The future of china’s startup incubators


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China’s business & start-up incubators are adopting different models than those popularized from Silicon Valley and other mature, Western ecosystems. The drivers developing a different incubator model are rooted in a different local context, but the successful application of these models can have global implications.

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The future of china’s startup incubators

  1. 1. The Future of China’s Startup IncubatorsPosted: June 9th, 2012 | Author: Kevin Lee
  2. 2. China’s business & start-up incubators are adopting different models thanthose popularized from Silicon Valley and other mature, Western ecosystems. Thedrivers developing a different incubator model are rooted in a different localcontext, but the successful application of these models can have globalimplications.By Incubator I mean…I’ve been tracking the term ‘incubator’ on Twitter since last year and am amazednot only by the number of incubators that have sprung up all over the world, butalso how many diverse and loose definitions of ‘incubator’ there are.By ‘incubator’ I do not just mean co-creation space, or consolidated back-officesupport, or start-up competitions, or a crowd-sourced website of projects, orclasses on pitching and writing business plans.By ‘Incubator’ I DO mean in addition to the above, tactically helping to buildbusinesses through to sustainability by bringing in the needed people/partners,asking the right questions & molding the business model, coming out with aworking product/service & organization, and utilizing ready-made launchingplatforms which include financing, marketing and/or retail/distribution channels.
  3. 3. THE RISE OF INCUBATORS AS A CULTURAL PHENOMENONIt is important to first understand the cultural and social significance of incubatorsin western society to help us gain a comparative perspective on how Chinaincubators will impact a new generation.The reason why the start-up incubator is enjoying success and widespreadpopularity in our time and not before has to do with one unique occurrence: Therise of the highly educated, freelance individual. While two other factors have alsobeen vital for the popularization of incubators – 1) macro economic demand forinnovation competition, and 2) an abundance of investment capital looking foralternative asset classes and the development of mezzanine financing options –only the rise of the highly educated, freelance individual is unique to thisgeneration and unique to the rise of the incubator.Tracking the emergence of the highly educated, freelance cultureThe expansion of a highly educated mass population happened in western societyand North America with education reforms and a greater access to highereducation in the Post-War era. The popular expansion of the North Americanfreelance culture (as documented by Douglas Holt in ‘Cultural Strategy’) beganin the 90’s as we experienced the early 90’s recession and then accelerated as
  4. 4. corporations and industry underwent an intense period of outsourcing, thus shiftingus away from the concept of lifetime employment.And so since the 90’s we’ve witnessed the emergence of a highly educated,freelance generation. These individuals, being more creative, independent, andautonomous, have been building a new proposition of economic pay-off thatrewards ingenuity and seeks not a steady pay-check, but periodic bulk paymentsthat allow for more pivots in a person’s freelance-style career. Additionally, as aneconomy built on high-educated, freelance culture demands greater creativity,integrated thinking capacity, and greater specialization, these individuals seek anactionable, and reliable form of collaboration that will see their unique capabilitiesand ideas properly utilized.
  5. 5. It’s therefore understandable why it is this generation, a highly educated andfreelance group, which would construct and consider start-up incubators a viableand important vehicle for long-term freelance achievement, and career success. Infact, as chronicled by GigaOm, the first popular wave of incubators emergedover 10 years ago, during the Dot-Com boom, when high-educated freelanceculture hit its first period of maturity.Our current cultural legacy: the Silicon Valley incubator modelThe current wave of incubators like the iconic YC, TechStars, and 500 Startups area product of A) a much more networked, collaborative culture, learned andreinforced by social media’s dominance in our society, B) further maturation andrefinement in the venture capital/private equity apparatus, plus C) the justifiablefixation on timelines and incubation processes specifically catered to technologyand digital venture types.The Silicon Valley incubator model is built to graduate start-ups within 3 months ofincubation. Fast ideas, fast iteration, fast testing, fast scaling. High independence,high autonomy. This is the incubator’s cultural legacy we’ve inherited from thesuccess of Silicon Valley and American-style venturing from a generation of highlyeducated, freelance individuals.
  6. 6. There is a growing perception that the Incubator can become a new model forgraduate school. I too observe that this generation is beginning to perceiveincubators as having the same cultural significance as graduate schools. Indeed,these are important implications for how a new generation of young Americansand global citizens will classify ‘education’, fit for their future world. instituteB - a Canadian Incubator reframing as a new kind of skool.But with this understanding of the cultural role of the Incubator for a highlyeducated, freelance society, the Incubator finds a different role in China and istherefore developing into a different creature.
