Sarah Lacy wrote a post on the china startup scene after just returning from that country.
What makes China so staggering is that everything that happened to corporate America over decades—think the television and media studios build out of the 1950s, the greed of the 1980s, the dot com bubble, the build out of physical and IT infrastructure, current Web 2.0 and CleanTech innovation—is all happening to China at once.
Imagine: At the same time eCommerce is getting sea legs, TV Home Shopping is also getting hot. Online ads are growing not because people are TiVoing through commercials—both TV and online ads are growth markets at the same time. Ditto for entertainment and piracy: While Hollywood sees the Internet as a threat to its cozy legacy business, China’s entertainment industry is just now building amid a world where piracy is already rampant. No one assumes anyone will buy a CD, so they just look for other ways to make money. The wonder of China right now isn’t just the size of the market. It’s the rate at which dozens of “old” and “new” economies are all maturing amid one another, and the hyper-network effects that such economic progress is having throughout the country.
As for China’s start-up ecosystem , it’s working to build its own Valley-like infrastructure, but it doesn’t have the luxury of growing it steadily over several decades. Experts say there’s at least $20 billion in venture capital sloshing around the country right now. It’s probably double that if you count angels and unofficial or very local funds, says Rocky Lee
of DLA Piper, a law firm that represents much of that venture money in China.
That’s why calling China merely “the next Silicon Valley” misses the singularity of what’s happening there. The Valley has never been like this, and I don’t say that to knock the Valley. In many ways, our steady development has been healthier. But it’s also a lot less electric. In the next ten years or so way more money will be lost amid the China chaos, but I’m betting way more money will be made too.
It reminds me of the distinction between start-ups who develop products in “parallel” and those who develop them in “serial.” In the former, you raise a bunch of money, hire an army of coders and develop your whole vision at once. In the latter, you build one product, prove that one works and can make money, then raise more money to develop a second. Typically in a time of economic plenty and investor froth everyone pushes for parallel. When the funding and revenues get tight, the serial approach comes into vogue. Parallel is always more exciting; serial is always more rational.
Silicon Valley tends to develop start-ups in “serial waves,” if you will. There are always outliers and waves can coincide in timing like CleanTech and Web 2.0 did, but investors and entrepreneurs tend to jump on dominant high-growth bandwagons and ride them until a few billion companies come out of them and many more fail. Then they wait for the next wagon.
China, as a country, is developing in parallel. The wagons are running constantly and going in nearly every direction. It’s a time of chaos that can burn people out, but it’s also one so unique in the history of modern economics that many ambitious people can’t ignore it. That’s why most transplants from the West who survive their first two years in China tend to stay for more than ten.
Given all this, China is a lot more inwardly focused than other places like Israel and Europe where start-ups have to be global from day one to have a big enough addressable market. When it comes to the Web and mobile, the biggest surprises will likely come from local, non-English speaking entrepreneurs, maybe even those outside the largest cities. They probably don’t read TechCrunch and may not even know where Silicon Valley is on a map. But that won’t matter, because their local market will necessarily develop very differently than ours.
And while China gets a rap for ripping off U.S. Web start-ups now, I think we’re going to start seeing U.S. start-ups copying a lot of elements of Chinese entrepreneurs’ business plans, whether it’s unlocking the value in virtual goods, experimenting with alternative online payment methods or developing more social forms of e-commerce, where like-minded friends shop together.
The story in India is not too different. Sarah says she will be in India this November. I look forward to hearing her take on India.
There’s one big Web 2.0 question we’ll never know the answer to: Could YouTube have survived on its own?
strengths of the region, according to several dozen interviews I did in China over the last two weeks. Situated at the nexus of Chinese startup culture and government influence, YouKu is widely credited as being the best at playing the startup game. Drawing off the Shanghai’s strength as a media hub, Tudou prizes self-expression as you can see by its Facebook-esque employee-graffiti-ed walls (right). And like a lot of emerging Chinese tech powerhouses to come out of the Guangdong province, some say 56.com has the best sheer technology of the bunch.