Entrepreneurship in China

China intends to win at yet one more key component of modern capitalism, entrepreneurship and the startup culture, as it has most certainly done in other areas of competition. Between 2000 and 2013, China’s non-state-owned business sector increased 18-fold, compared with the state sector that grew six-fold. Official government policy has strongly supported innovation and entrepreneurial enterprises in recent years. It is kind of mind-blowing to grasp the fact that this Communist-run economy may be the most successful capitalist in world history.

I say a few words at the pitch session during the Global Entrepreneurship Incubation Summit in Chengdu, China.I learned many nuances of the Chinese startup ecosystem during a ten-day trip, during which I visited seven business incubators and accelerators in four Chinese cities, and participated in a two-day Global Entrepreneurship Incubation Summit that marked the 30^th Anniversary of the first business incubator in China.

Representing my client, Toronto’s IDEABOOST accelerator, I was a judge during a startup pitch competition on day two of the conference, along with a who’s who of the Chinese VC community. Many featured startups reflect China’s very strong focus on artificial intelligence and IOT solutions, as well as a few VR startups. I met dozens of interesting people from both China, and from around the world. Business is flocking to China, because the opportunities are immense, and of course, so is the market.Getting ready to begin a talk about the CFC's IDEABOOST accelerator program to a group of Beijing engrepreneurs at the UIS incubabator.

My trip to China was organized by United Innovation Services (UIS), whose CEO Christine Du is an amazing businesswoman I met at a VR conference last year, and who has joined IDEABOOST’s investment advisory group. UIS operates software parks across China’s major cities, which include incubators and accelerators for startups, alongside a who’s who of international technology firms.

Christine Du, CEO of United Innovation Services, poses with me at her Chengdu incubator.

I visited UIS incubators in Beijing, Yangzhou, Chengdu, and Chongqing. UIS will soon announce its first venture outside China.

Here I am with some of the startup entrepreneurs at the UIS incubator in Beijing.

Some of the startups I met were part of the country's robust VR sector, both hardware and software. China is likely to continue as a major driver in the growth of VR, with massive investment, strong support from the government, and a media consumption pattern that supports arcades and out-of-home gaming experiences, like the kiosks I saw at train stations and airports.

I visited the HTC Vive X Accelerator in Beijing, one of a network that includes programs in Taiwan, Shenzen, and San Francisco – each of these accelerators invest in up to 20 startups per year, making HTC one of the world’s biggest VR investors.One of the startups in the Chongqing UIS incubator has developed a VR system that uses body rigging and sensors to enhance the gameplay experience.

I also was fortunate to visit the Beijing Film Academy (BFA), one of the top film schools in the world. Among the areas BFA’s digital lab program is developing are real-time interactive previsualization, immersive content (like VR), 3D visual information reconstruction, and next-generation sound stage.  The BFA will expand from its historic in-town campus to a new 110-acre campus in Huairou district, north of Beijing, where the government has created incentives for film industry companies to locate.

Standing at the entry gate of the Beijing Film Academy with my host, Lulu, secretary to the dean of the secretary of Film and TV Technology Department

The BFA case illustrates the Chinese method, in which the central government creates an industrial policy, then provides funding, infrastructure, R&D, private sector incentives, capital and educational resources to intensify the chances of success. Startups get a leg up in a favored sector, which means that entrepreneurs may start companies that stay alive, even if they are not long-term winners in the race to find customers and profits.

But once a company gains traction, they have access to a home market unlike any in the world. Just witness the amazing growth of homegrown Internet companies like Baidu, Alibaba, and TenCent – all are ubiquitous tools of daily life on a scale that is rivaled in the West only by Facebook and Google, both of which are banned by the Chinese government (although most tech-savvy Chinese I met routinely use virtual private networks to access these and other banned sites). We should expect the same results in other targeted sectors like big data, AI and IOT in coming years.

