The costs of launching a tech startup are daunting in any market. But for companies that require a longer development runway, Silicon Valley’s premium prices can completely snuff out a new product.
It’s a problem that has seen many entrepreneurs look elsewhere, including China, to look for capital and a cost of living that doesn’t drain their first funding cheque.
“It would have been close to impossible for us to build Traintracks in Silicon Valley,” says Nils Pihl, CEO of analytics tool Traintracks. “It took us two years and needed many skilled engineers just to build a beta with enough functionality to catch fire,” Mr. Pihl adds, commenting on the complex technology and massive scalability behind Traintracks.
The analytics tool company now has big Chinese clients like NetEase, Pengpeng, Tantan and Gizwits. Chinese IoT solution provider Gizwits is powering over 3 million connected devices, many of which are sending tremendous amount of data on a real-time basis.
“The fact that the software can be installed on-premise allows us to address larger clients than analytics products like Localytics or Mixpanel”, Pihl says.
“That would have cost us millions of dollars in Silicon Valley, no Silicon Valley investor, when it really comes down to it, is ready and willing to commit that kind of capital and not see any kind of progress for two years,” he says.
According to Mr. Pihl, Beijing doesn’t play by those rules. Traintracks raised half a million dollars here over two years, and clawed their way up to profitability within one year of launch. “The idea behind Traintracks was always valid, Silicon Valley is just not geared for that kind of brave innovation anymore.”
“All it does is churn out incremental improvements in selfie-taking technology,” he states.
Shanghai-based ‘The Squirrelz‘ is another startup that enjoys lower operating cost in China. The Squirrelz is a platform for products created from recycled materials, all-natural elements or in support of various social enterprises as well as a place for designers to source materials for their creations.
After completing Chinaccelerator’s 3-month program, the team is on its way to raising a $1 million USD seed fundraising round. With $300,000 USD already raised so far from SOS Ventures and several angel investors, The Squirrelz has grown its team to 12 in its office in Shanghai.
“Operating costs are far lower here in Shanghai, and we’ve been able to grow our team and operations quite quickly on a tight budget” founder and CEO Bunny Yan says. Having lived for two decades in New York, Ms. Yan knows the value of operating in Shanghai and the extremely high costs associated with finding and hiring talent in the U.S.
Currently, most of the company’s operating costs go into salary and office rent, but she says theses are still quite low as both expat and local salary expectations are lower than they might be elsewhere.
“Think about it, if we move to 2nd and 3rd tier cities in China, how can we bring in talents? Being in Shanghai means we can find competitive talent without burning too much cash” she says.
“It’s all about connection.” After working in design and marketing industry for several years, Ms. Yan has jumped on an opportunity in the upcycling market in Shanghai.
On The Squirrelz website, designers can sell their products, get raw materials, and find inspiration for up-cycled designs. The team also takes pictures and writes content to add value to its polished product. The company takes up 50% commission on sales of the products.
The company benefits from factories around Shanghai that can list excess materials in bulk, and sell them on website to interested designers. The team handles individual order fulfillment, meaning factories only have to go through one transaction to offload their excess capacity.
This model allows designers to order the materials on the The Squirrelz website, without having to look for them on street. The Squrrielz is also able to take a commission for helping factories get rid of their waste in a sustainable fashion. “Factories will sell those materials at a very low price or just give it us for free,” Ms. Yan says.
Currently, the platform has over 40 designers, and over 1000 different products. According to Ms. Yan, 300 designers are now in waiting line. The material supplies part of the website will be launched at the end of the month, bringing The Squirrelz full ecosystem online.
Image Credit: Squirrelz
Hi, CTO of Traintracks.io, here.
Working with companies like PengPeng and Gizwits is exciting because they clearly show the data demands for successful Chinese startups.
One of PengPeng’s viral HTML5 games got 180 million page views in a single day, but still only reached 20% of daily active users on WeChat. PengPeng CEO Andy Tian tells me that’s the most HTML5 traffic for a single app – and it’s from an early-stage Chinese startup with 30 million users.
Hey Jeff! Good to see Traintracks being covered here.
I’m thrilled about China getting more attention for a place of innovation,
and challenging the status quo of Silicon Valley, yet “cost of
operation” is not really the primary reason for the phenomenon. Since
2012, I’ve been involved heavily in tech startups “made in China” or
“moved to China” in Beijing, and I have seen the way these companies
here have been treated by the media and VC from SV.
But what does all this mean for a companies like Traintracks that have mostly foreign
team members, conducting business almost exclusively in English. Nils,
the CEO of Traintracks himself had declared last year in an interview
with Reuters that his company was a “Silicon Valley company operating in
China.” I’m curious to see what has changed since then. Was half a
million bucks really enough to reach this recent “profitability?”
Hey Rui, thanks for commenting!
First of all, let me admit that you’re absolutely right – I did refer to Traintracks as a SV company in China. Mea culpa. I’d like to believe that the team and I have evolved since then, and here’s why:
There’s something sinister, colonialist, and somewhat racist about the way we view Chinese innovation and startups operating in China. A very healthy percentage of engineers in Silicon Valley are from China – the brain drain from Bei to Bay is enormous – but the media typically has no problem referring to the products made there as fruits of Silicon Valley. The labor and innovation of Chinese engineers is only ever credited when it is being done close to where the SV VC class is – and I have been part of that narrative in the past.
Why is it that the West is happy to take credit for Chinese ingenuity when it’s paid for in dollars, but we scoff at the same engineers innovating at home?
And why is that someone coming from the East to the West is an immigrant, but I am considered an “expat”?
Once you see it, it is hard to unsee it. When I refer to myself as an expat instead of an immigrant, when I cling to the culture of SV instead of participating in the culture here, I am taking part in and furthering a narrative that deepens the divide between the East and the West.
Traintracks was made in China, and we’ve come to be proud of that. There was a time when China made sense because it was a cheap place to huddle down – but that’s not all there is to the #BeiArea. The hefty percentage of Chinese engineers in Silicon Valley have to come from somewhere – they come from here.
Within walking distance of our office are several of China’s most prestigious universities, churning out impressive and innovative engineers at rate fast enough to fuel both ecosystems.
Let’s call a spade a spade.
Exactly, the whole argument is fueled by the Silicon Valley brand, which is more emotional than rational. Media coverage on tech startups in China have been subject to prejudice, and SV VC are not ready to admit that some of the greatest innovations surfacing from China are no longer just copy-cats as they once were.
I really do like what the #BeiArea represents, complimentary to the #BayArea, where I called home for well over a decade before the blinding lure of China.