China’s business & start-up incubators are adopting different models than those popularized from Silicon Valley and other mature, Western ecosystems. The drivers developing a different incubator model are rooted in a different local context, but the successful application of these models can have global implications.

1. The Future of China’s Startup Incubators
Posted: June 9th, 2012 | Author: Kevin Lee

2. China’s business & start-up incubators are adopting different models than
those popularized from Silicon Valley and other mature, Western ecosystems. The
drivers developing a different incubator model are rooted in a different local
context, but the successful application of these models can have global
implications.
By Incubator I mean…
I’ve been tracking the term ‘incubator’ on Twitter since last year and am amazed
not only by the number of incubators that have sprung up all over the world, but
also how many diverse and loose definitions of ‘incubator’ there are.
By ‘incubator’ I do not just mean co-creation space, or consolidated back-office
support, or start-up competitions, or a crowd-sourced website of projects, or
classes on pitching and writing business plans.
By ‘Incubator’ I DO mean in addition to the above, tactically helping to build
businesses through to sustainability by bringing in the needed people/partners,
asking the right questions & molding the business model, coming out with a
working product/service & organization, and utilizing ready-made launching
platforms which include financing, marketing and/or retail/distribution channels.

3. THE RISE OF INCUBATORS AS A CULTURAL PHENOMENON
It is important to first understand the cultural and social significance of incubators
in western society to help us gain a comparative perspective on how China
incubators will impact a new generation.
The reason why the start-up incubator is enjoying success and widespread
popularity in our time and not before has to do with one unique occurrence: The
rise of the highly educated, freelance individual. While two other factors have also
been vital for the popularization of incubators – 1) macro economic demand for
innovation competition, and 2) an abundance of investment capital looking for
alternative asset classes and the development of mezzanine financing options –
only the rise of the highly educated, freelance individual is unique to this
generation and unique to the rise of the incubator.
Tracking the emergence of the highly educated, freelance culture
The expansion of a highly educated mass population happened in western society
and North America with education reforms and a greater access to higher
education in the Post-War era. The popular expansion of the North American
freelance culture (as documented by Douglas Holt in ‘Cultural Strategy’) began
in the 90’s as we experienced the early 90’s recession and then accelerated as

4. corporations and industry underwent an intense period of outsourcing, thus shifting
us away from the concept of lifetime employment.
And so since the 90’s we’ve witnessed the emergence of a highly educated,
freelance generation. These individuals, being more creative, independent, and
autonomous, have been building a new proposition of economic pay-off that
rewards ingenuity and seeks not a steady pay-check, but periodic bulk payments
that allow for more pivots in a person’s freelance-style career. Additionally, as an
economy built on high-educated, freelance culture demands greater creativity,
integrated thinking capacity, and greater specialization, these individuals seek an
actionable, and reliable form of collaboration that will see their unique capabilities
and ideas properly utilized.

5. It’s therefore understandable why it is this generation, a highly educated and
freelance group, which would construct and consider start-up incubators a viable
and important vehicle for long-term freelance achievement, and career success. In
fact, as chronicled by GigaOm, the first popular wave of incubators emerged
over 10 years ago, during the Dot-Com boom, when high-educated freelance
culture hit its first period of maturity.
Our current cultural legacy: the Silicon Valley incubator model
The current wave of incubators like the iconic YC, TechStars, and 500 Startups are
a product of A) a much more networked, collaborative culture, learned and
reinforced by social media’s dominance in our society, B) further maturation and
refinement in the venture capital/private equity apparatus, plus C) the justifiable
fixation on timelines and incubation processes specifically catered to technology
and digital venture types.
The Silicon Valley incubator model is built to graduate start-ups within 3 months of
incubation. Fast ideas, fast iteration, fast testing, fast scaling. High independence,
high autonomy. This is the incubator’s cultural legacy we’ve inherited from the
success of Silicon Valley and American-style venturing from a generation of highly
educated, freelance individuals.

6. There is a growing perception that the Incubator can become a new model for
graduate school. I too observe that this generation is beginning to perceive
incubators as having the same cultural significance as graduate schools. Indeed,
these are important implications for how a new generation of young Americans
and global citizens will classify ‘education’, fit for their future world.
instituteB - a Canadian Incubator reframing as a new kind of 'skool'.
But with this understanding of the cultural role of the Incubator for a highly
educated, freelance society, the Incubator finds a different role in China and is
therefore developing into a different creature.

