China presents a fascinating place for startup founders or founder-wannabes. Despite its status as the world’s second largest economy, it is still considered a developing country with plenty of space for technological and social disruption.
Earlier this June, the RISE Conference brought together 5000 attendees, 300 investors and 500 startups from around the world to discuss their at one of the China’s — and Asia’s — business hubs, Hong Kong.
Edith Yeung, Partner at leading global venture capital seed fund and startup accelerator 500 Startups, shared her thoughts on why China will be an exciting place for tech entrepreneurs in the coming years.
1. Increasing Innovation And Growing Mobile Market
One of China’s more unflattering reputations is its tendency to mirror other countries’ products and businesses. For every successful business in the U.S., there is most likely a direct proxy in China — some only fundamentally similar, others more blatantly so. For instance, China has its own version of Steve Jobs, who not only started what is seen as the “Apple of China“, but also dresses like his American counterpart. But this perception will soon fade away as more radical innovation start to come from the East.
“Starting five to 10 years ago, there is a perception that Chinese companies copy from the U.S.,” said Edith, “but just in these last few years, every time I go back to China, I notice so many new technologies not yet seen in the U.S.”
Edith gave the example of WeChat, which started as messaging app, but soon became a one-stop-shop for monetary transactions, handling transportation fees to utility bills. Comparatively, the U.S.-based Facebook has only had mediocre success with its payment integration so far.
The rise of Chinese mobile apps is in part due to a rapidly growing mobile market, where 380 million own a smartphone. In comparison, there are about 207 million smartphone users in the US.
“The fastest mobile adoption is in Asia,” said Edith, “and smartphone adoption is already more than 50 percent in China. In terms of growth, India and Southeast Asia are also very noteworthy.”
2. Growing Tech Talent
Part of the reason for Edith’s optimism for China’s startup scene is the abundance of technical talent to fuel its growth.
“A lot of startup hubs are usually structured around awesome schools and awesome tech talents,” she explained. “Around the Valley you have Stanford, Berkeley, Google, Facebook, and all the tech companies. You see the same thing around the BAT (referring to the three big Chinese tech companies: Baidu, China’s largest search engine; Alibaba, the world’s largest retailer; and Tencent, one of the largest internet companies in the world) too.
“Beijing, where Baidu is, and Hangzhou, where Alibaba is, and Shenzhen, where Tencent is, these cities have these structures in place. Beijing, in particular, has Tsing Hua and Bei Da (two of China’s most prestigious universities), which pour out a lot of talent.”
Silicon Valley’s location provides it with direct access to some of the most well-prepared engineers and programmers in the world, and Edith sees the same unfair advantage present in cities like Shenzhen and Beijing. In addition, as an investor, Edith has seen an incredible drive to succeed in many Chinese entrepreneurs as well.
“Entrepreneurs in China are very hungry,” she said, “I’ve seen Chinese entrepreneurs in their mid 30s who were really poor when they grew up, and they are more motivated than many others we’ve met.”
3. Emerging, World-leading Industries
As the manufacturing capital of the world, China is home to many leading industries (e.g. steel-making, cotton, beer etc.). However, with the rise of the middle class and the increase in disposable income, China may very well overtake the world in some more surprising industries.
When asked which sector’s growth is the most alarming in China, Edith replied, “Entertainment.”
“By 2017, China’s box office will be bigger than that of the US,” she explained. “There are about 39,000 cinemas in the US, and China already has around 31,000, and is building 15 cinemas per day.”
While on one hand, the ever-growing middle class has fueled the growth of the sector, Edith posited there might be political reasons as well. Startups like AirBnb and Uber, which threaten to subvert the hoteling and taxi industries, may come into conflict with governmental interests; on the other hand, entertainment could be seen as a less controversial space.
“In addition, Asian countries, especially China and Korea, have strong celebrity cultures which may also fuel the growth of the entertainment sector,” Edith said, “and VCs are pouring money into influencers and entertainment.”
Emerging technologies within the sector also provide immense opportunities. In aerial photography and videography, China-based company DJI has become the largest civilian drone company in the world.
“I’m also very excited about the potential of VR,” Edith added, “and a lot of investment dollars are going into VR content this year.”
The Future of China’s Startup Scene
Despite these factors, startup ecosystems in cities like Beijing are still nowhere as robust as that of Silicon Valley. At the same time, it may be increasingly irrelevant where a company is from. What is important is the ability to turn products into businesses, which Edith observed is an undervalued still among many Chinese entrepreneurs she encountered.
“A lot of entrepreneurs in China are great builders, but VCs care a lot about numbers — how many people have used the product, how many people will pay for it,” Edith said, “the most important thing for entrepreneurs is selling — not so much as building. Sell your idea first before you build out the product.”
Nevertheless, Edith still has a great sense of optimism for what China’s future startup scene holds.
“The reason why I talk so much about Asia whenever I’m in the US is because I think Chinese in general are very misunderstood and underestimated in the Valley. Silicon Valley is only slowly recognizing that the tech world isn’t just about the U.S.”