Why Chinese startups draw big U.S. bucks

Filed in archive Venture Capital on October 30, 2008

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/08/02/BURS11RHNL.DTL

China And The Internet
Web chips away at country's grip on information (8/5)

For Internet startups emerging in China, the business potential is huge.

At 253 million, China's Internet population this year surpassed that of the United States, with 190 million. By 2012, China will be home to an estimated 373 million Internet users, 150 million more than in the United States, eMarketer, a research firm, projected in a recent report.

Added to that, some 80 percent of Chinese Internet users today are 35 or younger, according to the China Internet Network Information Center. Most are college-educated, city-dwelling, tech-savvy and hungry for the interactive, social nature that's a hallmark of the Internet.

"They may not have disposable income today, but they're going to be the middle class of tomorrow," said Ben Macklin, a senior analyst for eMarketer.

Recognizing this, investors, many of them from Silicon Valley, pumped more than $616 million into early stage technology startups in 2007, according to Dow Jones VentureSource. Video-sharing site Tudou, for instance, has received $85 million from the likes of Granite Global Ventures and IDG. Rival Youku.com received a second round of funding in late June, bringing to $70 million the total raised from Sutter Hill Ventures, Farallon Capital and others.

With this month's Beijing Summer Olympics serving as a coming-out party for the country, China doesn't want to be known as just the place where toys, clothes and gadgets are manufactured. It wants to be recognized for its homegrown ideas - for innovation.

"For entrepreneurs and investors, it's much safer and it makes much more sense to take a mature and proven model from the U.S. and copy it in China," said Allen Guo, founder of music site Yobo.

But one day soon, the expectation is that Chinese Internet startups could dominate their U.S. brethren. Intel CEO Paul Otellini, one of Tudou's partners, said popular Chinese videos, blogs and music could eventually be created in Mandarin and translated into English, instead of the other way around.

Even as U.S. companies such as MySpace expand into China, the Chinese startups remain popular because they have a better understanding of China's users, culture, customers and laws, said Kevin Li, CEO of Ku6.com, a YouTube-like site in Beijing.

"Tell me one U.S. (Internet) company that has been successful in China," said Li, pointing to how Silicon Valley stalwarts such as Yahoo have struggled there. "It's much more complicated to run an Internet company in China than in the U.S."

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Startups bring Web 2.0 to Chinese masses
Ellen Lee, Chronicle Staff Writer

Saturday, August 2, 2008

SFGate Technology: It's a high-tech world - - we just plug you into it...

(08-02) 04:00 PDT Shanghai -

Two summers ago, Tudou CEO Gary Wang handed cans of spray paint to his workers and told them to go wild.

They coated the office's white walls with bold colors, doodling happy faces, hearts, paw prints and high-tech terms like "Java" and "Ajax." Their graffiti transformed an old brick building that once served as a garment factory into an edgy home befitting the site known as the YouTube of China.

The makeover illustrates a tale that is quickly being written in that country: Engineers and entrepreneurs in their 20s and 30s are shedding years of history in pursuit of Web 2.0.

From social networking to video sharing, the Chinese are fashioning their own versions of Facebook, Twitter and other popular Web sites and tweaking them to suit the tastes of the country's exploding population of Internet users, which already surpasses that of the United States.

No longer is China's virtual landscape dominated by portals such as Sohu and Sina.

Wang, 35, whose project has $85 million in funding, and other Chinese Internet entrepreneurs are embracing this wave of opportunity.

Video-sharing sites in particular play a greater role for Chinese users than their U.S. counterparts.

While YouTube CEO Chad Hurley has repeatedly said he doesn't see his site as a replacement for traditional television, video sites are just that in China, where the government controls broadcasts.

"They look at us as a direct substitute for television programming, for the simple reason that Chinese television is really boring," said Wang, who named his site Tudou for the potato, as in "couch potato."

Then there's Allen Guo, a native of China and a UC Berkeley engineering graduate, who was inspired to start music site Yobo in June 2006, during his long recovery from a Lake Tahoe skiing accident. A music lover, the 35-year-old thought that Chinese Internet users needed a place to find out about new music and share it with friends.

"Here, people are not that sophisticated in music taste. There are not many music genres. It's pretty much pop," he said.

Yobo mixes elements from Pandora, Oakland's music and recommendation site, and Last.fm, a music and social-networking site, so users can listen to music, dedicate and recommend songs to friends, and review tunes the service suggests they might like.

Wealink, a Shanghai startup, is another hybrid. Begun as a LinkedIn copycat, Wealink offers social networking for professionals and tries to tap into China's nebulous but powerful notion of guanxi, personal relationships that play a critical role in business.

Wealink quickly saw that a pure LinkedIn model didn't translate in China. For one, LinkedIn charges users for additional privileges. That isn't attractive to Chinese users, who prefer a free service, said Wealink CEO Ian Chin.

Chinese Internet users, who tend to be younger and less established than LinkedIn's average 41-year-old, $110,000-a-year-income user, also are not necessarily interested in just professional networking. As a result, Wealink revamped its site to reflect users' social needs, such as the ability to create and share events, personal calendars and activities, photos and notes.

These Chinese startups face fierce competition. Tudou at one point was one of hundreds of video-sharing sites, although it has now emerged, along with Youku.com, 56.com and Ku6.com, as one of the leaders. By its count, it reaches 60 million people a month.

"Competition is so fierce, it makes the U.S market look like a piece of cake," said Eric O'Brien of lightspeed Venture Partners in Menlo Park. "If anything rears its head as remotely interesting in China, by tomorrow night there will be 20 competitors."

Claire Xie, above, is co-founder of Zhanzuo, which is among China's other key Internet startups. D4

Hear an interview with Haidong Pan, founder of Hoodong, a Wikipedia-like site, at sfgate.com/ZEHZ.

China's virtual landscape
The number of Internet users in China recently surpassed that of the United States.

China* U.S.*
Total population 1,330 304
Number % Number %
Internet users, 2008 253 19 190 63
Bloggers, 2007 47 4 23 8
Internet video viewers, 2007 160 12 138 45

* In millions

Source: China Internet Network Information Center, eMarketer, CIA
About this series
Technology reporter Ellen Lee traveled to China on a World Affairs Journalism Fellowship awarded by the International Center for Journalists and sponsored by the Ethics and Excellence in Journalism Foundation.

This series examines how the Internet is changing the culture and economy of China as the world's eyes turn to Beijing, host of the Summer Olympics.

- Today: Young entrepreneurs shed years of history to embrace the new-new thing - and find it's not as easy as cloning Silicon Valley's ideas. China's audience uses the Web differently.

- Monday: The Internet and cell phone have become critical communication tools for China's well-connected youth, who account for nearly half of China's rapidly growing Internet population.