7. A NEW FORMATION: CHINA INCUBATOR AS ENTERPRISE
Over the last year, a number of China incubators have either reformed, or newly
emerged, as professional enterprises, away from the classic western incubator
model that just serves as a prototyping platform for independent start-ups. China
Incubator Enterprises are acting more like niche early-stage private equity
acquisition groups – without the private equity.
Incubator Enterprises characteristic #1: A longer timeline with
greater vested interest.
These China incubators are elongating the incubation period, bringing the start-up
more permanently into the incubator, well beyond the traditional 3-month timeline.
Often times the gestation period is dependent upon the start-up’s complexity and
development needs. Many times incubators will not graduate a start-up until there
is a fully sustainable business model, and there is more to show than just a
prototype product.
This is taking a page out of more established corporate innovation processes, like
the one system made famous by 3M. Here, what is provided is not only space and
supplies for a team to get their idea off the ground, but the host organization also
takes a lead responsibility in filling the missing team and functional gaps such as
finance, marketing, project management, and strategy. In this way the incubator

8. graduates not only entrepreneurs with a product and some mentoring, but instead
a founding team, fully equipped to grow from start-up to small business.
Innovation Works, an incubator I’ve written about before, was one
of the very first China Incubators and still one of the most famous. Created
by Ex-Head of Google China, Li Kai Fu, they incubate tech start-ups, but
bring these companies in-house and build out fully functioning teams around
them. They usually graduate only after a product is tested and there are
investors lined-up to take it to the next step. This whole process normally
takes much longer than 3 months.
Incubator Enterprises characteristic #2: Cut out start-up pitching,
instead cultivate investor expectations.
Whereas the mark of a great incubator in western countries is giving the start-up a
chance to pitch to a packed room of potential investors, China Incubator
Enterprises instead opt to act as agents, selecting the right investor introductions
and brokering the right deal.
This deal making has much to do with the fact that each incubator has pre-existing
relationships with a set investment community or network, usually specializing in
one specific area of interest. In some cases, an incubator’s inception is the direct

9. result of a pre-existing fund’s desired investment objectives, looking to develop
investment opportunities.
With the Incubator Enterprise knowing the investor preferences and objectives so
well, there is little need for pitching but instead collaborating with the investors on
their investment expectations and involvement right from the outset. In this way, the
start-up, and the investor(s) are developed from inception to be the perfect
partners.
Xindanwei has been the poster-child for Co-working spaces in China
since its launch in 2009, with a very distinct and strong open community
culture. Last year Xindanwei expanded to build Xinchejian (New
Garage), a specialized program for the Open Hardware, hacker and
maker communities. Xinchejian provides specific events, workshops,
machining tools & technology, plus prototype product exhibitions; all
crucially needed to grow this emerging community. What is more, this
special unit has developed its own network of specialized partners and
investors, people who have a specific interest in funding and prototyping
co-hacked gadgets. These partners coming in at the very earliest stages and
develop ideas together.

10. Incubator Enterprises characteristic #3: Find industries to fill beyond
tech.
The emergent Incubator Enterprise, with the intention of incubating longer, more
thoroughly, and molding investor expectations from the beginning, find greater
capabilities to nurture new business models. This is proving powerfully applicable
for capturing the new opportunities emerging from China’s diversifying economy
needs.
Each Incubator Enterprise, in capturing its industry specialization, is also
customizing their incubator to fit the specific needs of that industry’s start-up needs
and also that industry’s investor requirements. With this evolutionary approach,
Incubator Enterprises from different industries will have different incubation
timelines and boast different incubator component strengths. It is only in
customizing the incubator format can the incubator fill the needs existent beyond
tech.

11. Transi.st is an incubator that seeks to develop tech that has direct impact
on social good. Shifting from the ideology that a start-up’s primary path
leads to IPO, Transi.st chooses its China incubation projects first for its
scalability in social impact.
Yuenfen-Flow has constructed itself as the nexus between tech, business,
art, and sustainability. Boasting its offering of methodologies such as
IDEO’s Human Centered Design, Yuenfen-Flow chooses its projects for their
creativity and the merging of artistic and technical form and function.
Jue.io is perhaps one of the most exciting examples of an Incubator
Enterprise, specializing in manufacturing incubation. Jue,io seeks to attract
creative youth culture products; from new iPhone case concepts to
innovative RFID key chains for offline social networking. Jue.io was set up to
cater to the needs, expertise and interests of its founding investor, who
comes from the manufacturing industry. Boasting a vast network of OEM
manufacturer relationships, Jue.io offers not only team, product
development, and funding for the right manufactured product idea, but also
the right manufacturing and distribution partners. Jue.io’s incubator
capabilities are specialized for the needs of the industry it serves.

