/The startup journal VII: What the year of 2015 means to the Chinese tech scene and to myself

The startup journal VII: What the year of 2015 means to the Chinese tech scene and to myself

As a media startup which closely follows the ups and downs of the Chinese tech industry, we know how heated and how deep the local tech scene can be.

The biggest challenge to the Chinese tech scene came in June when the Chinese stock market crashed. Since then, the “winter theory” of the Chinese capital market has cast a shadow over the local tech industry.

Many feared that a tech bubble in China was about to burst, or that for a while it will be extremely difficult for startups to gain financing.

However, in the past few months, many Chinese tech companies were able to raise huge amounts of funding. It shows that the tech sector has the most potential to grow in China.

I said at the beginning of my Startup Journal series that the momentum of the Chinese IT industry remains and is actually driving the Chinese economy, which is backed by as many as 600 million Chinese Internet users.

The successful financing cases that have recently occurred in the industry are related to on-demand services, which are feeding the needs of the huge amount of Chinese Internet users.

These include online education, family-oriented services, various online to offline (O2O) services and all kinds of e-commerce platforms changing Chinese everyday life, which is now dominated by smartphones, mobile Internet, and trendy apps.

The largest group of consumers of online education in China are students older than 12 years old. This group is estimated to contain as many as 70 million people.

In mid-December, a Beijing-based online educational products provider offering online courses and consulting services completed USD 31 million in financing. The same week, an online education platform backed by Alibaba raised USD 60 million in Series B financing. In late November, an online education platform backed by Chinese e-commerce giant JD.com received USD 47 million in financing.

Gold coins are not only raining down on the online education sector, but also shining on family-oriented services such as family care and home decoration. In December alone, three platforms raised dozens of millions of dollars and one home decoration platform’s valuation was boosted as high as USD 157 million.

O2O
From Baidu Images.

In 2015, O2O was a double-edged sword for tech entrepreneurs and investors. Chinese tech media say that hundreds of O2O companies have spread out in 14 different sectors.

Starting in late 2014, Chinese tech investors have poured buckets of investment into many service-oriented platforms with bold business ideas, such as home massage service app Kungfu Bear.

O2O itself is not new. It’s widely known as a business strategy which attracts customers from online platforms to offline stores. Because they were so easy to finance at the time, O2O service platforms erupted before June.

This also has something to do with the government’s “Internet Plus” strategy, launched in March. Basically, the government aims to use the Internet and mobile Internet to connect all industries and businesses, so that they can produce offline and sell online, take orders online and serve offline.

Kungfu Bear is among the O2O pioneers who have raised several million dollars in just two months. It connects consumers to massage therapists directly, with benefits to all parties. It lowers the cost of getting a massage in fancy venues where customers are charged high prices and massage therapists don’t get paid very much. It offers a convenient solution for customers and lets them enjoy the service in an environment in which they feel cozy and comfortable.

It is a promising business model (the platform takes a reasonable cut from therapists) and there’s increasing demand and supply, supported by mobile Internet. Because of this, Kungfu Bear copycats and O2O services in general have mushroomed: O2O fruit suppliers, live or cooked crawfish suppliers, at home manicure and facial services, you name it.

If Kungfu Bear plays its cards right, it can lead the O2O sector. But it is failing. It burned too much cash on subsidizing therapists and consumers in order to beat competition instead of proving to investors that its monetization model is solid. It has gone too fast, swallowing smaller massage services and expanding its services from three cities to seven within months, instead of building a standard service that makes customers stay.

In September, rumors circulated that the company failed to complete its Series B financing and faced difficulties. Although the company dismissed the rumor, it has not yet announced any progress in financing.

kungfu bear
Screenshot from Kungfu Bear.

For a while after June, O2O became an unpopular business model for investors who have become much more curious in investing after the stock market crash.

E-commerce, on the other hand, has flourished. In the last week of December, 2015, a Beijing-based fresh food e-commerce platform that supplies seafish, shellfish and crab was able to raise USD 100M in its Series C financing.

The reason is simple: Chinese people love seafood. There’s high demand and there’s supply.

Cross-border e-commerce is also hot. Almost every e-commerce platform is offering overseas purchasing services: the largest platform, Alibaba’s Tmall; the second largest, JD.com; cosmetic and fashion websites Vipshop.com and Jumei.com, child product platform Mia.com and foreign-brands-only website Ymatou.com.

The Chinese purchasing power is too large to be ignored. And Chinese love buying things even more than Americans. Chinese people spent USD 14.3 billion on Tmall alone on the “Double 11” shopping festival in November. This sales number is three times more than the Black Friday revenue of USD 4.47 billion in America.

2015 was an interesting year for myself, too. I co-founded a media startup, AllChinaTech in August. In fact, this four-month period is already feeling like a year. I’ve worked harder than I’ve ever worked and learned so much about the startup scene and doing business. Every day there’s something new to learn. I’m transforming from an industry observer as a reporter into an entrepreneur, an insider diving into the tech scene.

I’ve given up a few things. I moved out of my spacious apartment where I used to host dinner parties, making sushi and mojitos with friends, to a tiny studio. Since I began the startup life, I’ve mostly lived on takeout noodles. Well, I’m too busy to cook dinner anyway. I’ve hidden my dresses and high heels and started wearing jeans and shirts, as a “startup person”. Although I was able to put on makeup once or twice to go to my once-favorite swing dancing parties. Pleasure was short but enough to freshen me up for more work.

mealstartupjournal
Nan’s home-cooked dinner before her startup life. By Wu Nan

So here’s my 2016 plan: I can be a workaholic but I should still try to spend time with my family and friends. Everyone says that you can make sacrifices for your dreams. I’d say that magnifying motivation without losing the joy in daily work matters.

You dare to dream big and you work for it. That’s what I’m doing now.

Read the Startup Journal VI, V, VI, III, II, and I.

Wu is the CEO and Editor in Chief of AllChinaTech. She is an award-winning journalist with honors from Foreign Press Association in New York and Hong Kong Journalists Association. For years she worked for top-notch media outlets including South China Morning Post and the Wall Street Journal. She co-founded the NetEase Annual Economist Conference (NAEC), a leading economic forum in China. Wu holds a master's degree in Journalism at U.C. Berkeley and is a 2012 Nieman Fellow at Harvard University. Write to her: nan[at]allchinatech.com