreed is that,

Israel, as the developing country and emerging market like China it may have more issues need be solved using technology, i.e. more opportunities for technology startups.

Google recently set up its incubator in Israel, and the 15 growing Israeli startups look quite promising. As Saul said, Israel is no lacking of innovation which is actually what China needs. So Chinese and Israeli startup ecosystems should join force, and Israel could be the source of innovation for China?

The Israel Project for China will be kicked off soon next year to attract Chinese startups. Are you going?

Pony Ma, started as a developer and now is the founder and the CEO of Tencent, the No.1 Chinese Internet company.

At TechCrunch Disrupt Beijing, we got the chance to chat with Pony at the backstage right after his talk with Sarah Lacy of TechCrunch. Instead of talking about Tencent which we may hear a lot from different media, our talk focus on doing startups and entrepreneurship. As Pony said,

An opportunity like this could allow me share my ideas with people, including those details that may not be interesting to journalists but of particular interest to entrepreneurs.

What do you think is the most difficult part for doing a startup now?

Yes, the general business environment is much better now than before. The most importantly, financing is relatively a lot easier. Also, there are more opportunities. However, the most difficult part is also because it’s easier to finance, which means you will have many competitors. There will also be many people or teams who have the same kind of idea with you and also have received fundings. So I think, how to stand out among those similar startups in the competition is the most difficult. I think having a very strong executive capacity including knowing the best about the needs of users and be able to make adjustments based on the response from users and market, is the most crucial. As we can see, there are a lot of teams ran successfully at the early stage with nice ideas, but lack of sustainability. Maybe three months or one year later, their response speed of iteration would slow down, which is a disastrous problem from my opinion.

People always say that programmers are geeks, and geeks can change the world. Do you think there will be another Pony Ma in such an environment in China?

I believe there will be. I truly believe in it. Because I think that the so-called geeks represent an ultimate demand for the development of a thing or the experience of it. They need to seek the perfection. In fact, you will see that all the popular commercialized products and service are the ones who can meet the ultimate needs of users. Only those can succeed. So there might be such situations like geeks before commercialization. Once he has a nice idea, a team, and the capital to operate well, I believe there would be opportunities to make a product for everyone to wow. In that case, he would succeed.

As a founder, how do you define a good entrepreneur? What’s the spirit of entrepreneurship？

I think first and foremost is to have a good team. In the very beginning, you may be able to write a good program by yourself. But soon enough, it will be developed into a team. Then it will become a bigger team with hundreds of people. Its structure will become increasingly complex. For how to manage the organization with continuously growth, the relationship with your shareholders, your partner, and among the whole team is very important, I think. Therefore, a successful entrepreneur needs to have, or learn and develop such ability. Or at least that you can adapt your mental attitude to such a development, so you can possibly succeed. Most of the ideas cannot be carried out by the entrepreneur alone. So you need to infect others and convince your colleagues, to enter into an entrepreneurial state as you do. Of course you need to adapt the incentive mechanism too, to be more suitable for its development. This is a precondition.

What will Tencent do to support young people in China start doing their business?

Yes. Our focus for this year is our open platform. We want to open our QQ account system, the whole social networking platforms including our desktop clients and our payment channels to the startups. We do hope that we can help maybe a small team to realize their value on our platform. In fact, it works exactly like the early stage of our company who’d achieved development on the Monternet platform of China Mobile operator. We‘ve been through this process, so we are truly aware of how important an opening platform is for start-up companies.

The interview (by TechCrunch TV) below (with English Subtitle):

In the last few years, entrepreneurship has become more important worldwide, and the founding rate of new companies has increased significantly. However, the failure rate of new ventures is still about 40% in the first years, and in general starting a new venture is considered a high-risk activity according to research scholars. Peña (2002) states that only 54 percent of new businesses survive more than one year, and only 25 percent more than six years. But who are the people in the startup companies who have to deal with these risks? For many years, researchers focused mainly on the individual entrepreneur as a human component in the venture. In the meantime the research focus reflects a growing interest in entrepreneurial teams, which are responsible for most startup foundations today. Cooper and Bruno (1977) found support that over 80% of startup companies which survive longer than two to three years were founded by entrepreneurial teams – defined as a group of two or more individuals who are responsible for the creation and management of new ventures.

The People’s Republic of China has shown strong economic growth rates within the last years, which can in part be attributed to the increasing foundation of startup companies. Due to missing familiarity with management, market, and team based novelty situations, it is difficult for entrepreneurial teams to operate successfully during the first years after starting out.

The aim of the present study was to examine different factors to minimize novelty in startup companies in China, to increase relational capital, and hence to be successful in long-term. Trust – as one dimension of relational capital – will be increased by strong commitment and responsibility of the entrepreneurial teams members for the new venture and by loose but existing contracting practices. Moreover the results show, that entrepreneurial teams with strong friendship characteristics (communal sharing) and regulations about exchanges among the members (market pricing) match the investors’ ideal expectations. These teams receive more financial capital from business angels or venture capitalists than startup companies with no matching characteristics.

As a conclusion, entrepreneurial teams in China can change and improve different factors within a startup company to become more successful by enhancing their relational capital. Entrepreneurial teams which are not focusing on the decrease of novelty effects have to make more effort to increase relational capital. The study results might be used and adopted by entrepreneurs in other developing countries, because they provide the same economic conditions as for startup companies in China. Entrepreneurial teams, which are adopting parts of the study results could grow faster and become more successful, by minimizing novelty impacts earlier and increasing relational capital.

Influences on trust – a condition for success

• Trust within the team – as one critical factor of success – will be increased by trong commitment and responsibility of the entrepreneurial teams members for the new venture.
• If people do know each other, they still need to have certain limitations and regulated rules of conduct. As the results show, if contracting practives are stronger and well-defined, entrepreneurial team members know that others act as expected which in turn increases trust.
• Contrary to expectations, the diversity of the entrepreneurial team’s nationality and the personal social beliefs did not have significant influence on trust

Team structure as a reason for high funding

• Team structures of startup companies conforming to the investors’ ideal perceptions, received significant more investor’s funding.
• The team receive more financial capital from business angels or venture capitalists than startup companies with no matching characteristics.