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BBC Capital

Watch out Silicon Valley, China is gaining ground

Dragons of the new Silicon Valley (Neil Webb/Debut Art)

Dragons of the new Silicon Valley (Neil Webb/Debut Art)

Editor’s note: As part of our six part series on China, BBC Capital takes a look inside China’s tech business landscape to analyse how firms have evolved, the personalities that have driven success and what the next generation are working on.

A second generation of young Chinese tech entrepreneurs has moved out of their bedrooms and into offices lining the streets of Zhongguancu district, China’s answer to Silicon Valley in the heart of Beijing.

And similar hubs are rapidly sprouting up in manufacturing cities across the nation.

Internet entrepreneurship in China first gained momentum just over a decade ago, but lessons have already been absorbed and passed down to a second generation of entrepreneurs.

Gone are the days when young Chinese returned home savvy about Western culture after working for foreign firms and  simply copied successful web businesses such as Facebook, Amazon and Google, launching look-alike brands in their homeland.

Today, the Mainland is developing homegrown talent. Startups are being constructed by young, geeky, entrepreneurs who are innovating for the domestic market — and increasingly for the rest of the world.

“Chinese entrepreneurs are hungrier and more driven than those in Silicon Valley [in California],” said Chris Evdemon, a partner at Innovation Works, a  Beijing-based startup business accelerator and angel investment fund set up by the former president of Google China, Kai-Fu Lee, to invest in startups. Evdemon is confident the talent will soon “even-out” between the best and brightest in both San Francisco, Silicon Valley and those in China.

The boom in homegrown talent is being driven by close collaboration between the first generation of internet pioneers and the young upstarts. Angel investors have emerged from the first era of successes during the Noughties and are actively mentoring and financing the new breed.

Among the most prominent supporter of the new startups is China’s equivalent of Steve Jobs, ‘super-angel’, Lei Jun. He is the billionaire founder of listed software company Kingsoft Corp and the force behind smartphone maker, Xiaomi, which recently hired Google executive Hugo Barra to lead product development.  

The drive to get ahead, win the tech race and make money is most evident in Beijing and Shanghai, where the startup activity buzzes the loudest according to David Chao, co-founder of venture capital firm DCM in Silicon Valley. In e-commerce, gaming, mobile communications, cloud computing, search functionality and social media, new Chinese businesses are already beating the international competition.

Young Chinese entrepreneurs, mostly in their late 20s and 30s, have more confidence and know-how than their predecessors because they have observed first hand ― often as interns ― how the first generation of entrepreneurial Chinese scaled-up their businesses; how they pitched to venture capital investors; built teams and in some cases took their startup public or secured a big-ticket acquisition deal with a larger partner.

And the latter is becoming a viable option for a growing number of startups as consolidation among the biggest internet players ― Baidu, Alibaba and Tencent― gathers steam. There’s far less copying and a great deal more invention – innovation that is going beyond China for the first time as China tech goes global, says angel investor Evdemon.

Today, high-profile startups such as social messaging service Tencent are by-passing the domestic market and quickly blazing a trail internationally with innovative standards and a global user base using nifty talk and text services like WeChat.

“Many Chinese startups are global from day one,” said Hany Nada, a partner at GGV Capital, an investor in voice, text and video communications startup YY, which listed on NASDAQ in the US in 2012.

So much progress has been made that business strategies developed in China are now being copied overseas. Among them, free-to-play online video games that rely on sales of virtual items such as digital clothing for avatars and digital roses as gifts for revenues, said GGV venture capitalist, Hans Tung.  

The highly competitive and fast-paced Chinese marketplace is tough however, and demands entrepreneurs excel or see their startups quickly wither and die. Getting to market ‘fast and lean’ is vital to beat rivals, according Evdemon of Innovation Works. The key is to stay ahead of swift-moving trends in the business and consumer markets because ideas get ripped off quickly and easily.

“The great entrepreneurs in China are as good as, or at least as good, as those in Silicon Valley,” said Bill Tai, a partner with venture capital firm, Charles River Ventures in Silicon Valley. “They are as good as they come, although there are not as many successes yet as in the West.”

One example: Jeff Chen, founder of Beijing-based Internet browser Maxthon. “He [Chen] was always focused on the product, but now he’s become a business leader who is just as concerned about distribution and monetization,” explained Tai. “He’s hired stronger, more mature executives, not just home-grown Chinese employees.”

Some of the first generation of ‘techies’ are revered as heroes today. 

Among the most influential is, former teacher Jack Ma built Alibaba into a global e-commerce powerhouse from his hometown in Hangzhou, and made a fortune after beating eBay and absorbing Yahoo in the Chinese marketplace, all the while taking Alibaba public in 2007 in a mega IPO and then private again in 2012.

Alongside Ma is Robin Li, who grew up in a poor northwestern China city, gained work-experience in New York and Silicon Valley before heading back to Beijing in 1999, and became a millionaire by building Baidu into China’s leading search engine.

The distinct difference between the tech evolution in China and what has happened in other countries is camaraderie. The early success of a smart first generation has spurred a virtuous circle of sorts and the tools of the trade and, crucially, finance are being handed down to the next group.  

Californian, Fritz Demopoulos, co-founder of Chinese travel search site Qunar, for example, took the riches he made from a $306 million majority acquisition of his firm by Baidu in 2011, to become an angel investor with his Hong Kong-based fund Queen’s Road Capital. He’s now happily investing in many more startups across China as well as other large promising Internet markets such as Indonesia.

Connections, timing, hard work and strategic knowhow helped Demopoulos and the others get ahead and stay there. These are the same ingredients for success as anywhere else in the world, but in China, the pace and demands remain extreme and continue to challenge the second generation of bright young things.

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