It's Data Privacy Day and when it comes to generating privacy-related buzz in the blogosphere, there are few governments as controversial as China. From Google's recent security issues, to blocked social media sites to the proposed Green Dan censorship program, Western netizens have always had a tenuous relationship with China. As part of our Never Mind the Valley series, ReadWriteWeb spoke to several investors and entrepreneurs to find out what it's like to run a startup beyond what many describe as the "Great Firewall".
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While areas like Shanghai's Zhangjiang Hi-Tech Park and PKU-HKUST Shenzhen-Hong Kong Institution have sprung up as tech hubs, there's no denying that Beijing's Zhongguancun National Innovation Model Park is considered the country's tech epicenter. Nestled in the southwest corner of the city, the region plays host to the University of Beijing, Tsinghua University and the Chinese Academy of Science. Since the early eighties, major players like Baidu, Sina and Sohu have skyrocketed to success while sharing the land with global companies like Nokia, IBM and Microsoft. Today, the region tax breaks and opportunities for large and small companies alike.
Emerging Markets
While Facebook often boasts of its 350 million users, in China alone there are 340 million netizens with the majority opting to use alternative social sites like 51.com QZone and RenRen.
Says Barrett Parkman, International Business Development Manager at Mobile Internet Great Wall Club, "Having user generated content as the core of a company here is risky business. Not to say UGC isn't alive and well, it's just that companies have to take strong measures to restrict it to uncontroversial topics. This is another reason that the gaming sector and virtual goods industry are growing so rapidly since they are generally uncontroversial in nature."
Because of China's leadership in the gaming sector, CMUNE CEO Ludovic Bodin is taking Chinese revenue models and applying them to his Western-launched products such as Paradise Paintball. Says Bodin, "China is one of the most advanced country in the world for online gaming and has strong knowledge of the sale of virtual goods as a primary business model. CMUNE is taking the best practices in China and adapting for a non-Chinese context and audience. Developing here gives us an advantage to later launch into the Chinese market. "
Plus Eight Star CEO Benjamin Joffe further addresses China's meteoric growth in gaming and virtual goods. Joffe frequently presents emerging trends in China's mobile, telecom and Internet markets.
Explains Joffe, "The online gaming market is still booming despite being already very large. There are nine companies listed on NASDAQ and Hong Kong stock exchanges including Tencent." Joffe argues that while many Chinese companies began similar to their Western counterparts, founders quickly realized the need to generate revenue beyond the ad model. As the leading community portal in China, Tencent earned more than $1.5 billion dollars in revenue last year with a large portion of that generated through virtual goods.
In addition to watching the social gaming space, Joffe suggests that technologists look for interesting plays from the business social networking space and from a unique matchmaking service with a hybrid call center/online component called Zhenai.
Funding
There is no shortage of venture capital firms in China. Groups such as GSR Ventures, Sequoia China and Kleiner Perkins Caufield and Byers are all present for those seeking large-scale funding. As well, Huang Shengli's China Renaissance and a number of other firms help broker private equity deals.
On the other hand, entrepreneurs with more modest needs can find fundraising challenging. Says Richard Robinson, CEO of casual gaming site Kooky Panda, "Later stage VC funding is advanced and even frothy here in the Middle Kingdom and the early stage is still quite nascent." Robinson goes to explain how much of the angel funding in China comes from friends, family and industry insiders. Nevertheless, that environment is improving as new groups step up with seed money and mentorship for early-stage investors.
Former president of Google China Dr. Kai-Fu Lee launched Innovation Works as a $115 million dollar venture fund for early-stage entrepreneurs. The fund focuses on web, mobile and cloud computing technologies targeted at the greater Chinese market and investors include YouTube cofounder Steve Chen and makers of Lenovo, Legend Group. Additional sources for angel funding include associations such as the Asia America MultiTechnology Association angel group, the China Business Angel Network and The Chinese Founders Fund.
Says Dr. Jovan Hsu founding partner of the Chinese Founders Fund, "There are few funds looking to invest in companies where the valuation is less than $10 million dollars and private equity firms are even higher. Early stage companies need more angel funds. The Chinese Founders Fund finds itself in a good position in the investment food chain in China. We're providing smart money."
Mentorship and Learning
Organizations like the Great Wall Club and China Entrepreneurs offer opportunities to network and gain mentorship, while Mobile Monday and Web Wednesday offer regular events for those looking to discuss the latest trends. Meanwhile, research firms like Analysys, iResearch and China ICT host larger conferences for annual business development opportunities.
Operations
With 35 million unique visitors per month to his site, CEO Fritz Demopoulos' Qunar is China's leading online travel company. Some of the advantages Demopoulos lists in keeping his business in China is the close proximity to the world's largest internet market, the thriving startup ecosystem with professional firms and universities, and a large number of capable professionals willing to work in a startup business.
Says Demopoulos, "I've lived in China for many years and I've been involved in media and internet projects for nearly a decade. Globalization provides talent, resources, and the chance to deploy anywhere and seek returns. I'm no exception."
Says Victor Tong, an angel investor in WebPlus and former director at Talentsoft, "China has built up a market-oriented economy and the business environment is quite free now. Meanwhile, great development in information technology provides companies a lot of support in their business operation...Doing business in China is a great experience. The 1.3 billion person consumer market is a temptation that's too hard to resist. "
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