The vitality of Chinaโs technology and startup is putting the countryโs innovation ecosystem under the center of world spotlight. Yesterday, Y Combinator (YC), the Silicon Valley-based incubator, is hoping to join the trend. Eric Migicovsky, a partner at YC, shared his thoughts on the potential and globalization of Chinese innovation with Daniel Hsu, contributor to TechNode and former Vice President at venture capital firm Village Capital, at TechTemple, Beijing.
From Silicon Valley to Beijing
โItโs easy for people to dismiss ideas,โ Eric says. The initial critical and suspicious thoughts on raw ideas could lay a negative influence on the shaping of a startupโs potential. The spirit in the Valley that may seem โsome kind of stupidโ to outsiders, as Eric explains, is the opposite of โwhat if it works.โ
And YC is building up its base in Chinaโs capital city to spread the spirit. The countryโs unique characteristics is distinguishing itself from worldโs major innovation centers such as London, YCโs close study on global technology ecosystem says.
โBeijing is the first tech ecosystem that does not rely on the Valley,โ Eric says. The Chinese system is breeding exclusive domestic markets and business models. Meanwhile, itโs integrating some of the most advanced technology and business trends. This has convinced YC to firmly believe in Beijingโs future global leading position.
Home advantage and going abroad
The โtremendous capability to scaleโ and close ties with government are the 2 characteristics that are special in China.
From the perspective of startup models, Eric confirms that Chinese startupsโ capability to scale could lead to an exponential curve that shows remarkable expansion and market share growth. However, a concern is sustainability and profitability. โ[But] itโs super dangerous for [early-stage] startups to scale up before profits,โ Eric says. He believes that a both stable and strong ecosystem needs vision and practical global experience to consolidate.
He admits Chinese governmentโs role in accelerating technology development and investment very often in particularly policy-oriented industries. Eric says YC suggests flexible approaches to fit into the Chinese environment. โTake [policy] advantages availableโ and โ[no need] to go into hard [administrative] problems all the timeโ, are keys to sustain a friendly but independent relationship with local official departments.
Additionally, though itโs not always crucial for a Chinese startup to go oversea, business lessons such as task specialization with partners could accelerate operational efficiency. Eric says Chinese startups are inclined to do โall the things on their own.โ This approach, according to him, has space for enhancement.
Target Chinese projects and blockchain
The accelerator is interested in a diverse range of Chinese tech startups. Matching user needs, a โformidableโ founder with a crazy mindset who is determined to work through all hardships, and entry to new markets, are the major startup criteria YC looks for.
Speaking of the latest blockchain trend, YC has been looking into the field since 2011. Eric says the accelerator has invested in โa dozen or 2 dozensโ of blockchain companies. Coinbase, the worldโs leading cryptocurrency exchange, enrolled in YCโs 2012 Summer program.
He further explains that fundamental blockchain technology is what theyโre looking at now. Sectors including smart contracts, capability testing, and those that are fundamental to empower blockchain applications, are to be closely watched for the next trend.
Eric also clarifies that the accelerator has no limit to the number of startups invests in. A Variable Interest Entity (VIE) structure allowing an investor to hold a controlling position of interest not based on the majority of voting rights is under discussion. Widely used in foreign investment in China, the structure could grant foreign companies voting rights despite limited stake portion strictly monitored by the state government.
Eric says the majority of YCโs funds for Chinese startups are balanced in U.S. dollars, and a few RMB funds are available.
