Innovation in China: the “bubble” or discipline of startups and competent work of the authorities?

    Zack Weisfield, CEO of Microsoft Ventures Global Acceletators, is back from a business trip to China. There, he talked with local entrepreneurs, venture capitalists and representatives of Silicon Valley - Zhongguancun. Weisfield answered one question : is China's fast-growing technology market a bubble that could burst at any time?

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    The trip reinforced Weisfield's belief that China had become a hub for fast-growing startups. A few recent examples are Alibaba and Xiaomi, which were valued at $ 45 billion.

    Venture capitalists have seen a surge in the market for high-tech companies in China. Several billion companies join the ecosystem every year, with most of them serving local consumers. In 2014, the country concludedone hundred and seven venture transactions totaling $ 4.66 billion, this slightly exceeds the result of the year before last - ninety-eight transactions worth 4.45 billion. Capitalists adhere to a spray and pray strategy in China: they want to invest in as many startups as possible at an early stage, just to not miss the next billionaire company.

    The main confrontation in China, where any technology is quickly copied and quickly brought to market, is between giants like Baidu and Alibaba, and small startups buy in order to accelerate growth, expand competencies or eliminate competition. This explains the large number of mergers and acquisitions in the technology sector in 2014: 851 transactions for $ 47.5 billion, which is sixty-two percent higher than in 2013 - then 654 transactions worth 29.3 billion were concluded.

    One of the venture capitalists, as Zack Weisfield mentions, compared the investment market in China to high-stakes poker: big risk - big reward. Sowing investments in China are unusually high, ranging from several million to tens of millions of dollars. There is a reason for this: companies in this country do not have access to developed Western infrastructure, so business has to be built from scratch. This requires a lot of investment. At the same time, many Chinese companies serve local consumers, which are easier to satisfy. Fortunately for them, this is the largest market in the world.

    Chinese entrepreneurs are different from Western startups. They are independent, mature and mentally stable. They are called "new entrepreneurs for modern life." They are less creative than their Western counterparts, but more executive. In China, “operators” are now winning, not “innovators."

    Weisfield noted market changes made to improve and simplify business. The amount of bureaucratic red tape has decreased compared to what it was just a few years ago, while the number allocated to R&D, on the contrary, increased. Government agencies have begun to encourage business in the private sector and also support innovation and growth in the long run.

    The Chinese market is warming up, companies are making billions out of nothing and are going public. Many startups enter the market after the acceleration program conducted by China's Microsoft Ventures Global Acceletators.

    So are we dealing with a “bubble” that can burst at any moment and leave investors without profit and invested money? Zack Weisfield thinks that it is a “mania to open a business”, but not a bubble. Here, startups invest money earlier than usual, and less time elapses between successive rounds of investment. But rapid growth requires more funding. This pace is unlikely to be sustainable, but we will see many more companies that will change not only the Chinese, but also the global market.

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