Technopreneurship and the Early Stage Ecosystem in China in 2013


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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.

Technopreneurship and the Early Stage Ecosystem in China in 2013

  1. 1 Technopreneurship  and  the   Early  Stage  Ecosystem  in     China   Chris  Evdemon  (易可睿)   Partner,  Innova,on  Works  Development  Fund  (IWDF)     October  2013  
  2. What does any technopreneur want? Ecosystem An early stage ecosystem. Talent Pool Domestic Market Start-Up Services Financing Culture
  3. Understanding China China A booming middle class leads to consumption growth never seen before …
  4. Understanding China 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
  5. 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
  6. 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.
  7. Mobile internet accelerates everything … 2009 2011 2013   Basic  Services   Popular   Monetization   2010 2012 2014   Basic  Services   Popular   Monetization   Internet 1998 2011 20122001 2009 20122004 2006 From basic services and tools, to mass adoption, to winners. Mobile   PC  
  8. Reserved for locals and cut-throat competitive … Internet “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
  9. 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
  10. Android rules … Internet … and is at the heart of China’s next few multi-billion dollar companies!
  11. 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
  12. 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” CEO / Product Manager UI / UX Designer CTO + 5 more engineers
  13. 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.
  14. 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: = PROSPERITY!!
  15. The Innovation Works model Services Innovation Works (IW) brings everything under one roof. •  A  team  with  entrepreneurial  mindset.   •  Offering  fair  economics  to  Founders.   •  PaGence  and  passion  to  mentor.   •  Product  and  technology  experGse.   •  SupporGng  professional  services.   25 17 42 Operations Investment Full-Time Professionals 17,000 m2 of a unique co-location environment in Beijing and in Shanghai IW Incubation IW Fund I Investment Angel / Series A / B Incubation Seed Stage IW Fund II $500 millionunder management ($ Fund I/II and RMB Fund)
  16. The Innovation Works model Services 1.  Invest  in  key  themes.   3.  Double-­‐down  on  winners.   High Growth High Value Low Capex Localizable & Differentiable Seed Angel Series B Series A 2.  Help  “lean  startups”  scale  up  quickly.   4.  Apply  learnings  to  find  more  winners.   A unique investment process, starting from seed stage.
  17. Limited ( local ) angel ( ? ) investment activity … Incubators VCs Founders Angels Angel VC ? $30B   $20B   $7B   Financing Despite recent progress, still a far cry from Silicon Valley’s “smart money” angel investor definition, both in terms of quality, quantity and fairness. Xu Xiaoping! Lei Jun! Cai Wensheng! Angel Funds! Angel Club! … 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.
  18. Venture Capital in China •  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 Growing and improving, but with limited attention to - and relevant skillset for - early stage investments. Some facts:!
  19. Strategic investments and M&A •  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) •  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
  20.      Contact  me  at:    h"p://twi"     h"p://         Let’s get to work!