Last week in Beijing, the eighth edition of GMIC, China’s largest tech conference took place. Among its speakers, I was fortunate enough to be part of a panel discussion on cross-border investment including including Midas List investors Hans Tung (GGV Capital) and Dave McClure (500 Startups) as well as high-profile firms such as Qiming Ventures and Vertex (the venture arm of Singapore’s sovereign fund Temasek). Some of the topics we touched on included the convergence of ideas, whereby startups in both China and the U.S. can learn from each other. This lead naturally into the growth of the Chinese startup, and how globalization was increasingly becoming a reality for this cohort.
The First Chinese Global Startups
There are many ways to globalize. In recent years, various Chinese companies have made acquisitions of popular names around the world. Tencent, for instance, bought the developers of best-selling games League of Legends and Clash of Clans, and Midea purchased the German robotics company Kuka. But going global with a local hit has proven difficult: while apps and web services are easy to distribute, startups struggle with profound differences in user habits and interfaces.
Still, it can happen.
Musical.ly, an app to create music videos with friends, is another made-in-China hit. While relatively unknown to Chinese users, it has ranked in the Top 10 of photo and video apps on the iOS app store since July 2015. Both GGV and Qiming backed the company.
“Having a global mindset in the team is critical to international expansion,” said Jing Wu, Partner at Qiming Ventures, a leading China venture capital firm with US$2.7 billion under management.
Qiming Ventures also invested in APUS, a developer on mobile utility apps. “It’s a truly global company from day one with one billion users worldwide now,” said Ms. Wu.
Are Musical.ly and APUS exceptions or pioneers in the world of globalizing Chinese startups?
But even huge hits in China do not expand so easily: the Chinese selfie app Meitu is now a public company with a valuation of US$6.4 billion, with over a billion apps installed. But despite reaching the fourth position in the U.S. on the iOS app store in the photo & video category in January 2017, they haven’t managed to secure a foothold and lost their spot shortly after.
Hardware Startups May Go Global More Easily
While a few product categories have become “red oceans” offering little differentiation and eroding margins–the once apparently unstoppable smartphone maker Xiaomi has grown sales in India, but scaled down operations in Brazil–there are positive signs for innovative Chinese hardware startups.
While still seen as a startup, the Shenzhen-based 10-year-old drone giant DJI is the world’s leader for consumer drones. A “unicorn” in its own right, its last known valuation was US$10 billion in 2015. Among newcomers, Chinese bike-sharing firms Mobike and Ofo have opened shop in Singapore.
Roaming the GMIC trade show floor between the Qualcomm and Tencent booths, Ludovic Bodin, founder of the China-based mobile gaming company Cmune, pointed at the UBTECH booth where an array of consumer robots were on display.
“My daughter wants this robot bird,” he said. “I saw it in Apple stores in Palo Alto and in Beijing. It is more or less the only cool kid product there.”
Few customers realize that UBTECH, like the STEM robotics company Makeblock which just raised US$30 million (and in which SOSV/HAX was the first investor in 2012), is a Chinese company.
DJI, Ninebot (which bought Segway), UBTECH, Makeblock… and before them Lenovo, Huawei, Sony, Samsung… all seem to point in the direction that hardware could globalize easier.
But can they sustain their advantage? Long-term defensibility is as important as global market appeal.
Fortunately, hardware contains an increasing amount of complex software which makes it harder to copy. Machine learning, A.I. and big data are already in use in many service robotics or health tech device companies.
Cross-Border Investors Help Startup Globalize
The panelists all belonged to cross-border firms, and saw it as a strong advantage for their investments with global ambitions. In a market with an oversupply of capital for strong startups, differentiation comes from helping teams grow faster and avoid costly mistakes. For achieving this, broad support, international locations and sector expertise are key.
For instance, 500 Startups, a renowned early stage fund from Silicon Valley, enjoys a global footprint via micro-funds, and brings expertise in online marketing.”We have set up dedicated portfolio management functions, covering talent management/recruiting, PR/marketing, events/networking, financial management, as well as company set-up services in Beijing, Shanghai and Menlo Park to facilitate with cross border activities of their portfolio companies.” said Hans Tung, Managing Partner at GGV Capital.Vertex, who is an early investor in Mobike and rooted in Singapore, helped the company approach Singapore and other SEA markets and also provides a broad support.
In addition to market access, there is also a need to access talent, funding and production resources. The world is not flat: critical resources are not evenly distributed, and founders need to access them at the right time and in the right way.
With a focus on the long-term verticals of hardware (HAX) and life sciences (IndieBio/RebelBio), our early stage fund SOSV built accelerator programs and communities in of San Francisco and Shenzhen: the “Silicon Valley for Hardware”.
The New Silk Road
In the old days, merchants bought luxury items from China like silk, tea, porcelain and spices. Then China became the factory of the world, and produced low-cost goods. With apps and hardware, will China again become a net exporter of innovation? If this is the “century of the self,” its drones and apps are already well positioned.
HAX, part of the SOSV fund, is the world’s most active investor in early stage hardware startups Applications are open at www.hax.co. Contact: [email protected] or follow @benjaminjoffe[“Source-forbes”]