A scale model of the Xiaotao Big Data Valley outside Chongqing In Chongqing (formerly known in the West as Chungking) I visited the Xiaotao Big Data Valley, a government-directed industrial park focused on growing China’s big data cluster, including storage, cloud applications, small sensors/IOT, and data mining. A mix of Chinese and international companies have already moved into phase one of the development, which will unfold over the next decade. I spent time at Shining 3D, which manufactures 3D printing and scanning systems. The company operates a 100-seat classroom to train students (starting in middle school) on how to use 3D software. These parks generally include education, startup facilities, VC and other investment support, residential and infrastructure, including transportation.

Similar sector-specific “new cities” are under construction across China, including a “biodiversity new city” in Yangzhou that I visited. By the mid-2020’s, Yangzhou will have a new city center, planned around a cluster of skyscrapers above a bullet-train station connecting with Beijing to the north and Shanghai to the south and beyond.

Chengdu is proud of its network of innovation hubs for startups. I spent the most time in Chengdu, capitol of Sichuan province, home of the pandas, and a major inland commercial center. UIS’s Chengdu accelerator is part of an eight-building Jingrong Global Startup Center housing hundreds of startups. A few miles away is an office tower housing the Thinkzone incubator and a new Startup Bootcamp accelerator, which hosted an afterparty the last evening of the conference. Chengdu touts itself as China’s ‘ideal place for innovation and entrepreneurship” with these and other facilities built as part of the country’s 2015 national policy on entrepreneurship. 

When people ask, what do you think of China, the word I always come back to is ‘scale.’ It’s difficult to grasp the scale of this country, its built environments, number and size of initiatives, and the volume of companies and people involved in every area of modern enterprise. If you’re building a global company, understanding China is a must.

Prognostication: 2017

My thoughts about media and technology trends for 2017 as Chair of the IDEABOOST Investment Advisory Group.

Along with December’s holidays, the end of the year traditionally brings a predictable flood of prognostications and crystal-ball gazing from pundits and digerati. After such a tumultuous 2016, it may be advisable to exercise extra caution when trying to chart a reasonable set of expectations for 2017.

But chart we must, at IDEABOOST, which sits at the intersection of media, technology, finance and culture. Why? Because the entrepreneurial focus of our accelerator and related programs are all about the future – what opportunities will flourish in the near- and long-term future? What new markets will emerge that solve problems and disrupt old orders? What kind of innovations could propel a company’s success?

In recent years, accelerators around the work are betting on hot markets like the Internet of Things, big data analysis, SaaS platforms, financial technologies, and mobile apps --- reflected (perhaps coincidentally) among 2016 IDEABOOST investments.

Computer science and technology will power vast changes in the world’s business infrastructure with the growth of advanced machine learning, intelligent apps and devices, virtual and augmented reality, blockchain/digital ledgers and currencies, mesh systems and voice interfaces, and a host of new digital platforms. (See this post from Gartner and another from Forbes for more detail.) Buried within these “categories” are huge industry-disrupting developments like commercial drone and autonomous vehicles, peer-to-peer funds transfer, automated fish farms, and many others.

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The 'Third Wave' of Media Brands, according Allen Debevoise

One of the joys of chairing the IDEABOOST Board of Advisors is when I'm able to successfully recruit those whose work I truly admire to the cause. Case in point: entrepreneur and investor Allen Debevoise joined the IDEABOOST Board of Advisors in 2014, just a few months after launching Third Wave Digital, an investment fund focusing entirely upon digital media startups. He is a perfect choice to help guide IDEABOOST, because of his long history in building, running, and investing in media businesses over the past 30 years. I interviewed him and wrote an article that was published in a slightly different form by the Canadian Film Centre: here. 

Allen Debevoise, Third Wave DigitalThird Wave Digital is named after the “third wave” of media innovation – the first was conventional linear broadcasting; the second came with the rise of cable and satellite infrastructure that generated new business models and programming brands like HBO, CNN, MTV, and Discovery.

