As someone who recently dived into the Chinese startup scene, which is as choppy and as hot as the Red Sea, I sometimes ask myself a question: what am I going to get from the bottom of the sea? Will I find the priceless pearl that I’m looking for? Or will I return empty-handed. Or worse – unpredicted troubles may wrap themselves around my feet, trapping and drowning me.
I co-founded a new media startup as an observer of China’s IT industry and startup scene. I did it just like every other entrepreneur who believes that we’re surfing on the high tide of the startup growth in China. Since the end of last year, thousands of startups have mushroomed in Beijing at the speed of 50 new startups a day on average. It has earned the capital a new title: “the Silicon Valley of China”.
Many believe that an explosive growth of e-commerce paralleled with the sharp increase of mobile and online consumers has created the miracle of the booming Chinese IT industry. After all, the Chinese digital services market is worth billions or even trillions of dollars, as a 2014 industrial survey showed.
The Chinese government has shown its faith by supporting the development of the IT industry and startups by introducing the “Internet Plus” policy in March. The goal of the policy is to help promote domestic market growth and technological innovation as the main driving forces of the Chinese economy by 2018.
But in August the crash of the Chinese stock market gave investors cold feet. Based on the fact that China’s economic growth is slowing down, many are worried that the miracle of the booming Chinese IT industry is just a mirage. Some leading investors have spread the idea that “ the winter of the capital market has arrived.”
When you are swimming in the sea, it will take a while for you to reach the shore. Waves always come unexpected and the sea water is often not warm. The swimmer knows how deep the sea is, but it does not mean he has to give up right away. Identify the risks you might face and overcome them. But it’s important to be honest.
A downside of the startup scene in China and perhaps in other marketplaces as well is that people often oversell success stories. Both entrepreneurs and investors’ expectations have been pushed sky-high in terms of the amount of money they can raise or invest. In some cases, companies have been caught faking their own fundraising data.
VentureBeat reported in September that one of China’s largest food delivery startups, Ele.me, received USD 200 million less than it publicly claimed in a recent round of fundraising. Its stated USD three billion evaluation was also double its actual evaluation of USD 1.5 billion, VentureBeat said.
It’s easy to understand that startups are keen to spread success stories in order to lure investment. What is under-addressed is that venture capitalists are also causing the fundraising bubble, because they need to bluff about their portfolios in order to compete for promising projects.
When early this year Chinese Premier Li Keqiang gave talks to promote his Internet Plus blueprint, he publicly praised young entrepreneurs who founded startups from scratch. Then, Chinese media profiled a “rising stars” list of entrepreneurs who were born after the 90’s. Shortly after, many of these “stars” were exposed to have faked their glorious stories.
Among them was then-22-year-old Yu Jiawen, who founded social network app Super Curriculum in 2012 and claimed to have attracted 17 million Chinese students and tens of millions USD of investment with internet giant Alibaba as one of the investors. Early this year he had to apologize publicly for lying about their fundraising data. The scandal has caused a rush of staff resignation and rejection from famous VCs.
As a Chinese, I’m often asked by foreign friends about the traditional Chinese concept of “face”, the vanity of keeping up stunning appearances to charm people, just like how a male peacock spreads its magnificent feathery tail to hide his bony body. I guess it could partially explain the bluffing culture of startups in China.
As for me, I just need to keep my fighting spirit when swimming in the sea, stay positive, stay strong and beware of submerged reefs and entangling kelp.