The Krypton Temple China's Surging Tech Start-Up Scene
A decade ago, the tech scene in China was grim. But these days young start-ups are turning heads and attracting investors from overseas. As their products find success abroad, Chinese entrepreneurs are acting locally, but thinking globally.
It's a private party in The Basement, a club in Beijing's Sanlitun nightlife quarter: "We Will Rock You" blares from the speakers as about 100 young Chinese gyrate on the dance floor. The women are wearing glowing red, green and blue headbands. The men are filming them with their iPhones.
The Internet firm 36Kr is throwing the party for customers and employees to bid farewell to the year of the snake. The company's third year, and its most successful, is just coming to an end.
After three more songs, the band takes its first break. Several acts follow, including a fire-eater, a stripper and a can-can dance troupe. And then comes the climax of the Chinese new year's party: the raffle drawing. "Okay, everyone log in to Weixin," the MC says, "and shake your phones: three, two, one, now!"
Weixin, WeChat in English, is the most successful Chinese chat app and everyone in The Basement had it installed on their mobile devices. When the phone is shaken, the app displays a list of everyone nearby within just seconds. Those at the top of the moderator's Weixin list win the raffle: iPhones, paid vacation days, giant-screen televisions. One winner is so ecstatic that, new iPad in hand, he begins breakdancing on stage. Then the band returns for the next set.
Around midnight, welcomed by chants of "Laoban!", the boss (laoban) takes the stage. Liu Chengcheng is a slender young man wearing black, horn-rimmed glasses and a hooded sweatshirt, and looks a bit shy standing in front of so many people. The company that he started has also helped several other Chinese start-ups find their way to success: Twelve of the "30 Under 30" software and hardware companies from China singled out by Forbes were made famous by 36Kr, Liu says.
As a child, Liu was interested in comics, much to the chagrin of his mathematician mother. He particularly liked Superman, who comes from the planet Krypton. Krypton, of course, is a chemical element, a rare gas with the atomic number of 36. Hence the company's name, 36Kr, and the rather odd moniker with which Liu addresses his employees.
Investors Call Him
"Hello Kryptons," Liu says hesitantly into the microphone. "I hope the party has been fun. I'm sorry that some of you didn't win anything. Take a taxi home and keep the receipt. We'll reimburse you."
It is a spontaneous offer. Liu Chengcheng, who calls himself simply CC on the English side of his business cards, can afford to send his employees home in cabs. His website and shared work space have become key meeting places for computer experts from China's capital. His turnover and his staff are both growing; investors call him rather than vice versa.
And there are many of them, some overseas, who have become interested in the Chinese start-up scene. Akio Tanaka, a 43-year-old from Japan, is one of them. He is responsible for the second round of financing for 36Kr; his company, which is based in San Francisco and finances projects in Europe, Brazil and Russia, invested $5 million in Liu's firm.
"When I came to Beijing 10 years ago, China's Internet was so ugly," Tanaka says. "But now, the websites of some Chinese vendors are better than those in America." He said he had just ordered a batch of special batteries from the online shop Taobao and at any time he can use the website's chat function to find out where his package is and when it will arrive. Amazon, he says shaking his head, "still sends me emails."
Tanaka says that Beijing has developed from the "Wild West" he got to know in 2004 to become the most important start-up center outside of the US. "Here are the peole, here is the money, here is a market," he says. It is a realization that the more established online universe also now shares. In July, Yahoo head Marissa Mayer bought the Chinese start-up firm Ztelic, which collects and analyzes data from social networks and last September, Facebook executive Sheryl Sandberg came to Beijing to meet with leading IT officials.
American Internet giants like Microsoft and Oracle likewise operate research centers and incubators here. International venture capital funds like Intel Capital, Sequoia Capital and e.ventures have invested hundreds of millions of dollars in Chinese start-ups.
A Momentous Encounter
The history of the Kryptons begins in Liu's hometown of Yancheng, near Shanghai. When he was still in school, he began programming simple smartphone apps. Later, as a university student in Beijing, he wrote a tech blog in which he discussed new apps and gadgets he had heard and read about.
After four years, Liu Chengcheng transferred to the Chinese Academy of Sciences in the Zhongguancun university quarter of Beijing. The neighborhood, in the northwestern part of the city, is considered to be China's answer to Silicon Valley. Since the 1980s, a biotope has developed here where engineers, programmers and investors can easily find each other.
In Beijing alone, some 200,000 people receive university degrees each year, with the state standing by to help those who want to start companies. Some of the start-ups that got their start in Zhongguancun are now worth billions, such as the computer manufacturer Lenovo, which bought IBM's PC division and purchased the Motorola brand from Google. The search engine Baidu and the cellphone manufacturer Xiaomi are also based here.
By Christmas of 2010, 19 writers were regularly contributing to Liu's blog. It was then that Liu met Wang Xiao, one of the founders of Baidu, at a university alumni party. It turned out to be a momentous encounter: Wang offered to invest 300,000 yuan (40,000; $54,500) in his blog. "I didn't even know why I needed an investor," Liu says. "What was I supposed to do with the money?" He brought these two questions with him when he returned home for the new year's festivities that year. His mother was ready with a warning: "Only a fool or a fraud would give you so much money. Don't do it," she told him.
