Interview: China vs. Silicon Valley

One of my long time connections reached out to ask me a few questions about China and why I am in Shenzhen. I thought it might interest some more people.

Each city or region in China has its strengths and weaknesses.
Beijing is strong on software.
Shenzhen is strong with hardware- in fact it has more resources than Silicon Valley for going from “0 to 1” then from “1 to many”.

Silicon Valley is a particular ecosystem. I see 6 components to an ecosystem (see my TechCrunch column on the topic here).

(1) Market size: US is still No.1 GDP, but China is a very large market. It is growing into its own “Digital Civilization”.

(2) Capital (early stage to M&A/IPO): over the past few years China has grown a strong angel scene, most are inexperienced, which create its own set of problems. there is also lots of growth capital. M&As are still rare but growing.

(3) Talent: Many engineers, many entrepreneurs but generally lack of connection between research and entrepreneurship, so most of what is funded is consumer-level tech in web, mobile and hardware. Much more derivative than innovative, then strong focus on execution.

(4) Culture: entrepreneurship is widely accepted. Failure in good faith is less detrimental than it used to be.

(5) Infrastructure: Web/mobile networks are good (if you don’t need much international browsing, which is a minority of visits anyway). Better “human infrastructure” too with events, salons, clubs for entrepreneurs and investors. It is still lacking the legal / accounting infra for speed and lowering costs of funding events.

(6) Regulations: Could be better. Faster to register a company, difficult to hire from overseas, though easier than in US! There is also the overhanging problem of “gray” offshore financial vehicles.

If you’re not chinese and target the China market it’s very hard. Imagine starting in the US when you don’t speak English and don’t know the culture. However, if you want to leverage the Shenzhen ecosystem for a global hardware startup, it’s easier than ever.

China is more competitive, faster, wilder than any place I’ve seen (and I’ve seen many). The scale startups can reach is bigger and faster than in Europe (think about the number of recent $100m+ funding rounds in China).

Yes. It is now supported by “first generation startup people” who made money with Tencent, Alibaba, Baidu, etc. It’s not as “pay it forward” as Silicon Valley, but for that, SV is more the global anomaly than the rule! Many investment events seem to be based on personal networks or growth.

Yes. But my perception is that people are not impressed as they are in the West by “innovation” for innovation’s sake. People watch the bottom line much more closely, and don’t fall in love with tech as much. They want to see numbers: users, growth and/or revenue. Also, the “lone genius” myth you find in USA does not seem as strong in China.

It’s quite early to tell as HAX is just 3 years old (a typical exit is 8 years) but:

Successes:

  • A few companies with valuations between $10-$50m: Particle, Makeblock, Yeelink, and a few more not yet announced.
  • A few spectacular crowdfunded projects that raised over $1mln each on Kickstarter: CHIP, the $9 computer, Prynt, which turns your smartphone into an instant camera and Kokoon, the smart headphones for sleep.
  • Some projects that did not get as much visibility but are exciting technology breakthroughs such as Electroloom, a revolutionary 3D printer for fabric.
  • Some more in the making, in particular in the field of robotics and medical devices.

Failures:

It’s the right place, the right time and the right people!

Partner @ SOSV — $700m VC fund for Deep Tech (biology, robotics, etc.) | Digital Naturalist | Keynote Speaker | Angel Investor

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