Rhea Liu in Beijing
Investors and entrepreneurs were split on the overall environment for startups in China at Thursday’s NetEase Future Technology Summit in Beijing. While investors describe the environment as being lukewarm, entrepreneurs are already feeling the chill of winter.
Starting the discussion with whether entrepreneurship was enduring a bitter winter in China, Yun Tao, CEO of eJiajie, said, “From the perspective of entrepreneurs, things are really quite chilly now. Both investors and the media seem to be very unfriendly to entrepreneurs, especially for those of us in the O2O sector.”
Yun regarded the shutdown of American cleaning service startup, Homejoy, as the tipping point. “Before that, when entrepreneurs gathered together, we always talked about how much money we were raising. But now, everyone’s talking about how long can we survive.”
Investors agree that the capital market is cooling down but they hold different opinions as to what it means for entrepreneurs.
Wang Yumei, managing director and chief of Huatai Securities’ research team, refutes the notion that a cooling economy is a result of viral communication. “The market in June was overheated. It’s cooling down now, but in fact, it’s a better environment for healthy development, ” she said.
Lin Zhonghua, general partner at FreeS Fund, said, “We need to separate the situation for RMB funds and USD funds. Some USD funds claim they won’t consider any new prospects in the next three months.”
“The reason is simple. Many American investors lost money investing in Alibaba so they are more cautious now,” Lin added. “But RMB funds are more active. Among the 20-strong projects we have invested in since June, seven of them have already raised their next round of funding.”
Zhang Xiangyu, executive director at CMB International, analyzed the industry at a macro-level.
“The traditional industries in China can’t provide enough jobs, so people are turning to new industries and startups. Entrepreneurship won’t die in China, especially the mobile Internet sector. The mobile Internet sector has a very promising future because it’s the infrastructure of society,” Zhang said. “There are still a lot of opportunities for sectors like entertainment, tourism and education.”
Both entrepreneurs and investors emphasized the significance of sustainable cash flows in the current environment. “It’s really important to create a sustainable business model. The cash flows of Airbnb and Uber are, in fact, pretty healthy,” Lin said.
Yun also suggested entrepreneurs should cut down on unnecessary expenditure and prepare cash reserves that will sustain for 12 to 15 months instead of six months, as people were used to half a year ago. Home service provider giant, eJiajie, raised tens of millions in a USD C-series funding in July. The exact amount was not disclosed.
Yao Jinbo, CEO of 58.com, said in a keynote speech earlier this afternoon that entrepreneurs should “take whatever money offered” and “do better maths” with investments, costs and efficiency to sustain companies.
(Featured photo from NetEase Tech)