He was still thinking about it on his way back to Beijing. He values his parents' advice, but, he says, "my mother didn't even know what Baidu is!" He took the money, discontinued his studies at the university and dove into China's start-up scene with three of his writers, presenting the most original ideas on his website. "In the beginning, we were working like journalists," Liu says. "But the more start-ups we presented on the site, the more investors got in touch with us. They wanted us to bring them all together."
It is a cold, smoggy winter Saturday a few streets north of the Forbidden City. It's no thanks to the climate that Beijing, and not the more consmopolitan Shanghai, attracts the most creative young Chinese. One blogger has called the city "the anti-lifestyle capital, the anti-San Francisco."
'Like a Flashmob'
Liu Chengcheng has long since left his student flat and now lives in a studio apartment. Which is to say, that is where he sleeps. He spends his days here in the Tech Temple, a former factory loft which has been modified into an incubator. It is a bright, modern, open-plan office, a bit like an Apple Store with a huge espresso bar. There are some 280 work stations where young entrepreneurs, talent scouts and investors from China, Europe and the US sit in front of their laptops. Fifty of them work for 36Kr.
One glass door displays the message: "If you have everything under control, you aren't moving fast enough." At a table behind the door sit 10 people who have collected for an "offline salon." Ren Ji, who works for a hotel booking service, would like to write a program which makes it easier to find people offering rooms. Victoria is looking for a platform where her company can market children's toys. The cloud-computing expert Zheng Guangwei wants to establish a database allowing doctors to discuss prescriptions. Everyone presents their ideas and a conversation quickly ensues.
"My plan was to enable such connections on my website," Liu says. "But many entrepreneurs wanted to present their projects at their own conferences." For his first "salon," he rented an Internet café in Zhongguancun, figuring that around 50 people would come. "Two thousand showed up," he says. "It was like a flashmob." He learned his lesson: "Online is fast, but cold. Offline is slow, but warmer." His website 36Kr became an agency for start-up conferences.
Business was good and further investors appeared on the scene, from abroad. The venture capital funds Matrix Partners and e.ventures, both from the US, invested a total of $6.5 million in 36Kr. Meanwhile, the 300,000 yuan that Baidu co-founder Wang once invested had multiplied -- 86 times, as Liu quickly calculated: "His share of 36Kr is currently worth 26,000,000 yuan," he says. The 40,000 initial investment has turned into more than 3 million.
The conditions for foreign investors, however, are not entirely comfortable. It continues to be "very painful" to bring money to China, Akio Tanaka says. The hermetic capital markets force him and other investors to create complicated constructs which generally require a shell company in the Cayman Islands or Virgin Islands. China's strict stock exchange rules have likewise meant that no country currently sends more start-ups to exchanges overseas than China does.
But the outlook is attractive. To be sure, Chinese entrepreneurs began by cloning Western ideas, Tanaka says. But they have been so adept at developing their own products that many of them have found success in other countries as well. Weixin/WeChat, which has been on the market for just three years, already has more than 100 million registered users outside of China. Momentcam, a free app developed in China which transforms photographs into caricatures, was temporarily the best-selling app in the App Store in 18 countries.
'Play Me a Sad Song'
The 1.3 billion Chinese, 84 percent of whom have cell phones and half of whom have mobile Internet access, are among the most active users of e-commerce, social networks and online gaming. As such, it is only a matter of time before they close the gap in the tech industry. The Internet giant Tencent, the parent company of WeChat, has bought into the gaming companies Epic Games and Riot Games. Its competitor Alibaba plans to take on market leader PayPal with its payment platform Alipay. By this summer, Alibaba will likely begin offering its stock on US exchanges; it is estimated that the company is worth $73 billion.
At the same time, China's Internet establishment itself is investing in Chinese start-ups. "When we arrived 10 years ago," says Tanaka, "not many Chinese wanted to do such a thing. Now, local funds are growing like mushrooms after rain. Even the government is buying into select start-ups."
Liu Chengcheng and Akia Tanaka both point out that only 10 out of 100 start-ups "are really successful." But, they agree, given the number of candidates, that is an appealing quota for the future of China's IT sector.
They are both quick to cite examples of successes that they themselves have contributed to. Liu unlocks his iPhone, launches the streaming app Jing.fm and says "I am sad, play me a sad song." Immediately, a heart-rending ballad by the American singer Clay Aiken comes on. The best, though, Liu says, is a taxi search app drivers can use to notify clients as soon as they arrive at their doors to pick them up. The fare is then paid via WeChat.
Tanaka says he isn't worried a bit about 36Kr. The platform, he says, is quickly developing into a kind of LinkedIn for Chinese start-ups where entrepreneurs can find everything they need: an investor, an office, the necessary cloud capacity, professional customer service -- and a lawyer if there is trouble.
Liu Chengcheng, who has just turned 25, is already nostalgic about the time "when I was still young." Over the course of the next year, he anticipates that the numbers of both his clients and employees will double. "And it will be increasingly difficult to find the right people to maintain our standards," he worries. It isn't easy being a businessman.
The time he has available for his private life is also shrinking, with trips to Shanghai, Chengdu, Boston and San Francisco. Still, he says, he did finally manage to find the time to get his driver's license.
What kind of car does he want to buy? "A blue one," he says. What brand? "A BMW, maybe a Lexus. Anything but a Mercedes. Only businesspeople drive those."
Translated from the German by Charles Hawley