William Bao Bean, a partner at Shanghai venture capital firm SOSV, works with more than 120 start-ups every year. Bao Bean, who is also managing director of two venture capital firms – Shanghai software-focused Chinacceleratoras well as MOX, focused on mobile technology – tells us about his businesses and the reality of starting up your own company. Why is it so hard for overseas companies to succeed in China? The biggest challenge for overseas companies in China is not the Chinese government, regulations or laws. When you’re a company coming into China from the United States, Europe or Southeast Asia, you’re entering a completely different market. Think about it like this – when you learn how to do something, you might spend 10,000 hours and become an expert. You develop a gut instinct. But once you go into a market that’s different, like China, your gut instincts are wrong. One of the reasons major US internet companies have failed in China is because people making the decisions often have their instincts tell them what to do, as opposed to the data they have. Is there any innovation in China, or does a copycat culture still exist? Everyone copies each other, and talking about who copies whom is a waste of time. China is ahead in certain things and behind in others. One of the areas in which it’s ahead is in social commerce. If you look at social media networks like Facebook today, you can go into a community or a group, but you can’t buy anything. But if you go into WeChat, anything that you can see, you can buy. WeChat is maybe 1.5 years ahead of Facebook in terms of social commerce. China’s social networks are innovating far above Facebook and Twitter in social commerce. If you do something before someone else does, that’s innovation in my book. Another industry where China is ahead in innovation is entertainment. The Chinese gaming market is larger than the US market and many more people are spending more money on entertainment on their phones. For example, the freemium model for games [where a product or service is offered free but charges are made for other services] was conceived in Korea and later taken up by China. The freemium model came about because users would play pirated games and no one would pay for games in Asia. So the companies had to innovate and come up with a new model for games, where users can play, but are encouraged to pay for items, or boosts, within the game. This is an innovation that started out in Asia, with the West adopting it later. What types of start-ups does Chinaccelerator focus on? We are very sector-focused and take a global view of things, while others usually have a focus on a particular city. We look for companies around the world that have a strong advantage in the market place and are interested in coming to China. That’s because when you come here as a foreigner, you have an obvious significant disadvantage since you’re not in the market. The only way to succeed in China is to be better at something compared with everyone else. One sector we’re focused on is education. We are heavy investors in education because most Chinese people think the existing education system isn’t very good, and they’re right. Look at one of the most successful people in China – Alibaba’s Jack Ma. He fell out of the Chinese education system three times before going to a fourth-tier college, and now he’s the most successful guy in the country. So the Chinese don’t have a great amount of respect for China’s education system. Instead, they look up to international education systems. At Chinaccelerator, we take international education platforms, systems, services and best practices and bring them to China. These education companies already use Western methods, which gives them a strong advantage over local firms. Another focus is financial services. China’s trading markets are not as advanced as those in Hong Kong, London or New York. They don’t have the decades of experience that these tier-one markets have. In China, you don’t have people with experience building complex financial trading platforms and back-end systems. One of Chinaccelerator’s companies is a Hong Kong bitcoin company called BitMEX. The founders have a financial background – one co-founder has a trading background and the other has a financial systems background in building trading platforms for firms such as JPMorgan. We helped them come into the Chinese bitcoin derivatives market and they started from a US$1.2 million weekly turnover to having US$45 million every week. What’s one piece of advice you would give to someone who wants to set up a start-up? Starting up is about doing something that you’ve never done before, where your competitors have much more resources than you do. Start-ups are built on successive failures, and most people are not built to embrace failure and turn that into success. My advice for anyone who’s looking at starting up their own company is to think if this is something that you’re willing to give up everything for, because your start-up will run out of money, you will run into credit card debt, you will have to sleep on your friend’s couch and you might have to ask your parents for money. You’re not going to succeed immediately. There is a lot of glamour around starting up a company, but starting up is hard.