Startup empire on the rise: What’s happening behind the Great Wall of China?
Todd Embley, the Program Director at Chinaccelerator, is a serial entrepreneur who has been living in China for more than 6 years. After having him as a jury member at Seedstars Shanghai, and we are more than happy to welcome him just a week from now as one of our mentors at the Seedstars World Bootcamp. In the meantime, we discussed with him the unique startup ecosystem in China and in which direction the things are moving.
SSW: Given China’s massive population, why aren’t we seeing more of the world’s top startups coming from there?
TE: That’s an excellent question. The full circle of a great startup community contains entrepreneurs, mentors, investors, market, and a government that encourages it. I’ll tap the entrepreneur pillar to start.
The culture in China does not exactly foster entrepreneurship. Today’s youth in China have a life that is strictly controlled by their parents. They also don’t have to work, they don’t have to do the dishes; their parents will handle most everything so they can study, graduate from a prestigious university and get a job that most probably their parents will have arranged for them.
Most of today’s Chinese that are in the 20–40 years old range (where 99% of entrepreneurs fall), given the above, haven’t had the same opportunities to make choices for themselves as a teenager or University student. Choices inevitably lead to failures of some sort, and the scar tissue of failures is the armor of the great entrepreneur.
The bottom line is, Chinese kids are raised without the opportunity to experience life’s difficulties and challenges until they start working, which doesn’t happen until after University. The industry now understands, through much trial and error, that the best entrepreneurs are the ones with a deep seeded passion to solve a problem that they are emotionally tied to, one where they personally experienced the pain point they are trying to solve. However, if you rarely experienced pain points in your life, how you are going to passionately and effectively build a solution for it? It’s nearly impossible, and as investors we are always looking for that ‘never say die’ attitude that should be running through the founders’ veins with a purpose.
The best entrepreneurs are the ones with a deep seeded passion to solve a problem that they are emotionally tied to, one where they personally experienced the pain point they are trying to solve
My message to parent’s in China is loosen the reigns and let your children make choices a la mistakes; they’ll surprise you with their ability to accept and overcome the challenges. If you’re not averse to them becoming entrepreneurs, this will be incredibly valuable for them should they choose to go that route later in life.
SSW: Chinaccelerator is one of very few accelerators in China. Why is that?
TE: First let me clarify the fact that there is no definitive, Webster’s dictionary definition of what an accelerator is, and thusly there are hundreds of incubators in China who call themselves accelerators, and probably many more around the world. We are still, in my humble opinion, the only one operating as a mentorship-driven, seed-funding, fixed cohort featuring a Demo Day accelerator, and were actually the first accelerator in China, just ahead of Innovation Works (who’s China operations have moved to strictly VC).
Secondly, accelerators are based on creating a cooperative community of startups, mentors, investors and media. Curating these relationships and simply striving to be helpful to startups is 90% of the job. Sound anything like China? Probably not. We’ve spent 4 years banging our heads against the walls over here building the necessary partnerships, sourcing the best mentors, and building a great brand, and if it hadn’t been for the solid commitment of SOSventures having the long-term vision and faith in what we were trying to do here we would never have lasted this long. Thankfully we’re now seeing amazing returns on our lengthy investment here and frankly its going to be tough for any accelerator to overtake us as APAC/s leading accelerator; tenure has a much higher value in Asia than in the West.
SSW: Is the government doing something to promote entrepreneurship?
TE: I honestly have to applaud the Government of China for their efforts to drive innovation and entrepreneurship in China; they are really really trying hard. That said, it has been a bit of a spray and pray effort without much return so far. China is a behemoth and not easily course-corrected. There are a tremendous amount of hurdles that are unique to China as well, most stemming from it’s unique recent history during the Mao era 50 or so years ago. The ups and downs of the surrounding years of Mao’s leadership created a nation that was risk averse. Education, safe job with a big company; this was the new focus of young peoples’ lives, decided upon by their parents who lived through those tumultuous times. It’s been very difficult for the current Government to drive young people to branch out and try to start their own companies and create a culture of innovation overnight as this was something severely punished just 50 years ago.
It’s been very difficult for the current Government to drive young people to branch out and try to start their own companies and create a culture of innovation overnight.
The government is flooding the startup market with an ocean of money, but as you can imagine this is one thing China can’t fix overnight by throwing money and labor at. It will come, but it will need a near generational turnover before it really booms. 2020 sounds about right, and a widely celebrated entrepreneur would help tremendously (look at what Yao Ming did for basketball in China).
