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Y Combinator's move to China - an introduction to China's incubation boom

Key facts and timeline

· funding

{{{Xiaoyi Lv}}}

Y Combinator in China and Lu Qi’s vision

In August 2018, Y Combinator (YC), the Silicon Valley seed investment company that launched Airbnb, Dropbox and Reddit, officially announced its move to China. Lu Qi, former CEO of Baidu (the largest Chinese search engine company) was hired to manage YC China.

Among the 1,500 companies in YC’s incubation history, only 7 came from China. The co-founder, Sam Altman has described China as “a missing piece in the puzzle”, raising his belief that the next Facebook, Google, Microsoft and Apple will be founded in the US and China, given the entrepreneurial energy and talents in both countries. In May 2018 its first Startup School event was organised and the China-based project is expected to be launched in 2019. YC China is now accepting start-ups for the Winter 2019 funding cycle, with a focus on AI and globalization in the selection process.

As YC’s first overseas team, YC China will be fully localized: it will be founded by Chinese local talents, will contribute Chinese entrepreneurs, and will be part of the Chinese society. YC China will focus on start-up incubation, talent training, research and development, as well as on the creation of a non-profit research lab, as Lu indicated during an interview with 36Kr, a Chinese technology news media.

YC China’s mission is to use tech innovations to improve the society and to ensure the success will be equally accessible to the majority of Chinese citizens. Aiming to be part of the new era of evolving new-techs, Lu’s plan demonstrates his ambition to create a “Brave New World”, led by AI. China’s 1,4bn population, plus numerous data sources will give China huge advantage in the “Renaissance of technology”. “We are standing in a special time window, and one day China will become an innovative country”, he said. Lu also urges for more investment in research. In China scientific research, the major source of tech innovation, has fallen far behind other countries. Successful entrepreneurs and investors also lack systematic methods to invest in research. Therefore, one of YC China’s mission is to bring more investment into scientific study, which is driven by curiosity and imagination. As a leader in tech innovation, YC will help founders to lead the innovation beyond product and experience level.

China has an advanced and unique business ecosystem, therefore it is never easy for foreign ventures. Despite the local founders circle, YC is confident that its global resources including leading mentors and founders are attractive to the Chinese start-ups. “The number one asset YC has is a very special founder community,” Altman told reporters. YC will introduce the success experience from US to China, and help the ventures in China in the globalization process. YC believes that the entrepreneurs in China and US will build a new global startup ecosystem, which will promote more and better innovations.

Incubators in China: history and outlook

China's first high-tech business incubator, Wuhan Donghu Pioneers Center, was born in 1987 in Wuhan. Nowadays, China's 4,060+ tech incubators have fostered more than 175,000 businesses as of 2017. China tops the world, hosting almost half of the 10,000 international incubators globally. Co-working spaces have also increased by 33.5%, reached 5,739 in 2017. Beijing and many other Chinese cities, have claimed to become the new Silicon Valley.

During WEF 2014, the Chinese Premier Li Keqiang called for mass entrepreneurship and innovation. By encouraging entrepreneurship and innovation led by the majority population, the government intended to improve the living standard and to enable them to achieve their full potential in life. This method also aimed to avoid China’s economy from a hard landing. In response to this call, the year 2014 and 2015  marked the bloom of incubators. Only in the year 2015 there were more than 4,000 new incubators founded. In 2016 the incubator market was reformed and currently some of the top Chinese incubators include Microsoft Accelerator Beijing, Sinovation Ventures (Beijing), InnoSpring (Shanghai), Startup Leadership (Shanghai) and HAX (Shenzhen).

 

Despite the fast growth, there are some problems behind the Chinese incubator scene. The Chinese incubators have gone through era 1.0 to era 4.0 from simply providing services such as property and technology support to forming a start-up ecosystem. Nevertheless, nowadays some incubators are still in the 1.0 phase and become property firms, which solely rely on the rent as the major income source. Meanwhile, the start-ups lack guidance from experienced mentors and practical training on technical, business and financing.  

 

Nevertheless, the boom in incubators demonstrates the determination of the country to change its position in the global tech presence. In Chinese government's 13th Five-Year Plan (2016-2020), China aims to become an innovation nation by 2020, an international leader in innovation by 2030, and a world powerhouse in scientific and technological innovation by 2050. The country aims to increase the total number of domestic incubators, co-working spaces and accelerators to more than 10,000 by 2020. The efforts already paid-off: according to the WIPO report, in 2018 China ranks the 17th in the world innovation index, compared to the 35th in 2013.  China is not a tech laggard any more. It is more than a manufacturing hub and on its way to the centre of technological innovation worldwide.

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