An Update on China's Startup Landscape
Lessons from pitching in China and speaking with local founders and investors.
A few weeks ago I flew to Chengdu, China to take part in a startup competition and regional tech talent conference. Chengdu is the fifth largest city in China and home of the giant panda.
A historic city that played a key role in medieval China’s warring era, I decided to fly in early to spend a few days sightseeing. On the second day, aching from my city walks, I popped into a nice, classy massage place inside a mall.
The receptionist asked me if I had pre-paid online through “Meituan” (a popular Chinese e-commerce app) and made an appointment.
I said no. She explained that walk-in prices are significantly higher. I said it’s ok and that I would like to pay in cash. She blinked and stared for a while.
Since I spoke Chinese fluently, she probably didn’t realize I was a foreigner. I explained that to her and she started panicking.
They had no cash in the shop she said. In fact, they didn’t even have a POS system. Everything was pre-booked online and paid through a mobile wallet.
I was stuck.
I had WeChat and Alipay wallets (the two mobile wallets that every Chinese citizen has) from living and working in China back in 2015. But my accounts were frozen due a long period of inactivity. It was only my second day in town and I was still trying to get both reactivated. But that required a local SIM card for account authentication.
In fact, almost all Chinese apps require a local phone number to receive authentication codes. Pre-paid SIM cards were no longer sold due to widespread scams and I had to go to a telco’s customer service outlet to apply for a new line in person.
And so after a lengthy explanation, the receptionist tried to ask her co-workers for cash to give me change. No one had any. One middle age foot reflexologist even said with a wry smirk, “What era is this? Who would still be carrying cash!”
That pattern continued everywhere I went. Coffee shops, pubs, restaurants, taxis. Everyone stared at me like I was an alien when I took out cash to pay. Many had to scramble and ask around for change because nobody used cash anymore.
Detached and isolated
And that, in a nutshell, is China today.
A totally cashless country with a separate ecosystem for fintech, e-commerce and social media. There is the western financial system and internet economy that everyone else in the world is linked to, and then there is China.
You can’t use your international credit cards outside of 5-star hotels and the airport.* Most of your apps, SaaS, media and streaming services can’t be accessed in China (except for Microsoft products) because of the great firewall. The entire internet economy and digital marketing ecosystem works in a very different way from the outside world.
And that standoff and separate paths in technology and financial systems is set to grow even further.
Today China is trying to attract overseas Chinese talent back home to contribute to the motherland. That message was clear in all the events that I attended.
They also want PhDs and deep tech professionals from other countries to come to China to boost its proprietary technology edge. They invited a Nobel laureate from Israel to be their VIP and also held a pre-event startup contest there.
During the contest, it was clear that the judges love technology that rivals well-known western companies and can fit into their national agenda for biotech, AI, military tech, industrial IoT, green-tech and the likes.
On the flipside, they frown upon passé startup themes like blockchain, SaaS, e-commerce and the gig economy. In fact, I’m told local internet startups feel that the Chinese market is saturated and are looking for overseas opportunities.
Don’t try your YC style pitch in China
Most startup programs today train founders in the Y-combinator style lean startup and MVP approach. In pitches we are taught to use as little slides as possible with minimalist designs and tell a storied vision with a smooth flow, keeping strictly to the time given.
In the Chengdu competition, only pitches that were delivered by native Chinese speakers made it into the finals.** They all had many slides cluttered with content and lots of text. It felt more like a detailed corporate deck rather than visual aids for a verbal pitch. We were told to submit our decks beforehand and some judges had already reviewed them.
Most of the finalists struggled to keep to the time given. They either rushed thru’ their deck or had to be stopped by the timer with more to go.
And many of the companies were later stage startups that already had millions in revenue. A couple of them couldn’t even really be considered startups since they were legacy companies that had operated for close to two decades.
I’m told by a local founder that in recent years many such companies took part in startup pitch competitions to earn credibility for local government grants, tenders and subsidies. Since the Chinese competitions didn’t seem to have a cap on funding stage or amount raised, they were allowed to enter.
And unlike western startup competitions where most founders looked like kids out of college, almost all the finalists were clearly middle age and above.
The modest prize money also didn’t seem to matter to these ‘startups’. One third prize winner didn’t even stay for the awards ceremony. He flew out immediately after the finals to do a sales meeting in another country. Several other finalists also left early despite the event rules stating clearly that your prize money could be forfeited if you didn’t stay for the whole program.
Doing it my way
Owing to US-China tensions, first Sequoia and then GGV — two large and well-known American venture capital brands — have announced recently that their China funds will split off and become independent operations.
Eight years ago when I lived and worked in Shenzhen, building a mobile app startup from ground up, I felt that the vibe in the startup scene was very similar to the West. Many of the founders were educated overseas and had came home to seek their fortunes in the promising Chinese market. The biggest VCs were also outposts of Silicon Valley titans and/or started by partners who were mostly bilingual overseas Chinese who had studied and worked abroad.
On this trip, even though it was clear that the events I attended in Chengdu were aimed at attracting overseas Chinese talent back home, the local startup ecosystem felt very different from the West. The whole vibe had its own distinct Chinese characteristics. Perhaps it was because I was in an inner city event sponsored by the provincial government.
But more importantly, in a social dinner post-event, a VC who was one of the judges shared with me privately why he thought some of the startups won. It was because what they were doing synergized very well with the industrial base and development goals of the provincial government.
Case in point: The winner of the Israel pre-event was a very impressive cybersecurity startup. But among the 100 semi-finalists who came to Chengdu to compete onsite, that startup didn’t make it into the top 10 for the finals.
So the important lessons learnt were these:
If you are going to pitch in China, do it in Chinese if you can.
Even if you have very impressive technology, research the contest sponsors and talk about how you fit into their agenda.
They don’t really care about your product’s potential outside of China. It’s what China needs that matters.
Doing business in China today isn’t just about adaptation. It’s a completely different world to operate in.
All in all, it was a good experience. I made a lot of new friends and gain updated insights into China’s economy and the tech startup scene.
But would I advise any startups to venture into China? Only if there is clear synergy with what you are doing and you are prepared to set up shop there with a localized team. The odds of success seems quite low if you just want to raise funds.
*To help foreigners overcome this issue, WeChat and Alipay recently introduced the ability to link international credit cards to their mobile wallets. But as at the time I was there, Alipay's service was buggy and only worked when you are connected to WiFi.
**Going by anecdotal evidence, this language advantage seems pretty important because most of the judges weren’t fluent in English; and the Chinese interpreters provided by the organizers varied widely in quality.