SSW: Why? Isn’t an easy funding from the government every startup’s dream?
TE: The thing is, lean startup is the direct antithesis of Chinese culture, where you just don’t admit that you don’t know something. As a Chinese startup, you don’t release beta versions and get feedback, because the last thing you want to hear is someone criticising you.
What we know about entrepreneurs is that failure is a badge of honor; the scars of trying and failing, that scar tissue is actually our armor, it is what makes us strong and persistent. It makes us healthy and it makes us knowledgeable. Almost like a good soldier, we learnt how to fight the battle and survive. And then once we figure that out, we learn how to succeed.
Now consider that the government has given startups excessive amount of money which they spend developing a product that will never be shown to customers until it is 100% ready. It inevitably fails in part or as a whole, and having spent most of their capital already there is no time to reset or go back to the drawing board.
For the money that government have provided them, one could have built five companies and have failed so much more, meaning one could have learnt so much more. But this didn’t happen, they’ve done it the very comfortable way and built something without measuring and learning along the way. Game over.
SSW: However, can you see things changing?
TE: Definitely. The success cases, such as Baidu, WeChat or Alibaba, are helping parents consider entrepreneurship as a viable career path for their children. Also, the government is starting to understand the value of entrepreneurship, tech and innovation as a spirit not a path to fame.
For example, a couple of years ago I asked one famous investor to become a mentor at Chinaccelerator. He was very famous with over 20m followers on his Weibo. He said he felt mentoring was a waste of time. If he is interested in a company, he will invest, take over the controls and make it successful, but he saw no point in being just a mentor because there was very little in it for him. You see, just a few years ago, Chinese investors saw absolutely no need to give back to the community of entrepreneurship philanthropically. It was an extremely self-serving and protectionist ecosystem. Very different than the western philosophy of ‘when the level of the water goes up, all the boats go up’ give back mentality.
The government is paying more attention and pushes investors to take a more proactive approach.
But now, the government is paying more attention and pushes investors to take a more proactive approach. I met the same investor only six months ago and asked him again what it is going to take for him to become a mentor. His reply was “Well you do have a nice golf course out there, I’d be happy to come.” the joke about the golf course aside, that was a pretty dramatic turnaround from his attitude from a year earlier, so I asked him why. According to him, the government has since asked investors to start spending more time with startups. With that kind of incredible turnaround in attitude represented by that one investor, the future here is looking very bright.
SSW: What would you recommend to foreign investors who are considering investing in China?
TE: First of all, go find a book called Mr. China and read that. Once you are done reading it and you still want to come, come and talk to me and I’ll set you straight (laugh). You have no idea what you are getting into unless you’re planning to jump in at the go global stage of their development — then you could really be very helpful. If you are an early-stage investor, the best thing to do is to stay home and help startups in a geographical area where you have connections and where you can provide some of the biggest value possible early on. China is incredibly unique and quirky to say the least, my advice is look elsewhere for now.
On top of that, the legalities of trying to invest here are downright terrible. Just the paperwork will make you run away screaming.
SSW: And how about companies that want to enter the Chinese market?
TE: Very similar advice that I would give foreign investors: If you are building something for China and you don’t have at least five years experience living here and a Chinese co-founder, I would not recommend it. Nobody from outside of China should ever think they can build a solution for China, unless they have a really strong Chinese co-founder. Also, if at least half of the company is not owned by a Chinese person, you will never raise money from Chinese funds or angels. The investors will feel they cannot trust you and they cannot communicate with you. The cultural difference is just too big.
SSW: What do you really admire about the culture in China that is keeping you there?
TE: So I’m the kind of person that loves being in the throes of change; China is one of the fastest moving, fastest evolving countries in the world, and I just love being here. I’m not sure another country in the history of mankind has ever made this great a leap in such a short period of time. This might get me into a bit of hot water but I have a great appreciation for Communism. The Government can move mountains in the blink of an eye without asking for “permission” from constituents, which is fabulously wrought with risk but so far so good lately here. They are stepping up and cleaning up everything from the pollution to the rampant corruption across Government and woven deep into industry here. And doing it quickly, it’s really been incredible to witness.
Life is all about experiences; being happy and filling your memory with awesome experiences. So far it has been hell of a ride, and what better place to be than China these years in this industry? It’s insane and I love it.
Chinaccelerator is currently accepting applications for Batch Vll. If you are interested, feel free to apply at www.chinaccelerator.com/apply.
