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


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"The Global VC: China"

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

  1. 1. 1 The Early Stage Tech Ecosystem in China Chris Evdemon (易可睿) Partner, Innovation Works June 2014
  2. 2. What does any tech startup founder want? Ecosystem An early stage ecosystem. Talent Pool Domestic Market Start-Up Services Financing Culture
  3. 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. 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. 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. 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. 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. 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. 9. Android rules … Internet … and is at the heart of China’s next few multi-billion dollar companies!
  10. 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. 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. 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. 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. 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. 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. 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. 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. 18. Contact me via: http://www.iwna.io/ http://twitter.com/evdemon Thank you!