#Asia How to startup in China

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Beijing, China milennials

In a Beijing alleyway. Photo credit: Jonathan Kos-Read.

I don’t need to rattle off any numbers – all running, inevitably, into the billions – to convince you how massive China’s tech market is right now. It’s well developed and very visibly massive.

It’s so large that it can seem intimidating to any budding entrepreneur or established startup wanting to enter the market. Plus China has so many decades-old web giants and fast-rising, well-funded startups that it may seem like there’s not a single unfilled niche left in the market. But there are still some – if you look hard enough.

So, once you’ve done your homework and found a startup idea that could reach a willing audience among Chinese consumers or enterprises, here are some ways you can bust a move.

Accelerators

For new startups headed by foreign entrepreneurs, the most obvious starting point is Shanghai’s Chinaccelerator.

Chinaccelerator-batch-5-startups

Chinaccelerator shows off a fresh batch of startups in 2014 in Shanghai. Photo credit: Tech in Asia.

Its biannual program runs for three months. If you’re accepted, you can expect to move to Shanghai for about six months for the duration of the course and for further mentoring and possible early corporate partnerships to get your business off the ground. Graduate startups have to give up six percent of equity and then get a US$30,000 investment via convertible note with the terms based on the startup’s next round of funding.

Visas

Unlike South Korea, China has no “startup visa” option. So the visa situation for a foreign entrepreneur can be tricky to navigate.

Shlomo Freund, who runs a startup in Beijing, observes that newcomers have to find “creative” ways to hang around. Some might wing it on a student or short-stay business visa. Later, an entrepreneur might make use of relaxing rules on opening a new business in China so that one’s own startup can apply for a proper work visa for the founders.

Location and co-working spaces

While Beijing is the tech hub, it’s not the only option. Shanghai is preferable for lots of reasons: much cleaner air, a milder winter, and a more cosmopolitan feel. It also makes more sense for finance-related startups. Shenzhen, way down in the humid south, is a better bet for hardware startups as they can be close to manufacturers.

Alibaba’s hometown, Hangzhou, is a growing hub for ecommerce startups. It’s also a remarkably beautiful mid-sized city where overheads will be lower than in Beijing or Shanghai.

But Beijing is the choice if your startup needs to network with the maximum number of VCs and buddy up to the many tech giants based there.

Meeting booths at WeWork's Yanping Lu location in central Shanghai. Photo credit: WeWork.

Meeting booths at WeWork’s Yanping Lu location in central Shanghai. Photo credit: WeWork.

The next consideration, if you want to avoid hiring office space, is to book into a co-working facility. These are booming in China’s major cities, leaving no shortage of options.

There are even some that blur the line between co-working and acceleration, like Shanghai’s Xnode.

Other Shanghai spaces include the particularly affordable BundSpace, medtech-focused Yu-Link, well-established People Squared, and Silicon Valley giant WeWork.

Or, in Beijing, some of the most prominent are Soho 3Q, UR Work, and CoWork.

There aren’t as many in Shenzhen, but SimplyWork seems to be the top choice down south.

Major challenges

Now that you’ve put out your feelers about creating a China-oriented startup, you’ll have noticed the very many challenges. Aside from the ordinary cut-and-thrust of a newly-formed startup, China throws a lot more at you.

China hardware startups

A startup shows off its gadget at CES in Shanghai. Photo credit: Tech in Asia.

Things like red tape, cultural miscommunication, intellectual property rights enforcement, restrictions on inbound investments, government transparency, discrimination, and holding onto talent will all be recurring obstacles.

And don’t forget the rather slow and heavily censored internet.

The dark arts of guanxi

Getting stuff done in China often involves guanxi. It greases the wheels – and sometimes greases the palms – of industry.

The word itself means “relationship,” which only partially explains the dynamics involved. It’s essentially “building a network of mutually beneficial relationships which can be used for personal and business purposes,” explain Anthony Goh and Matthew Sullivan from US-Pacific Rim International.

It’s more complex than that, as guanxi is a sort of trust score system that also ties into notions of hierarchy and saving face.

guanxi and baijiu

The art of the deal: Baijiu is a big part of guanxi – and of getting to know people in general. Photo credit: Marko Kudjerski.

“While in the other parts of the world you may be able broker a deal just through formal business meetings, in China it is necessary to spend time getting to know your Chinese counterparts outside the boardroom during tea sessions and dinner banquets,” say Goh and Sullivan.

“In addition to the time commitment, the depth of relationships developed through guanxi can be much deeper than business relationships in the west. For example, it is not uncommon for people who have strong guanxi to lend money to one another or to form a group to pursue business opportunities together.”

Foreigners can find it hard to get into such circles of trust as they have no guanxi in the bank already from, say, a Chinese university.

Here are five tips on getting guanxi right as an outsider.

Early funding

Once you’ve got this far and your startup – against all the odds – has survived, you’re likely in search of seed or series A funding.

In China, the most active institutional investors are IDG Capital Partners, Matrix Partners China, ZhenFund, Northern Light Venture Capital, and Innovation Works, according to data from the Tech in Asia Database.

China’s tech titans are increasingly ploughing money into startups, so you shouldn’t rule them out either – indeed, Tencent, maker of WeChat, is the second biggest investor in the nation so far this year. Alibaba and its Ant Financial spin-off also have deep pockets.

See: China sees $37b ploughed into startups during first half of year

Wait wait… is Hong Kong better for me?

Depending on the nature of your tech startup, you might be better off being based in Hong Kong while you serve the mainland Chinese market. Despite the greater costs involved, it brings much greater freedoms in a number of areas as well as some possible government incentives that are accessible to foreigners.

Hong Kong

Hong Kong’s iconic ferries across the harbour. Photo credit: author.

“Hong Kong is fast becoming Asia’s answer to Silicon Valley, luring entrepreneurs from across the world,” says William Berry, a serial entrepreneur. “In the past four years, 200 startups have relocated to Hong Kong, with those from the US, France, and UK leading the charge – and a growing number of firms are opening Hong Kong subsidiaries. They’ve discovered an environment geared toward up and coming tech firms, offering unparalleled access to the Chinese market and manufacturing hubs, as well as UK common law, high education rates and low tax.”

As long as you understand how Hong Kong is an entirely different system from the mainland, it could serve as an effective startup HQ.

If you want to find out more, download this ebook. It’s designed to give you basic information on each tech and startup ecosystem. It can serve as a guide on how best to get started with your company’s expansion. We share with you what you need to know about the region’s cultures, government regulations, hiring practices, business relationships, and so much more.

This post How to startup in China appeared first on Tech in Asia.

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