[PREMONEY 2014] Innovation Works >> Chris Evdemon, "The Global VC: China"
The Early Stage Tech Ecosystem in
Chris Evdemon (易可睿)
Partner, Innovation Works
What does any tech startup founder want?
An early stage ecosystem.
A booming middle class leads to
consumption growth never seen before.
Upper Middle Class
Mass Middle Class
2005 2015 2025
Private Consumption (% of GDP)Urban Households
In 2013, U.S. >70%,
It’s a volume play. It’s incredibly challenging to operate.
The Chinese Internet
38% 34% 35%
News Search Email IM Music Gaming Blog Ecommerce
Different Usage of Internet
Enormous, mobile-centric, information overloaded.
Different demographics, usage and aesthetics.
The Chinese Internet
Appealing to the Chinese
grassroots users is what builds
Self Expression Communication
Reserved for locals and cut-throat competitive …
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.
Innovation, China-style …
Copy-news + blog integration
Social + Games + Qzone
Free Music + Q&A community +
Free listings, AdWords up-sell
Netflix + Hulu + smart ads
COD + proprietary logistics +
by integrating most
with amazing speed
starting from the
Android rules …
… and is at the heart of China’s next few multi-billion dollar companies!
Everything is ( real ) freemium …
… and the world has a lot to learn from China!
• Chinese online games’ hierarchy of needs.
• Deep understanding of human psychology,
• Result = 4x U.S. ARPPU, while 10% of the U.S.
per capita income.
Technopreneurship in China
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:
Able to iterate
Grew up with
Starting-up in China
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
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.
The “VIE” structure.
CAYMAN / BVI
Nascent angel network.
Limited VC attention
to early stage.
Limited ( local ) angel ( ? ) investment activity …
Despite recent progress,
still short of Silicon Valley’s
“smart money” angel
investor definition, both in
terms of quality, quantity
… 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
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
• 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.
Growing and improving, but with limited attention to
- and relevant skillset for - early stage investments.
Strategic investments and M&A
• Anjuke – $50M
• Qunar – $300M
• Dianxin (2012)
• PPS – $370M
• 91.com – $1.9B
• Umeng (2013)
• AutoNavi –
• SINA Weibo –
• PPTV (2013)
• Kanbox (2013)
• UCWeb (2014)
• Comsenz (2010)
• eLong – $85M
• Caixin (2012)
• Sogou – $450M
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
Beware, China is coming out to the world!
Ever-increasing outflow of capital, products, business models and talent.
Recent U.S. Investments International Expansion Model
Talent Constraints and … the Solution!
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