[PREMONEY 2014] Innovation Works >> Chris Evdemon, "The Global VC: China"

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"The Global VC: China"

"The Global VC: China"

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  • 1. 1 The Early Stage Tech Ecosystem in China Chris Evdemon (易可睿) Partner, Innovation Works June 2014
  • 2. What does any tech startup founder want? Ecosystem An early stage ecosystem. Talent Pool Domestic Market Start-Up Services Financing Culture
  • 3. Understanding China China A booming middle class leads to consumption growth never seen before. 36 193 0 50 100 150 200 250 300 2012 2022 Upper Middle Class Mass Middle Class 0% 10% 20% 30% 40% 50% 60% 2005 2015 2025 Private Consumption (% of GDP)Urban Households In 2013, U.S. >70%, India >60%.
  • 4. Understanding China China It’s a volume play. It’s incredibly challenging to operate. Holiday Travel Customer Service Career Fair Dating Event Internet Café Logistics
  • 5. The Chinese Internet Internet 79% 76% 57% 72% 83% 71% 55% 34% 70% 89% 91% 38% 34% 35% 11% 71% 0% 20% 40% 60% 80% 100% News Search Email IM Music Gaming Blog Ecommerce Different Usage of Internet Enormous, mobile-centric, information overloaded. Different demographics, usage and aesthetics.
  • 6. The Chinese Internet China Appealing to the Chinese grassroots users is what builds amazing businesses. Affordable Entertainment Curiosity & Discovery Self Expression Communication Virtual Identity & Pride Bargain Shopping
  • 7. Reserved for locals and cut-throat competitive … Internet Most competitive market in the world. Users expect everything for free, have near-zero loyalty and are ruthlessly vocal in social media about all products. Dead Abandoned Inaccessible
  • 8. Innovation, China-style … Internet Copy-news + blog integration Social + Games + Qzone Free Music + Q&A community + cloud computing Free listings, AdWords up-sell Netflix + Hulu + smart ads COD + proprietary logistics + warehousing Inspired by international “first-movers” Localized by integrating most relevant features Iterated with amazing speed and micro-innovations Internationalized starting from the emerging markets
  • 9. Android rules … Internet … and is at the heart of China’s next few multi-billion dollar companies!
  • 10. Everything is ( real ) freemium … Internet … and the world has a lot to learn from China! • Chinese online games’ hierarchy of needs. • Deep understanding of human psychology, desire, weakness. • Result = 4x U.S. ARPPU, while 10% of the U.S. per capita income. GAMES PAID FREE
  • 11. Technopreneurship in China Entrepreneurship Entrepreneurship is cool. not so cool. Young people are risk taking. averse. Failure is a plus. not acceptable. Success stories and role models are everywhere. scarce. The start-up ecosystem has been around for 40 years. barely 5 years. Recirculation of capital and know-how is in its Nth iteration. 1st iteration. But, the pace of change is near zero. lightning fast. A good startup ecosystem is defined by its degree of recirculation of capital and know-how. A new class of Chinese technopreneurs has emerged: Hungry for success. Familiar with the local market. Able to iterate extremely quickly. Grew up with the Internet. + + + + $250K Chinese “lean start-ups”
  • 12. Starting-up in China Entrepreneurship Home-grown CEOs need mentoring.  Entrepreneurs are often one-dimensional.  Limited cutting edge innovation and imagination.  Limited business, industry, and operational experience.  Few home-grown role models.  Everyone wants to be the boss. Difficult to assemble a complete and complementary team.  Limited access to resources, network, and talent.  Information flow is not fluid in China.  Sharing culture is limited.  >250,000 software engineers graduate annually but hiring top talent is almost “mission impossible”.  Angel investors are few and immature.  They offer minimal value-add, unfair deals and have unreasonable return expectations.  Very few VCs have technical / product / market understanding to evaluate early-stage opportunities. The immature ecosystem leads to a variety of challenges. Legal complexity. The “VIE” structure. IN CHINA OFFSHORE Contract CAYMAN / BVI HONG KONG WFOE LOCAL COMPANYTransfer Pricing Operating Licenses USD Investment Nascent angel network. Limited VC attention to early stage.
  • 13. Start-up services are scarce … Services China needs a lot more start-up friendly services. © Zhen Fund • Proper cloud infrastructure. • Law and accounting firms that understand Founders’ needs and can defer payments. • Recruiters specializing in the tech industry. • Banks that are entrepreneur-friendly and can provide short-term liquidity. • Modern co-working spaces that are affordable and easy to commute to. • Incubators that go beyond real estate, have professional support services and offer fair deals. • More local events, meet-ups and professional tech media. Various services: Incubators / Accelerators:
  • 14. Limited ( local ) angel ( ? ) investment activity … Angel VC ? $30B $20B $7B Financing Despite recent progress, still short of Silicon Valley’s “smart money” angel investor definition, both in terms of quality, quantity and fairness. … but gradually joined by more and more successful entrepreneurs, as well as early employees / senior executives from companies like Baidu, Alibaba, Tencent, etc. who start investing in start-ups and mentoring Founders.
  • 15. Venture Capital in China • Already the 2nd largest VC market in the world but still only about 1/3rd of the U.S. • Chinese GPs are by now almost entirely local. • Early-stage-minded GPs with previous own start-up / operational experience are a scarce resource in China. • Traditional industries still account for about 50% of the VC money invested in the market. • RMB funds are in the ascendancy and increasingly preferred by entrepreneurs. • Beijing (especially for TMT) is the place to be. • 2014 is seeing major deal activity, as there are still a lot of funds in the market with capital to deploy, and … • … fundraising has been relatively easier for China GPs, as the “China story” has not yet run out of steam. • China IPOs were hit hard in the past few years but have a major resurgence in 2014. Financing Growing and improving, but with limited attention to - and relevant skillset for - early stage investments.
  • 16. Strategic investments and M&A • Anjuke – $50M (2011) • Qunar – $300M (2011) • Dianxin (2012) • PPS – $370M (2013) • 91.com – $1.9B (2013) • Umeng (2013) • AutoNavi – $300M (2013) • SINA Weibo – $600M (2013) • PPTV (2013) • Kanbox (2013) • UCWeb (2014) • Comsenz (2010) • eLong – $85M (2011) • Caixin (2012) • Sogou – $450M (2013) Unprecedented level of activity by all major players in the last 3 years. Major strategic deals for product, user base and market positioning … But also talent acquisitions! And industry-wide consolidation for online games. Financing
  • 17. Beware, China is coming out to the world! Ever-increasing outflow of capital, products, business models and talent. Financing China Emerging Markets Developed Markets Recent U.S. Investments International Expansion Model Talent Constraints and … the Solution!
  • 18. Contact me via: http://www.iwna.io/ http://twitter.com/evdemon Thank you!