Slideshow presentation for the 2nd FCIC evening lecture

1. Discover Chinese Market
Session 2
April 23, 2018
Jingjing Yao, Program Head, MIT CFC Lab
Ethan Li, Chief of Staff to the President, Alibaba
Steven Chen, Regional Operations Manager, Uber; Marketing Manager, Amazon

2. Content
 Landscape of Startups in China
 Challenges & Opportunities of Operating a startup in China
 Financing in China
 Lessons and Takeaways

3. Landscape of Startups In China
Beijing
Guangdong Province
Shanghai
Zhejiang Province
Sichuan Province
Jiangsu Province
2016 Newly Registered Companies by Locations 2017 Newly Registered Startups by Industries
The Number of Newly Registered Companies

4. Landscape of Startups In China

5. What Is Changing In China?
1. The Game is Changing 2. Capital: Rational and Stable Investment
 Diminishing bonus of population
 Giants and unicorns
- Focus more on existing customers and at the
same time expand to overseas or 3rd to 5th tier
cities
- Technology accumulation and business launch
together, fast and focused
 Failing tricks
- Price war, viral or buzz marketing, pre-installation,
 New weapons
- Technology, data, ecosystem
 Stable and rational
- Dramatic growth of news users is not happening
- Investment and M&A plan of giants is relatively
clear
 steady growth of investment in startups; No. 2
country where most startups locate,
 Decreasing investment in O2O projects
 Keys from investor’s perspectives
- profitability, ceiling of business models, user’s taste

6. 3. Users: Consumption Upgrade 4. Technology: More and Wider Applications
 AI, AR, VR, Big data, Cloud computation, etc.
 Examples:
- AI & Smart Home
- VR & Healthcare service
- Big data & Banking Service
- Autonomous Car
 New consumption needs
- better quality, personalized product, meets
various needs, strong product differentiation
 Main reason is to improve quality of life
 Fun facts: (JD data, past 2 years)
- 15-18 year old users increased by 18 times;
- >56 year old increased by 9 times;
- Percentage of 1st tier and 2nd tier cities user
decreased by 20% while 5th or 6th tier cities users
increased by 40%
What Is Changing In China?

7. What Is Trendy In China?
Sharing
Economy
Live Stream Video
Apps
Content and Media
Innovations

8. What Is Trendy In China?
New E-commerce
and retail stores
5 G TimesNew-tech Cars

9. Challenges and Opportunities of Operating Startups in China
2C Business Model
Local Players Fighting Back
 Fast – scale is key
 No rush for monetization and profitability
 On the ground innovation
 Well funded and strategically backed
Foreign Companies Competing in China
 Case study
 Amazon China
 Localization
 Uber China
 Competing with Didi in the
world’s largest ride hailing
market

10. Challenges and Opportunities of Operating Startups in China
2B Business Model
Government and SOEs
 Government mandates: globalization,
innovation
 Take advantage of their support through
partnerships or commercial deals
 Find the right SOEs
 Understand the decision makers
 Hedge your bets
Small Businesses in China
 Diverse
 Underserved
 Sophisticated and tech-savvy
 Can also be great hackers
 Test your products
 Watch out for workarounds

11. Tech Giants
Challenges and Opportunities of Operating Startups in China
 Market forces that simply cannot be ignored no matter what sector you are in
 Tech giants
 Potential touch points: investment, acquisition, competition
 Strike the best deal for your self
 Do not give up control easily – tech giants can also be value destructive

12. Financing in China
Changes in the Venture Capital industry in China
Total VC
investment
(USD Bn)
VC fund
raising (USD
Bn)
# of VC funds
2008 4 14 (32% in
RMB)
300
2017 36 150 (70% in
RMB)
6000
Top 10 VC Investors in 2017 by CBN
Weekly (AUM USD Bn)
1 GSR Ventures
2 Sequoia China
3 Matrix China
4 Tencent
5 Morningside
6 BAI
7 ZhenFund
8 K2VC
9 Redpoint
10 Qiming

13. Financing in China
FA (Financial Advisors) presents a unique
scene in China’s startup world
Recent investment trends:
 Lots of hot money, few good startups
 Four areas of investment focus:
 Business model
 Technology
 Product
 Content

14. Lessons and Takeaways
 Act fast and remove red tapes
 Communication channels matter (Wechat)
 Hire local team
 Roll out and reiterate
 Judo strategy for a new entrant