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Technopreneurship and the Early Stage Ecosystem in China in 2013


20 slides about everything you should know on the state of the Chinese internet, the start-up community and resources available to entrepreneurs in China in 2013.

20 slides about everything you should know on the state of the Chinese internet, the start-up community and resources available to entrepreneurs in China in 2013.

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  • 1. Technopreneurship  and  the   Early  Stage  Ecosystem  in     China   Chris  Evdemon  (易可睿)   Partner,  Innova,on  Works  Development  Fund  (IWDF)     October  2013   1
  • 2. What does any technopreneur want? An early stage ecosystem. Financing Start-Up Services Domestic Market Talent Pool Culture Ecosystem
  • 3. Understanding China A booming middle class leads to consumption growth never seen before … China
  • 4. Understanding China … but appealing to the Chinese grassroots consumers’ psyche is what builds amazing businesses. Affordable Entertainment Curiosity & Discovery Self Expression Communication Virtual Identity & Pride Bargain Shopping China
  • 5. Understanding China It’s a volume play. It’s incredibly challenging to operate. Internet Café Career Fair Logistics Holiday Travel Customer Service Dating Event China
  • 6. The Chinese Internet Enormous, mobile-centric, information overloaded. Different demographics, usage and aesthetics. Different Usage of Internet 100% 80% 79% 70% 89% 76% 91% 83% 72% 71% 57% 60% 38% 40% 34% 35% 34% 11% 20% 0% 71% 55% News Search Email IM Music Gaming Blog Ecommerce Internet
  • 7. Mobile internet accelerates everything … From basic services and tools, to mass adoption, to winners.   Basic  Services   Popular   Monetization   Mobile   2009 2010   Basic  Services   2012 2011 Popular   2013 2014 Monetization   PC   1998 2001 2011 2004 2012 2006 2009 2012 Internet
  • 8. Reserved for locals and cut-throat competitive … “The internet is like a mirror, reflecting our society. If we do not like what we see in that mirror, the problem is not to fix the mirror, we have to fix society.” Vint Cerf Dead Abandoned Inaccessible Internet
  • 9. Innovation, China-style … Inspired Localized Iterated Internationalized by international “first-movers” by integrating most relevant features with amazing speed and micro-innovations starting from the emerging markets Social + Games + Qzone Free Music + Q&A community + cloud computing Free listings, AdWords up-sell Copy-news + blog integration Netflix + Hulu + smart ads COD + proprietary logistics + warehousing Internet
  • 10. Android rules … … and is at the heart of China’s next few multi-billion dollar companies! Internet
  • 11. Everything is ( real ) freemium … … and the world has a lot to learn from China! GAMES PAID FREE •  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. Internet
  • 12. Technopreneurship in China A good startup ecosystem is defined by its degree of recirculation of capital and know-how. Entrepreneurship is cool. not so cool. Young people are risk taking. averse. Failure is a plus. not acceptable. everywhere. scarce. 40 years. barely 5 years. Nth iteration. 1st iteration. near zero. lightning fast. Success stories and role models are The start-up ecosystem has been around for Recirculation of capital and know-how is in its But, the pace of change is $250K Chinese “lean start-ups” CEO / Product Manager A new class of Chinese technopreneurs has emerged: Grew up with the Internet. + + UI / UX Designer CTO + 5 more engineers Familiar with the local market. Hungry for success. + + Able to iterate extremely quickly. Entrepreneurship
  • 13. Starting-up in China The immature ecosystem leads to a variety of challenges. Difficult to assemble a complete and complementary team. 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. Legal complexity. The “VIE” structure. CAYMAN / BVI  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”. Nascent angel network. Limited VC attention to early stage. USD Investment  Angel investors are few and immature. HONG KONG OFFSHORE IN CHINA Contract WFOE Transfer Pricing LOCAL COMPANY Operating Licenses  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. Entrepreneurship
  • 14. Start-up services are scarce … China needs a lot more start-up friendly services. Incubators / Accelerators: •  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. © Zhen Fund Various services: •  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. T = PROSPERI Y!! Services
  • 15. The Innovation Works model Innovation Works (IW) brings everything under one roof. 25 IW Incubation IW Fund I IW Fund II 17 42 Operations Investment Full-Time Professionals 17,000 m2 of a unique co-location environment in Beijing and in Shanghai Incubation Seed Stage Investment Angel / Series A / B $500 million under management ($ Fund I/II and RMB Fund) •  A  team  with  entrepreneurial  mindset.   •  Offering  fair  economics  to  Founders.   •  PaGence  and  passion  to  mentor.   •  Product  and  technology  experGse.   •  SupporGng  professional  services.   Services
  • 16. The Innovation Works model A unique investment process, starting from seed stage. 1.  Invest  in  key  themes.   2.  Help  “lean  startups”  scale  up  quickly.   High Growth High Value Low Capex Localizable & Differentiable 3.  Double-­‐down  on  winners.   4.  Apply  learnings  to  find  more  winners.   Seed Angel Series A Series B Services
  • 17. Limited ( local ) angel ( ? ) investment activity … Despite recent progress, still a far cry from Silicon Valley’s “smart money” angel investor definition, both in terms of quality, quantity and fairness. ors at Incub VC s ders Foun Ange ls Xu Xiaoping! Lei Jun! $20B   Angel ? Cai ensheng! W Angel Club! $30B   VC $7B   Angel Funds! … 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. Financing
  • 18. Venture Capital in China Growing and improving, but with limited attention to - and relevant skillset for - early stage investments. Some facts:! •  Already the 2nd largest VC market in the world but still only about 1/4th 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. •  2013 and 2014 will see a resurgence in deals, as there are still a lot of funds in the market with capital to deploy, but … •  … fundraising in the future will not be as easy as it has been for China GPs, as the “China story” has lost its shine and LPs expect returns. •  China IPOs have been hit hard in the past few years. •  Historical returns have thus been mixed, if not outright disappointing. Financing
  • 19. Strategic investments and M&A Unprecedented level of activity by all major players in the last 3 years. Major strategic deals for product, user base and market positioning … •  Qunar – $300M (2011) •  Dianxin (2012) •  PPS – $370M (2013) • – $1.9B (2013) •  UCWeb (2009) •  Umeng (2013) •  AutoNavi – $300M (2013) •  SINA Weibo – $600M (2013) •  UCWeb (2013) •  PPTV (2013) •  Kanbox (2013) But also talent acquisitions! •  Comsenz (2010) •  eLong – $85M (2011) •  Caixin (2012) •  Sogou – $450M (2013) And industry-wide consolidation for online games. Financing
  • 20.   Let’s get to work!      Contact  me  at:    h"p://twi"     h"p://