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.

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)
• 91.com – $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"er.com/evdemon
h"p://www.weibo.com/evdemon
Let’s get to work!