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Controversies

Controversies are inevitable in any startup ecosysem:

1. [Dissolved] Qihoo (an entrant into the regime of BAT in China’s internet industry), with its internet security product 360 Guard, competed directly with QQ, an Instant Messenger from Tencent in 2010. 360 Guard even launched a product which it claimed can expose monitoring behavior of QQ. As a fightback, Tencent made its end-users take side, which means end users are forced to uninstall at least one software (360 Guard or QQ). This case provoked a lot of discussion about behaviors ----put monetization need ahead of user experience of the internet company in China. Tencent sued Qihoo for unfair competition, and the two companies has been haunted with this lawsuit past three years. 2014 Feb, Supreme Court takes Tencent’s side and fined Qihoo RMB 5mn for its misconduct.

2. [Ongoing] There is one famous saying described the ecosystem for Chinese entrepreneurs, “You have three choices when doing startups in China: survive, die or Tencent”, which is a exaggerating way to say internet giants like Tencent have money and talents to replicate your idea quickly enough to kick entrepreneurs out of the game. Giant companies like Tencent would like to describe its behavior as referring rather than copying. Recently, the dilemma for entrepreneurs is disappearing. Since the future of mobile internet is more ambiguous which leaves giants limited time frame to replicate and succeed, Giants like Tencent are more intended to buy these startup teams with a big check. However, a bunch of entrepreneurs are still reluctant to Giant company like Tencent.

3. [Ongoing] Some Chinese people might use their cleverness in the wrong place. They can quickly copy new products and clone it at a much lower cost because they don’t need to invest in R&D. Activities of these people also make “made in China” a negative label internationally.

4. [Ongoing] Financing problems: At the very beginning of startup, financing is a big challenge. States owned banks only give loans when they have already seen strong cash flows of a company, which generally requires 3 or more years of operating. Angel investors and seed funds are not so professional and well-organized in China, there is hurdle to break into this circle, especially for entrepreneurs from other countries. Parents and relatives is a major resource for early-stage enterprises, which, in a sense, hinders the development of startups in China. Chinese government is working on this problem now by starting seed fund for high-tech companies and setting up special loans for startups.

5. [Ongoing] Angel investors: The number of angel investors is not big enough to support such a giant market. In one sense, they are vital for solving the financing issues of startups. In another sense, they could provide expertise and efficient social network for entrepreneurs, which turn out to be key for their later success. A well-established training and coaching system will be of great importance for China current startup picture.

6. [Ongoing] Derivative business: Different countries have quite different startup atmosphere, culture and resources. In Silicon Valley, there are lots of scratches from nothing startups. However, currently, China is not entitled with such abundant innovation, technology and talent for nurturing lots of such enterprises. A more feasible way is to stimulate more derivative business. Since the states-owned enterprises play a vital role in Chinese economy, we could expect more startups derived from their existing business and talents. We do have a number of such startups, but they all face the same problem that they could not totally get rid of the control and intervention of their mother SOES.

7. [Ongoing] Education: Stanford is an important factor for the development of Silicon Valley. The connection between university research results and the business application is key for startups, especially high-tech ones. The sense of creativity and innovation is not well addressed in china education system. The university resources are not well used and led to business in a well-organized and efficient way. We do not have special programs designed for entrepreneurs like the Babson University or Stanford program.