  7. 7. A NEW FORMATION: CHINA INCUBATOR AS ENTERPRISEOver the last year, a number of China incubators have either reformed, or newlyemerged, as professional enterprises, away from the classic western incubatormodel that just serves as a prototyping platform for independent start-ups. ChinaIncubator Enterprises are acting more like niche early-stage private equityacquisition groups – without the private equity.Incubator Enterprises characteristic #1: A longer timeline withgreater vested interest.These China incubators are elongating the incubation period, bringing the start-upmore permanently into the incubator, well beyond the traditional 3-month timeline.Often times the gestation period is dependent upon the start-up’s complexity anddevelopment needs. Many times incubators will not graduate a start-up until thereis a fully sustainable business model, and there is more to show than just aprototype product.This is taking a page out of more established corporate innovation processes, likethe one system made famous by 3M. Here, what is provided is not only space andsupplies for a team to get their idea off the ground, but the host organization alsotakes a lead responsibility in filling the missing team and functional gaps such asfinance, marketing, project management, and strategy. In this way the incubator
  8. 8. graduates not only entrepreneurs with a product and some mentoring, but insteada founding team, fully equipped to grow from start-up to small business. Innovation Works, an incubator I’ve written about before, was one of the very first China Incubators and still one of the most famous. Created by Ex-Head of Google China, Li Kai Fu, they incubate tech start-ups, but bring these companies in-house and build out fully functioning teams around them. They usually graduate only after a product is tested and there are investors lined-up to take it to the next step. This whole process normally takes much longer than 3 months.Incubator Enterprises characteristic #2: Cut out start-up pitching,instead cultivate investor expectations.Whereas the mark of a great incubator in western countries is giving the start-up achance to pitch to a packed room of potential investors, China IncubatorEnterprises instead opt to act as agents, selecting the right investor introductionsand brokering the right deal.This deal making has much to do with the fact that each incubator has pre-existingrelationships with a set investment community or network, usually specializing inone specific area of interest. In some cases, an incubator’s inception is the direct
  9. 9. result of a pre-existing fund’s desired investment objectives, looking to developinvestment opportunities.With the Incubator Enterprise knowing the investor preferences and objectives sowell, there is little need for pitching but instead collaborating with the investors ontheir investment expectations and involvement right from the outset. In this way, thestart-up, and the investor(s) are developed from inception to be the perfectpartners. Xindanwei has been the poster-child for Co-working spaces in China since its launch in 2009, with a very distinct and strong open community culture. Last year Xindanwei expanded to build Xinchejian (New Garage), a specialized program for the Open Hardware, hacker and maker communities. Xinchejian provides specific events, workshops, machining tools & technology, plus prototype product exhibitions; all crucially needed to grow this emerging community. What is more, this special unit has developed its own network of specialized partners and investors, people who have a specific interest in funding and prototyping co-hacked gadgets. These partners coming in at the very earliest stages and develop ideas together.
  10. 10. Incubator Enterprises characteristic #3: Find industries to fill beyondtech.The emergent Incubator Enterprise, with the intention of incubating longer, morethoroughly, and molding investor expectations from the beginning, find greatercapabilities to nurture new business models. This is proving powerfully applicablefor capturing the new opportunities emerging from China’s diversifying economyneeds.Each Incubator Enterprise, in capturing its industry specialization, is alsocustomizing their incubator to fit the specific needs of that industry’s start-up needsand also that industry’s investor requirements. With this evolutionary approach,Incubator Enterprises from different industries will have different incubationtimelines and boast different incubator component strengths. It is only incustomizing the incubator format can the incubator fill the needs existent beyondtech.
