By now, nearly every tech entrepreneur in China knows about Innovation Works, Dr.Kai-Fu Lee’s start-up incubator. By offering highly driven and intelligent and young entrepreneurs an environment to test and grow their high-tech business ideas with the support of resources and funding, many daring Chinese entrepreneurs are clamouring to be taken in to the IW family. So to gain more insight into the mechanics of IW, I talked with Chris Evdemon, General Manager of Incubation Programs.

1.What do you look for in entrepreneurs?

We have 3 different types of incubation programs so we are looking for different types of attributes and level experience for each one.

Firstly we have our main 6 month Acceleration program which we give a higher amount of seed financing and full-on incubation services and usually for these teams we are looking for more seasoned founder entrepreneurs that have in-depth industry expertise in the specific field they want to work in. So we have a lot of people coming out of large domestic internet companies like Tencent, Google China, RenRen and they have had some significant experience such as P&L responsibility or product management, essentially decision making positions. For them to leave high paying positions and stock-option grants to come and do a start-up is a guarantee for us that they are extremely committed. They have done the corporate thing and now feel really ready to get out and do a start-up. It’s really important for one of two of the founders to have this senior position and experience.

For our Jump-start program, it’s a bit like Y Combinator in the US which is a structured 3 month program where we give them much less money but give them a lot of education.  This program is geared towards young people who are 24-25 years old and have only 1-2 years work experience or just finished graduate school. There is a lot more risk with this group because entrepreneurship is not that cool compared to America because there’s a lot more peer and family pressure to go for the safe type of job. We are always looking for exceptionally talented people. Of course they are highly sought after by all the major technology companies here like Tencent or Baidu and can earn 3-4 times more than in a start-up. For these younger people the commitment levels are not there yet but we still need to give them a chance to experiment and learn.

Our third program is the EIR or Entrepreneurs in Residence for individuals and not teams. We want the top people who have left their previous career and are realizing their entrepreneurial ambitions. They don’t have a specific idea or team or even co-founders. We just help them to use our resources and start building their team. For example one guy used to be the CTO of a top 3 security software company in China and he was there for 10 years and we have been talking we have been talking to one of Baidu’s ex-Chief Architects for this program.

2.Is there a general trend of where your company founders are from?

In our Jump Start program we have 7 teams, 5 of them are from Beijing, 1 is from Hangzhou and 1 from Xi’an.  We received 1,000 applications and a lot were from 2nd or 3rd tier cities. The heart of TMT in China is still Beijing and at least half of the activity especially in the internet, mobile and cloud computing space is here.  But we have a few people from Tencent Shenzhen, people from Alibaba in Hangzhou. We are open to anyone as long as they are exceptionally talented and committed to start-up and willing to relocate to Beijing because we still believe in very hands on incubation style.

3.What do you look for in start-ups? Business model or people?

We are looking at the people first and foremost. Business models change and often have to change quickly over the life to the start-up. Models have to be flexible and listen to the market. This flexibility is actually one of the qualities and values we look for in people. An early stage investor should focus on this characteristic. I would say people, business idea and timing are the 3 most important things but people are by far the most important.

4.Can you give an example of the most impressive start-up, IW had to have?

Yes, one of our first projects, Tapas Mobile is the most advanced now. It is now up to series A investment stage and has about 50 people and a product that has been publicly launched. They are creating an Android based operating system for smart-phones and Sharp has already released a domestic device. When it first started it was mainly a product team and engineers with guidance from Kai-Fu but no one really leading it for a few months, which was a very big problem. From the beginning we were looking for top class people to lead this team but when we did it made a whole world of difference. For example we brought in the ex-GM of Baidu Wireless, Lei Zhang to be CEO and ex-head of Tencent Mobile Products Mily You and as soon as these two guys joined the company literally took off. It illustrates what world class people can do in a start-up.

5.How much does IW normally invest, and for how much equity?

For the acceleration program, IW invests between US$100,000-200,000 and equity does not exceed 15-20%.  So the vast majority of equity is still owned by the founders and they are completely in control. In fact, I don’t like the word ‘invest’ because we look at ourselves more as minority co-founders because at that stage it’s so early and we help them with more than investment. We have more than 40 full-time professionals such as HR, Legal, Accounting, UI/UX, IT and that can support the start-up teams and of course we provide rent-free space and all the equipment. Plus the environment and eco-system all together is much more than just an incubator. We are really a minority co-founder and take ordinary shares so our interest is 100% aligned with the entrepreneur.

6.What is the process to get in?

For the Jump-Start program we have an online application form on chuangxin.com including a video section, after receiving applications we have a pre-screening process and then 1-2 round of interviews before we make our selection. For our next batch starting in May we will probably take around 15 teams and we have just opened up the application form that closes at the end of March.

For our Acceleration program people can keep in touch with us through e-mail but we don’t take any formal applications. We hand-pick all the teams because it ultimately involves a lot of time, effort and money. So it’s a very grass-roots process taken by our investment team.

7.Is there a typical exit strategy?

No, it is totally up to the founders. There is no pre-agreed exit deal. In fact in China one of the biggest problems for early stage technology investments is almost complete absence of M&A environment like the USA where cool start-ups can be acquired 18-24 months after starting for very good returns. But conditions are improving and there are signs of life but the situation is far away from the American reality. That forces entrepreneurs to build for the long-term, to build companies that are going to last. Of course this also increases the failure rate but in general it’s not a bad thing.

8.Where do you see the internet and tech start-up industry in 2011?

We are making big bets on mobile internet and Android. I also see some consolidation in the gaming space because it is very competitive and fragmented.

So for all you entrepreneurs with crazy ideas and ambition, if you think Innovation Works is the right thing for you to help you succeed, give it your best shot! You only live once.