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Nurturing Technopreneurship in China

Chris Evdemon (易可睿) Partner, Innovation Works Development Fund (IWDF)

Director, Finn Evdemon Capital Partners Pte. Ltd.

Director, Business Angels Network South-East Asia (BANSEA)

July 2012

What does a technopreneur need?

Infrastructure

• Market

• Talent Pool & Language of Communication

• Turnkey Services

• Early Stage Investors

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Culture

• Entrepreneurship

• No Fear of Failure

• Innovation

• Re-Circulation of Knowledge and Capital

An early stage ecosystem!

Chinese Internet: largest market + low cost

0

100

200

300

400

500

2006 2007 2008 2009 2010 2011 Mobile Internet Internet

Source: iResearch

500M internet & 300M mobile internet users

$250K Chinese “lean start-ups”

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CEO / Product Manager

User Experience Designer

CTO + 7 more engineers

Chinese Internet: a unique confluence

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E-Commerce

Social

Mobile

E-Commerce

Mobile Social

Simultaneously! Sequentially

• E-Commerce is a $100B market where the majority of transactions are still cash-on-delivery.

• It costs $1.50 to courier a standard item from Beijing to Shanghai with same day delivery.

• Low-end Android devices have already reached the $150 price point and decreasing.

• Total Android devices are estimated at

100m by the end of 2012.

• Sina’s Weibo went from 0 to 250m users in less than 3 years.

• Tencent’s Weixin app went from 0 to 100m users in less than 1 year.

• Internet is growing 5x faster than GDP.

Some characteristic facts:

79% 76%

57% 72%

83% 71%

55%

34%

70%

89% 91%

38% 34% 35%

11%

71%

0%

20%

40%

60%

80%

100%

Different Usage of Internet

Chinese Internet: “an animal of its own”

Various social phenomena:

• Curious users, hungry to explore (much less goal-oriented).

• Entertainment-centric.

• Information-overloaded.

• Users eager to have a voice for self-expression.

• Exposing corruption, enabling civilian ‘paparazzi’.

A market reserved for locals:

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… with cut-throat competition!

“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

Entrepreneurship in China

• Today Chinese entrepreneurship is in transition.

• Still a new concept for local graduates.

• Peer and family pressure towards ‘secure’ corporate

jobs.

• Older generation is risk averse but grass-roots

entrepreneurship from young people is improving.

• “Returnees”, with prior overseas experiences, are

coming back to start their own companies.

• Few home-grown role models.

Gradually, a new class of serial entrepreneurs is emerging:

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Hungry for success.

Familiar with the local market.

Able to iterate quickly.

Grew up with the Internet.

Starting-up in China: the problems Nascent angel network.

• Angel investors are few and immature: minimal value-add and unreasonable expectations.

• No technical/ market understanding to evaluate early-stage opportunities.

Home-grown CEOs need mentoring.

• Entrepreneurs are often uni-dimensional. • Limited innovation and imagination. • Limited business, industry, and operational

experience.

Fear of failure.

• The Chinese culture is less tolerant of failure. • Many engineers and managers are well-paid and

risk-averse. • Low burn-rate allows “living dead” projects to

survive for years before admitting failure.

Legal complexity – the “SINA” structure.

• Difficult to assemble a complete and complementary team.

• Limited access to resources, network, and industry information. Information flow is not fluid in China.

Tough to assemble a full team early-on.

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A nascent angel community …

Lei Jun (雷军) Zhou Hongyi (周鸿祎)

Angel VC

?

$28B $19B

$7B

Xu Xiaoping (徐小平)

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… and a growing but later-stage focused VC market 2002 – 2010 Total VC Funds Raised and No. of New Funds

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• Already the 2nd largest VC market in the world but still only about 1/4th of the U.S.

• Chinese VC industry increasingly becoming more local, both in terms of currency as well as GPs / LPs.

• Very little attention to early stage and few GPs with the right skill-set / background.

IW as a case study: a unique platform to fill the gaps

Innovation Works (IW) built based on:

• A team with entrepreneurial mindset.

• Offering fair economics.

• Patience and passion to mentor.

• Product and technology expertise.

• Supporting professional services. 11

IW Incubation

IW Fund I/II Investment

Investment – Angel / Series A stages Incubation – Formative / Seed stage

30 16 46 Operations Investment Full-Time

Professionals

8,000 m2 a unique collocation environment in Beijing

IW as a case study: the process

1. Invest in key themes.

3. Double-down on winners.

High Growth

High Value

Low Capex Localizable & Differentiable

100%

10%

25%

40%

Seed

Angel

Series B

Series A

2. Help “lean startups” scale up quickly.

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4. Apply learnings to find more winners.

