China’s fast-growing startup scene is somewhat notorious for overzealous funding rounds and skyrocketing valuations for mysteriously opaque products. Until mid-2015, wave after wave of funding entered the market, only to be hampered in the second half of the year increased saturation.
So how will China’s startup ecosystem react to a more risk-averse funding environment? According to Chinese startup guru Kaifu Lee it’s just the medicine China tech needs.
A Capital ‘Winter’ Will Lead To A Better Startup Environment
“China’s startup industry has experienced both the so-called ‘capital bubble’ and ‘capital winter’ in the last year. However this year I see more pragmatic entrepreneurs who are getting better [in their] knowledge of entrepreneurship.”
On-demand and smart hardware (IoT) are two of the sectors that are particularly susceptible to the highs and lows of funding behavior in a volatile market, especially those that have a weaker business model reliant on rapid expansion. “Lots of entrepreneurs adopt the ToVC model [a novel attribute given to cash-burning startups]. They get a high valuation by describing a huge user base and the market potentials they are tapping. It is possible for these startups to attract attention or even funding in the past, but those who brag about their businesses are unable to maintain users and they will face various problems amid a capital winter.”
“Chinese entrepreneurs are becoming more and more pragmatic. Instead of amassing a big user base for a higher valuation, they are spending more time on how to maintain users, how to bring more value to them and solve their real problems. These are the growths that a capital winter brings to Chinese entrepreneurs.”
“Investors are becoming more rational as well. Entrepreneurs may find it more difficult for them to get funding, but it is a better environment for entrepreneurs with vision and aims to create value for users.”
Words For Entrepreneurs In Southwestern China
Although Chengdu’s tech scene is still not comparable to Beijing’s, it is drawing more startups and talents as the tech hub of southwestern China. Despite being known as the Capital of Mobile Games, Chengdu has fostered a range of excellent companies in different sectors, including mobile game developer, Long Mobile, photo service Camera360, streaming projector XGIMI, among others.
Despite this, Mr. Lee believes entrepreneurs still need to go beyond the city borders to spur innovation “Most of the resources, VCs and top events are happening in Beijing. While enjoying a better environment in southwestern China, entrepreneurs should also visit tech hubs like Beijing more frequently to hear more and meet media and investors”, said Lee.