The start-up frenzy gripping China

Silicon Valley venture capital godfather Peter Thiel’s book Zero to One: Notes on start-ups or how to build the future is flying off the shelves in China. It is fast becoming a bible for China’s ever burgeoning legion of start-up entrepreneurs and venture capitalists.

The country has been swept away by an innovation mania. The Chinese government, which is managing the difficult task of restructuring the country’s export and investment dependent economy, is only too happy to encourage the trend.

Premier Li Keqiang paid a visit to 3W cafe, an incubator at the heart of China’s innovation strip in Beijing, last week and it caused quite a stir.



The photo of him drinking a cup of coffee at 3W has gone viral on Chinese social media.

Premier Li has been drumming up support for an innovation-based economy since last September, when he said “just try to imagine, there are 800 to 900 million workers out of 1.3 billion, if all of them take part in innovation and start new businesses, this is an enormous force.”



A lot of young people in China are heeding Beijing’s call to set up their own businesses. Many more are inspired by the extraordinary success of Jack Ma, who founded the e-commerce giant Alibaba, which is now one of the largest internet companies in the world.

Tim Fung, a co-founder of Airtasker, one of Australia’s most successful local market services marketplaces, has travelled to China many times and experienced the innovation buzz in the country.



Fung, a former investment banker at Macquarie, says the competition for talent and money in the start-up sector is like a war.

“They say it is a war. In a war, we need to raise more money than they do and market harder than they do. It is also reflected in their HR practices, people joke over there and say technology jobs are only 9 to 3, and they actually mean 9am to 3am,” he said.

American, Asian and Chinese capital has poured money into the fast growing sector. Prominent VC funds like Softbank China Venture Capital have ten offices in China, from Beijing to the tech hub of Shenzhen. Softbank is the largest shareholder of e-commerce giant Alibaba.

“Even companies like TechCrunch have an incubator in China. Because it is such an interesting market, everyone is moving there,” Fung says.

Chinese companies accounted for 34 per cent of global technology initial public offerings in 2014, compared to just 13 per cent in 2013, according to a recent PwC report. Venture capitalists poured $US15.5bn into China deals last year, more than twice the previous record of $US7.34bn set in 2011.

Fung also attacks the widely held idea that China is a country of copycats and incapable of innovation.

“The innovation in China is really, really good. A lot of people think China is full of copycat products but that is not true anymore,” he says.

“Tinder was a product that was first created in China. WeChat has features in there which are just so far ahead of WhatsApp. A lot of things that are coming out of China are just really powerful innovation.”

The aggressive competition for talent as well as ideas is driving some Chinese VCs away from China to look for talent abroad so they don’t have to pay sky-high valuations.



“The aggression you see in the market is just crazy. People just come up with ideas and they will raise $100 or $200m to pursue their ideas hard,” Fung says.

A capital rising announced by Airtasker last week is understood to be one of the first major investments by China-based investors in an Australian technology start-up. The $6m round was led by Shanghai-based Morning Crest Capital.

The buzzing innovation sector is arguably one of the few bright spots in an otherwise disappointing Chinese economy.



As our Beijing correspondent Fergus Ryan recently noted, big Chinese tech players like Alibaba, Baidu and Tencent are now paying top dollars for emerging players in an intensifying digital land grab.