“With broadband, we saw the emergence of new video brands that were driven really by the Internet, like YouTube and Netflix,” says Debevoise. “This was the beginning of the Third Wave of video programming brands being born. A bunch of other brands started to build on the new platforms – companies like StyleHaul and Maker and FullScreen. And then we got totally original brands like Vice. We’ll continue to see new brands emerge on places like Snapchat, brands that are about programming.”

I met Debevoise in the 90’s, first as a player in interactive television and new forms of cable TV, and later as he became one of the first web entrepreneurs, with Creative Planet. As online video swept the world, Debevoise went on to co-found companies, such as Machinima, StyleHaul, DanceOn, INDMusic, MiTú Network, and Tubular Labs. Debevoise has invested in over 70 companies as an angel investor, including IDEABOOST startups Bubl Technology and Raur. Though he has left management of gamer-oriented Machinima, he remains Board Chair.

Third-wave brands impact both the business and the content of incumbent media. Netflix’s on-demand library of binge-watchable content has stimulated the growth of serialized story content on other platforms – the second “The Golden Age” of TV. YouTube, along with mobile devices, has created an entirely new category of short-form content and an ecosystem of influencers that has created a new form of content discovery.

Third-wave brands are becoming valuable and viable more quickly than previous waves, says Debevoise. “We can build a brand more efficiently, we can be global, and we can start to activate some content deals.... We find an audience, we have a basic business model and then we grow it over time. That’s the model.”

And so he notes the success of certain properties from Vice or Style Haul or Awesomeness TV which are already competitive with mid-level cable, even theatrical product, all the while continuing to generate revenue from multiple sources such as licensing, merchandise, branded entertainment, ads on vast repositories user-generated content.

In Debevoise’s view, there is plenty of room for more entrants in the video business – “I know people like to talk about TV viewing vs. online viewing – but, I just call it video consumption! It’s huge, right? Whether kids are doing it more on mobile phones and short form and older generations sit in front of a TV set, the video consumption category in aggregate is huge. So, if you’re good at creating content you’re going to have a lot of opportunities to monetize that content to create new brands.”

More than anything, Debevoise is looking for companies that care about a specific audience: “They get really good at the content and social and community management, every issue around that audience -- that’s a winning formula in a world that is going to be cluttered with platforms and apps and junk all over the place. Building a brand that cuts through it and is really clear and crisp is going to be increasingly important.”

In addition to his programming investments, Debevoise likes tech-based startups that serve this new ecosystem of emerging brands. “Some of the newer companies can’t afford to build analytics or data warehousing or how to move audiences across platforms. So we have companies like Epoxy and Social Edge that enable smaller programming brands to be more effective.”

Third Wave Digital is also actively investing in the emerging virtual reality ecosystem. Debevoise would like to see strong programming and content brands in VR, just like other third-wave segments, but “in VR, quite frankly, I haven’t seen a lot of them yet. It reminds me a little bit of the early days of computer graphics where you had companies trying to do everything – like Pixar. At some point they got great when they said, oh, we’re just making movies, right?”

Part of the problem is that the VR platform issues haven’t been sorted out, with players like Samsung, HTC, Sony, Oculus, Valve and others offering proprietary solutions. “It’s the kind of mess we had in the telecom world before Apple and Android,” he says. So until he sees “entrepreneurs show up that say, I’m going to offer VR for children, or be the VICE of VR – crisp audience-focused brands,” Debevoise will focus on companies like WEVR, that has built a cross-platform VR system and is helping to grow content.

Debevoise is always seeking new opportunities – Third Wave has averaged two investments per month since its founding last year. How does he find them? “Typically, I know founders already or they are referred to me by somebody I trust from a content or platform partner or from investors that I think are smart.”

Increasingly, he finds deal flow from accelerators like IDEABOOST, which he believes serve a critical role in the early stage seed financing model.

Debevoise has great things to say about Canada as a source of innovation: “Canada has a tremendous legacy and terrific capabilities ... I think Canada is in an incredible position given its legacy in animation and filmmaking and gaming and computer software.”

Nick DeMartino is chair of the IDEABOOST Board of Advisors, a consultant in media and technology, and former SVP at the American Film Institute.