  11. 11. is an incubator that seeks to develop tech that has direct impacton social good. Shifting from the ideology that a start-up’s primary pathleads to IPO, chooses its China incubation projects first for itsscalability in social impact.Yuenfen-Flow has constructed itself as the nexus between tech, business,art, and sustainability. Boasting its offering of methodologies such asIDEO’s Human Centered Design, Yuenfen-Flow chooses its projects for theircreativity and the merging of artistic and technical form and is perhaps one of the most exciting examples of an IncubatorEnterprise, specializing in manufacturing incubation. Jue,io seeks to attractcreative youth culture products; from new iPhone case concepts toinnovative RFID key chains for offline social networking. was set up tocater to the needs, expertise and interests of its founding investor, whocomes from the manufacturing industry. Boasting a vast network of OEMmanufacturer relationships, offers not only team, productdevelopment, and funding for the right manufactured product idea, but alsothe right manufacturing and distribution partners.’s incubatorcapabilities are specialized for the needs of the industry it serves.
  12. 12. Localized industry contexts force incubators to structure differentlyIt is easy to see that these incubator innovations come from the different industryforces present in China’s very different economy. As chronicled above, traditionalwestern incubators are a product of a driving macro demand for innovationcompetition, a mature alternative asset-class investment community, and a highlyeducated, freelance generation. China does not strongly possess any of theseforces. The incubator was started in China not as a reaction to competition need,but with the intention of leading social change. It found itself in an economy with avery immature investor community, and within a generation and culture that is notovertly highly educated nor freelance. And so in order for the incubator to survive,flourish and add value in a different industry context, the China incubator has hadto evolve, with a longer timeline, a greater vested interest, a different approach tocultivating investors, and filling opportunities in many other industry fields.These non-traditional forces are not unique only to China. We are seeing theincubator evolve into Incubator Enterprises in other fields that require adaptationfor distinct requirements. In Canada, an Incubator Enterprise existsnamed InstituteB, a specialty incubator focused on sustainability start-ups andcultivating particular skills for the sustainability field with special relationships withsustainability-focused investors. They also bring in start-ups for a long timeline,build thoroughly, and graduate only with the right investor already in place.
  13. 13. CHINA INCUBATOR’S ROLE FROM A CULTURAL PERSPECTIVEAnd so as people have alluded to the Western incubator as a new form ofgraduate school for a highly educated, freelance generation, what is the meaningof the emergence of China’s Incubator Enterprises to this new generation ofChinese?I would offer a suggestion that China’s Incubators act more like the equivalent toan after-school program, or a special summer program, or an extra-curricularsports team. What I mean is that it is within these kinds of environments that manyWestern-raised children first developed specialized skills, and first learned howtheir unique skill integrated into a larger team. More importantly it is within theseextra-curricular program that many talented youth first developed passions forpersonal hobbies and interests, and added very important components to theirdeveloping self identity.I feel the China Incubator’s cultural role is providing a similar, and vital service,albeit not extra-curricular, but full-time.Leading edge Chinese youth, with newly constructed identities and the beginningsof unique talent, are in need of space to refine and sharpen what raw ability theyhave. Incubators become the place this cohort of creative talent can deepen whothey are and sharpen their skill.
  14. 14. This being still one of the earliest generations of Chinese creative talent, theseinnovators have not enjoyed as comprehensive an upbringing as the young talentin other mature societies. Therefore Chinese incubators are calibrated to allowparticipants to specialize on one creative ability, while the incubator fills the otherskill gaps. As a consequence, the incubation period grows longer; to not onlyallow the business to mature, but also the creative talent powering it.Incubators in China can develop in this way because China creative talent is stillso rare and offers the great potential for highly unique value creation. As thecompetitive pressures in China continue to rise, the value proposition to incubatetalent and new China business solutions is something no investor can ignore.It is within these incubators that a new generation of Chinese creative talent isrealizing that there are other options to their future career and life path. For thefirst time China’s creative middle class sees a viable, and socially acceptable pathto having one’s own ideas & inventions realized.The new Chinese incubator enterprises are in part instigating new culture, andmay become the modus operandi for a new creative class of Chinese youth. ****
  15. 15. Kevin is COO for China Youthology, a cultural innovation lab connecting Brands with Youth. There he leads business strategy & operations, and contributes as a Sr. Insights specialist. Kevin is a contributing writer at, and in 2009 and 2010 Kevin (@kevinkclee) was named one of the top 25 Twitterers in China by AdAge China and China Law Blog. He also is a respected blogger, writing the well-regarded Kevin has an MBA in Strategic Management from Canada’s #1 business school, the Schulich School of Business, York University.E: kevin.lee@chinayouthology.comB: http://genYchina.comT: @kevinkcleeW: www.chinayouthology.comW: