‘Super nannies’ for start-ups: incubator franchises will soon dominate in China, pundits say

PUBLISHED : Thursday, 17 March, 2016, 7:20pm
UPDATED : Friday, 18 March, 2016, 1:24pm

Start-up incubators in mainland China are expected consolidate to a few large players in the next few years, according to industry insiders.

“The incubator industry will become similar to the hotel industry, which is dominated by several franchises,” said David Zhong, chief executive of Beijing-based Kr Space.

Incubators provide early-stage companies with services such as cheap office space, mentorship and an introduction to investors.

In recent months, major brands such Kr Space and URwork have seen their respective valuations pass 1 billion yuan (US$ 1.53 billion) on the back of extra funding.

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Kr Space hit this benchmark after a round of investment in January, according to Gobi Investment, one of its backers. It currently has offices in Beijing and seven other cities in China, but will expand to a total of 11 offices by the end of this month.

URwork, an incubator in Beijing founded by Mao Daqing, the former vice president of Chinese real estate conglomerate China Vanke, received more than 200 million yuan in its latest round of funding this week. That raised its valuation to 4 billion yuan.

Foreign players are also jumping into the market. American company WeWork received US$430 million in an investment round led by Legend Holdings, the parent company of Chinese computer giant Lenovo, last week, taking its valuation to US$16 billion.

WeWork said it will open branches in Hong Kong and other cities on the Chinese mainland in the near future.

Meanwhile, Kr Space is hosting two dozen start-ups at its Beijing facility for three months, after which it will replace them its next batch of companies. Over the last two years it has hosted 101 start-ups with a combined valuation of 10.5 billion yuan, according to a spokesperson for the company.

“We are not just landlords,” Zhong said.

“We are a super nanny that helps young companies grow in body and mind.”

Industry consolidation comes at a time when the market is packed with smaller incubators due to a push by Beijing to promote innovation and entrepreneurship. This has spurred heavy subsidies from local governments to support technology incubators.

The Ministry of Science and Technology granted 135 companies the status of “national technology incubator” last year. It added 362 more to the list this year.

“Many small incubators do not have expertise in entrepreneurship and won’t survive for long,” said Wen Hao, co-founder of start-up EulerSpace, which makes drones and went through an incubation programme last year.

He expects many incubators will go out of business this year, especially those in China’s tier-two and tier-three cities where the number of start-ups is limited.

“After the wave of closures this year, only the best will survive and shine,” said Wen.