The future of the startup support system: A conversation with China’s leading incubators and accelerators

3 min read

Incubators and accelerators have been growing like mushrooms in China’s major cities since 2015. While competing with one another in terms of venues, services, and professional advantages, incubators and accelerators went through all of the ebbs and flows during this period.

At the ChinaBang Awards 2017, Microsoft Accelerator Beijing CEO Luo Bin, Innospace+ General Manager Richard Tan and UrWork partner Xu Binchao talked about the future of this industry.

Incubators sprang up in large numbers in 2015 and 2016. In some incubators, three-fifths of a five-story building may be vacant, as there were not so many startups to be served. After experiencing such a downturn, what’s the current incubator sector like now?

Both Xu Binchao and Luo Bin said that the sector is actually picking up.

Xu held that the whole market has been recovering since the end of 2016, which has seen increased policy support, more public attention towards innovation services, and rising demand for higher levels of specialization.

Xu also maintained that the market reshuffle actually serves as a sieve, and the exit of some unprofessional incubators will help straighten out the sector.

Luo told the audience that Microsoft Accelerator Beijing has accelerated 140 startups over the past five years, with 93% of these startups securing funding during the enrolled period. Take the eighth batch of the 14 startups for example. Their total valuation has surged from less than RMB 700 million to RMB 2.9 billion after graduation.

A lot of incubators and accelerators don’t have a clear idea of how they should make money even when they collapse. So what’s your profiting model?

Richard Tan said that INNOSPACE+ closely follows projects that are at a stage between seed investment and angel funding, which means that the incubator focuses more on people than projects in their selection. INNOSPACE+ has a three-month probation for those candidates and will have them enrolled if they fare well during the period. If not, INNOSPACE+ will recommend them to another group innovation space, or some other government-sponsored incubators.

“With our occupancy rate reaching 80 to 90%, we pick out the best projects from within to accelerate. …. Some companies hire us to accelerate their overseas projects, and some invite us to conduct inner innovation for them. They pay us service fees, but our major revenue source comes from investment returns,” said Tan.

“We screen startup candidates like VC does, though we are not. Only 2% of them can be enrolled, compared with the 5% enrollment of Harvard University last year,” said Luo Bin. After they are enrolled, we provide to each of them US$ 500,000 worth of cloud computing resources for free, apart from teaching them what to do with their business plan. But they must be the best.”

Speaking of the profiting model, Luo said cultivating the best team and helping them adapt to the future is their top priority before considering making money.

UrWork has completed an RMB 400 million funding round in January, where will you use the money?

Beijing-based incubator UrWork has seen its valuation nearing RMB 7 billion after securing six funding rounds since it was founded in 2015.

“We hope to use the money to strengthen our services and expand our market. In addition, we hope to invest more in smart office, smart big data and the Internet itself,” said Xu Binchao.

In addition, when asked what development path they will follow in the future, Luo said Microsoft Accelerator will focus on something related to cloud and enterprise computing, such as big data, machine learning, artificial intelligence, augmented reality and virtual reality.

Tan said INNOSPACE+ is working with Siemens on an Industry 4.0 accelerator plan, apart from its collaboration with BMW in the IOT and the tie-up with 3M in new materials.

Xu predicted the country’s group innovation space may develop in two directions – one that is more vertically and professionally focused, and the other that aims for nationwide or global expansion.