China’s tech ventures struggle with capital

By Chen Qingqing Source:Global Times Published: 2015-12-20 18:58:01

One of the most talked about trends of 2015 has been the rapid growth in tech start-ups. As the government has pushed forward the idea of building an innovation-driven economy, praising Internet platforms that facilitate people's everyday lives, many entrepreneurs have been inspired to quit their jobs and start their own businesses. However, the ongoing economic slowdown and the stock markets turmoil over the summer has created a challenging environment for China's start-ups. On a recent visit to several companies in Beijing, the Global Times spoke with young entrepreneurs about their experiences in 2015.

A man walks down Beijing's Zhongguancun Inno Way, a hub for entrepreneurs in the city's Haidian District. The area has become less popular as the capital market has cooled. Photo: Chen Qingqing /GT

On a chilly winter morning at the 3W coffee shop in Beijing's Zhongguancun Inno Way, a hub for entrepreneurs in Haidian district, a few men in suits sat around talking about how the Internet has changed the food delivery business.

He Jinlong, 24, stepped into the cafe around 10 am. Like the other young people sitting there working on their laptops, he was also "trying to find a quiet place, where I can think through the business that I will launch sooner or later," he told the Global Times on Tuesday.

Photos of some of the world's most famous entrepreneurs such as Bill Gates and Steve Jobs hang on the walls of the cafe, where Premier Li Keqiang had a cup of coffee in May. Li's  high-profile visit has contributed to the popularity of the 3W coffee.

However, the arrival of winter has been accompanied by a hard winter in the capital markets as well.

Although some well-known online-to-offline (020) companies such as and have chosen to cuddle together for warmth by merging, small start-ups have not found their own ways to withstand the cold, He said.  

Although the government has highlighted the innovation and entrepreneurship as a priority in 2015, He hasn't been blown away by this.

"I don't see it all as positive, because the booming 'Internet Plus' industries have also generated a frenzy of followers who did not come up with any valuable ideas," He said.

He, a graduate of Northwest A&F University in Northwest China's Shaanxi Province, said he has been exploring in different areas such as finance and agriculture since 2013, trying to find a business that he is really interested in.

After running up a debt of more than 300,000 yuan ($46,275) in 2014, "I delivered packages, did marketing work for O2O firms everyday to pay off my debt, but all of it serves as the preparation for starting my own business," He said.

During the difficult times, He clung to thoughts of his idol Salman Khan, founder of the US-based non-profit online educational platform Khan Academy.

"My dream is to create a Chinese version of that e-learning platform, which offers video tutorials that are fun and useful," he said.

In August, He decided to come to Beijing, a city full of opportunities and possibilities in his eyes.

Boom or bubble

Nearly 10,000 new companies have been established in China every day in 2015, Beijing Normal University said in a report in November.

A growing number of entrepreneurs - many of whom are well-educated - have established businesses modeled on the "Internet Plus" strategy, according to the report.

The US consultancy firm McKinsey & Company said in a report in October that China will have to evolve from an "innovation sponge," absorbing and adapting existing technology and knowledge from around the world, into a global innovation leader. And by 2025, new innovation opportunities could contribute $1 trillion to $2.2 trillion a year to China's economy.

In terms of the capital market, the appetite for investing in fast-growing private start-ups insatiable, Anand Sanwal, CEO of CB Insights, was quoted in a report in October.

Regionally, North America continues to lead the global venture capital activity, with $59 billion invested in the first nine months of 2015. Still, Asia saw the biggest gains in the total funding.

"Both the deal volume and deal value rose significantly in Asia during the third quarter, led by China's $3 billion Didi Kuaidi deal - the biggest deal globally in the quarter," Arik Speier, head of tech practice of KPMG, was quoted in the report.

Since 2014, Chinese start-ups have been dealing with ups and downs, said Zhou Xiang, head of Alpha Program of the independent investment bank China Renaissance.

"Most new ideas such as 'Internet plus the education' and 'Internet plus the agriculture' have already appeared in 2014," Zhou told the Global Times Tuesday.

"The lack of creativity, however, became a major weakness for Chinese entrepreneurs a year later," Zhou said.

Zhou noted that an increasing number of start-ups have ended up competing for the same business, as the Internet has also been recognized as a winner-take-all competition.

In CB Insight's report, Speier also noted that although venture capital investment has been substantial, the trend in Asia, including China in particular, has been toward more conservative investments.

After the turbulence in China's stock markets in the second quarter, investors have become more cautious.

 "Since the summer, we've noticed downward pressure on the fundraising market," he said.

"On one side, investors have been spending a lot more time evaluating potential deals; on the other, start-ups have grown more eager for the money."

A hope for Spring

Young Chinese entrepreneurs share some common characteristics: persistence and optimism.

In a rented office in Beijing's Chaoyang district, Ren Mu, 30, co-founder of, a meal-kit delivery service, said late at night on Tuesday that he had just finished a meeting.

"I don't actually have regular work hours," he said. "Sometimes it's the whole day or the whole night."

After graduating from the university, Ren said he became taken with the idea of making cooking fun and easy. "So, I decided to quit my job and launch this Internet-powered O2O service in January 2014," he said.

Following a flurry of media attention about his meal-kit delivery service in September 2014, many followers, or imitators, appeared.

"Unlike us, some of them don't have effective production and logistics management, or any clear corporate strategies," Ren told the Global Times Tuesday.

"I don't think companies that copy others' ideas will survive this 'cold and harsh' winter," he said.

The slowdown in the capital market might be beneficial as it culls some less worthy start-ups from the market, said Liu Di, founder of the Gengmei app, which links users with doctors and plastic surgeons.

"Since I started my own business in 2009, I've gone through many difficulties, but luckily I didn't give up as I finally found a sustainable business model," Liu told the Global Times Wednesday.

"In the first half, the company has closed tens of millions of dollars in the Series B financing, with the participation of Vivo Capital and Sequoia Capital. We will keep moving forward in 2016, and nothing can stop us."
Newspaper headline: A shivery season for start-ups

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