Smart money pouring into Shenzhen as city becomes hotbed of innovation

Shenzhen Mayor Xu Qin helped cement Shenzhen’s reputation as an entrepreneurial hotbed when he noted earlier this summer at an investor forum that fully one third of China’s venture capital and private equity companies hail from his city.

Smart money is chasing opportunity in Shenzhen, which has an entrepreneurial culture boosted by public and private support for emerging startups. It is no wonder the city has China’s highest ratio of business owners, coming in at 73.9 per 1,000 residents in 2013, according to city officials.

Shenzhen’s established pool of high-tech companies, broad talent pool and extensive constellation of hardware factories give it formidable advantages when competing against cities like Beijing and Shanghai for top talent and emerging businesses.

Shenzhen’s tech scene has achieved a critical mass that draws top talent in the software and hardware industries. “It’s where the jobs are and if you’re interested in those areas as an engineer or any kind of computer scientist, there are all kinds of exciting opportunities to be there”, says Eric Harwit, adjunct senior fellow at the East-West Centre and professor of Asian Studies at the University of Hawaii.

“A lot of the most dynamic companies in China are based in Shenzhen, not just Tencent, but also BYD, Huawei, ZTE and others”, he adds. Top talent from those companies often strike out on their own and establish new companies in the area, leveraging their local connections and experience to branch out in different directions.

Numerous incubation programs exist in the area to nurture these green shoots. “There weren’t really many incubators when I first came in 2007, now they seem to be popping up like crazy everywhere”, says Michael Michelini, the vice president of marketing and business development at

That’s no coincidence, Michelini notes. He suggests that “2010 was the end of cheap China” in terms of manufacturing and that the local government “is investing heavily in innovation and technology and startups with office space and grants” to help create a sustainable economy not simply grounded in assembly and manufacturing.

One hotbed for new firms is the Nanshan District, whose government-sponsored incubator program offers subsidised loans and direct investment to fledgling companies. Private entities like Haxlr8r offer short-term programs to help companies turn ideas into manufactured products that can then be used to raise funds from investors.

Cyril Ebersweiler, the founder and managing director of Haxlr8r, a seed accelerator focused on hardware startups, notes that incubators provide the extra measure of support that can mean the difference between top talent working for a large company or striking out on their own. “Tencent has its office right on top of Shenzhen University and the natural thing to do has been to join the ranks of big tech companies, not breach out and become an entrepreneur”, he notes.

Many of the emerging concepts and companies are decidedly high-tech. Because the region is “a nexus for mobile phone and smart phone manufacturing as well as peripherals”, says Harwit, new local companies tend to focus on these technologies. He cites the now-huge Coolpad firm as an example of a Shenzhen-nurtured company, as well as game developer Dingoo and the smartphone manufacturer G'Five International.

While access to factories and capital are an important part of Shenzhen’s success, the culture of the city also plays a key role in drawing companies and workers. “Shenzhen has become more attractive to people in the last five to 10 years, it’s becoming an exciting place to live”, notes Harwit.

Local culture and businesses help nurture budding startups. Michelini notes that “startup cafes such as Beta Cafe, 3W Coffee and others” offer the kind of co-working space that is ideal for entrepreneurs to work on the next great thing while rubbing elbows with and gaining inspiration from like-minded guests.

Proximity to Hong Kong is another attraction, with talent drawn by the ability to work hard during the week and then go to Hong Kong on the weekends for shopping and entertainment.

Local infrastructure also facilitates growth, says Harwit. “They’ve expanded the subway system and it’s easier to get around the city”, he notes. “There are more connections to Hong Kong and more rail [lines] to other parts of the country, the highway system is functioning nicely”, he adds.

Even so, “the supply chain is the number one reason to come over since it allows you to prototype faster”, says Ebersweiler. “The experience and knowledge in actual manufacturing comes next, then the scale at which you can operate when you grow”.

As Shenzhen’s ability to foster companies evolves, it will need to encourage more mentorship of up-and-coming talent. “A lot of startups now can live and grow with very small amounts of capital but lack the experience and network of advisors to give them help and advise during critical times in their business”, says Michelini. “This is something money cannot buy and it takes a long time to develop a support network and community”.

Ebersweiler says that more topflight educational institutes in the region would also be transformative. “Shenzhen needs more world-class universities”, he observes, adding that “the best thing that could happen to the city is Stanford in the middle of it”.