Concentrate investments on specific themes

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Group-Buying

2009

Covers 210M devices in 1.5 years

>1M Tapas Phones + >10M apps

600M app downloads in 2 years

35M users in 2 years 5M users in 1 year

Alexa global 1500 in 6 months

100M downloads in 1.5 years

7M users in 1 year

Users 3x, Revenue 10x in 3 months

Zynga-like platform

HTML5 game platform

No barrier to entry, competes on cost only, lacks merchant value.

LBS Platform B2C E-Commerce

iPad/iPhone edutainment for toddlers

Not currently suitable for China. China LBS should focus on: food/fun + make/save money.

Mostly in trouble; One having massive lay-offs.

Price & marketing war leading to likely bubble. 6500 clones, 500 dying/month.

High user acquisition costs. No longer “lean startup”.

2011 2010

Android Ecosystem Casual + Mobile Game Ecosystem

Unfilled Need In SNS

Monetizable O2O Service

Attract “best-of-class” Founders / CEOs

He Huang Co-founder, Leiyoo PM Director, Tencent

Jack Xu CEO, Diandian Co-founder, Renren.com (multi-billion US$ IPO)

Binsen Tang CEO, Xingcloud Founder, Elex Tech, 4th largest social game developer in the world

Ye Wang CEO, Doodle Mobile Special Assistant to CEO, Google China

Ryan Xu CEO, Buding Founder & CTO, Tsinghua Tongfang Micro-electronics

Lei Zhang CEO, Tapas Baidu Mobile director; 8 yrs. Huawei experience

Erik Huang COO, Zhihu Sr. Editor, Sohu

Jeffrey Ma CEO, Nevel VP of R&D, Rising 10+ experience in security

Chuan Luo CEO, AppChina CEO, MSN China CEO, Myspace China COO, China Mobile 139

Serial Entrepreneurs Experienced Executives

Junyu Wang COO, Wandoujia Senior designer, Google China

Limin Zhou CEO, Wandoujia Chief Architect, Baidu

Fan Jiang Founder, Umeng Google China

Hongfei Tian CEO, LOOA Oracle USA

Mily You President, Tapas PM Director, Tencent Mobile

Fei Zhao Co-founder, Leiyoo Engineering Director, Renren

Zhenyang Zhan CEO, Xinyou COO, Kingsoft Games

Jing Jian CEO Co-founder, Lianzhong Games

Jun Xiong CEO, Tongbu CTO, NetDragon

Innovation Works Confidential 14

Help start-ups scale quickly with services

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Build first product prototype

Iterate & improve product

Market & promote product

Prepare for next-round funding

& growth

The IW company-building process

1 2 3 4

Legal / GR

Offshore set-up

Share issuance

Term sheets

Local licenses

Finance

Payroll

Taxes

Budget

Rent

Tech / UX

System reviews

Code reviews

Design reviews

Introductions

Mentoring

Mentoring sessions

Executive coaching

Team building

X-company clubs

PR/Marketing

Grants & subsidies

PR events

Product promotion

Speaking slots

Recruiting

Internet headhunter

Resume database

Campus recruiting

EIR program

Aiming to save >50% time spent by entrepreneurs on these areas.

Recruiting, mentoring, and “everyday” DD

Speech: 8000 people

Written exam: 1000 people

Interview: 100 people

Offer: 30 people

Welcome! 16

Recruiting at Top Schools

1:1 Mentoring and “everyday”

DD

Weekly Distinguished Guest Mentors

Jerry Yang, Yahoo

Ray Ozzie, Microsoft

Huang Brothers, Guitar Hero

Steve Chen, Youtube

Bill Buxton, Microsoft

Gary Wang, Tudou

500,000 Resume Database

IW results in 2.5 years: 13 Series A & 2 Exits

Partnering with top VCs in China: Series A 14

Closed 4

M&A 3

Ongoing 35

, 0

Two M&A Exits = 17X return in ~ 1 year

47 Series A

13 Closed

4 M&A

2

Ongoing (Seed + Pre-Series A) 28

13 Series A delivering 20x step-up from seed

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40m Users in <2 Years

90m Users in 1.5 Years

210m Devices covered in <2 years

Amazing growth stories

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Contact me at: chris@chuangxin.com

You can also find me at:

http://twitter.com/evdemon http://www.weibo.com/evdemon