Shenzhen was the Chinese epicenter of a massive economic shift to manufacturing in the early 1980s and the attraction to most foreign manufacturing companies setting up there was the promise of inexpensive labor. On a visit to Shenzhen City (near Hong Kong) a couple of years ago I was surprised to learn how much that is changed when a large US optical manufacturing customer was in the process of moving its operations to Vietnam due to the rising cost of labor in China. The shift of manufacturing from China to other countries has also signaled a shift of Chinese companies focusing more on technology and business innovation. Nowhere is that more obvious than in Shanghai where smaller districts are all setting up innovation hubs and incubators to build the foundation for this innovation economy.
Impact10x had a recent opportunity to speak at one technology park called Keiji50 in the Jiading area of Shanghai. The main focus of this park was IOT/wearable devices and housed probably 10-20 companies on its campus. Companies building versions of Google glass, Smart Mirrors and even Smart Coffee machines adorned its demonstration room. Especially interesting was the fact that the center also did China based VC investments through a quasi-government funded organization. We had an opportunity to talk to their Partners to find out a little more about how their VC investments worked in China. It seems most investments were made after a working prototype had been demonstrated and with maximum investments of 3M RMB (approximately $500K USD). Seed capital financing did not seem to be something that they were particularly comfortable with as some of the frameworks/tools they used to evaluate innovations were based on mass appeal to a broad consumer audience. Most true breakthroughs start with a small core of leading edge customers which then lead to growth.
Another piece of their investment approach was the emphasis on patents or other more basic scientific intellectual property which could be a competitive barrier to entry. Although this has traditionally made sense 5-10 years ago, with the massive shift to more open source platforms, crowd sourcing and any new innovation being circulated around the planet at light-speed…basing your competitive advantage solely on protection of information is quickly being eroded. As Bill Gates recently said “intellectual property has the shelf life of a banana”.
Stay tuned for the next couple of blog posts as we will be posting some more of our discoveries on China and Shanghai based incubators and technology parks.