12. Localized industry contexts force incubators to structure differently
It is easy to see that these incubator innovations come from the different industry
forces present in China’s very different economy. As chronicled above, traditional
western incubators are a product of a driving macro demand for innovation
competition, a mature alternative asset-class investment community, and a highly
educated, freelance generation. China does not strongly possess any of these
forces. The incubator was started in China not as a reaction to competition need,
but with the intention of leading social change. It found itself in an economy with a
very immature investor community, and within a generation and culture that is not
overtly highly educated nor freelance. And so in order for the incubator to survive,
flourish and add value in a different industry context, the China incubator has had
to evolve, with a longer timeline, a greater vested interest, a different approach to
cultivating investors, and filling opportunities in many other industry fields.
These non-traditional forces are not unique only to China. We are seeing the
incubator evolve into Incubator Enterprises in other fields that require adaptation
for distinct requirements. In Canada, an Incubator Enterprise exists
named InstituteB, a specialty incubator focused on sustainability start-ups and
cultivating particular skills for the sustainability field with special relationships with
sustainability-focused investors. They also bring in start-ups for a long timeline,
build thoroughly, and graduate only with the right investor already in place.

13. CHINA INCUBATOR’S ROLE FROM A CULTURAL PERSPECTIVE
And so as people have alluded to the Western incubator as a new form of
graduate school for a highly educated, freelance generation, what is the meaning
of the emergence of China’s Incubator Enterprises to this new generation of
Chinese?
I would offer a suggestion that China’s Incubators act more like the equivalent to
an after-school program, or a special summer program, or an extra-curricular
sports team. What I mean is that it is within these kinds of environments that many
Western-raised children first developed specialized skills, and first learned how
their unique skill integrated into a larger team. More importantly it is within these
extra-curricular program that many talented youth first developed passions for
personal hobbies and interests, and added very important components to their
developing self identity.
I feel the China Incubator’s cultural role is providing a similar, and vital service,
albeit not extra-curricular, but full-time.
Leading edge Chinese youth, with newly constructed identities and the beginnings
of unique talent, are in need of space to refine and sharpen what raw ability they
have. Incubators become the place this cohort of creative talent can deepen who
they are and sharpen their skill.

14. This being still one of the earliest generations of Chinese creative talent, these
innovators have not enjoyed as comprehensive an upbringing as the young talent
in other mature societies. Therefore Chinese incubators are calibrated to allow
participants to specialize on one creative ability, while the incubator fills the other
skill gaps. As a consequence, the incubation period grows longer; to not only
allow the business to mature, but also the creative talent powering it.
Incubators in China can develop in this way because China creative talent is still
so rare and offers the great potential for highly unique value creation. As the
competitive pressures in China continue to rise, the value proposition to incubate
talent and new China business solutions is something no investor can ignore.
It is within these incubators that a new generation of Chinese creative talent is
realizing that there are other options to their future career and life path. For the
first time China’s creative middle class sees a viable, and socially acceptable path
to having one’s own ideas & inventions realized.
The new Chinese incubator enterprises are in part instigating new culture, and
may become the modus operandi for a new creative class of Chinese youth.
****

15. Kevin is COO for China Youthology,
a cultural innovation lab connecting
Brands with Youth. There he leads
business strategy & operations, and
contributes as a Sr. Insights specialist.
Kevin is a contributing writer at
Forbes.com, and in 2009 and 2010
Kevin (@kevinkclee) was named one
of the top 25 Twitterers in China by
AdAge China and China Law Blog.
He also is a respected blogger,
writing the well-regarded
genYchina.com.
Kevin has an MBA in Strategic
Management from Canada’s #1
business school, the Schulich School
of Business, York University.
E: kevin.lee@chinayouthology.com
B: http://genYchina.com
T: @kevinkclee
W: www.chinayouthology.com
W: www.chinayouthology.com/blog
W: www.openyouthology.com