Here Comes China…

China and me…

We’ve been flirting with each other for some 30 years.

I wrote one of my first books on China. This was back in the 1970s – on China’s nascent computer industry.

And when the governor of Maryland brought me on board in the 1980s, one of my first assignments was to help set up the state’s office in Shanghai.

I helped organize state business missions to China… trekked to Hong Kong and Shanghai on several occasions to facilitate business deals made with Maryland companies.

Back then, China and its billion consumers loomed large in the dreams of American companies.

I had a front-row seat to many Maryland companies chasing the Chinese market. Some succeeded. Many more floundered.

They simply weren’t ready for the challenges that awaited them…

The politics were thick with intrigue. Corruption was rampant. And the size and difficulty of the market made launching an effective marketing campaign an expensive proposition.

When I ran my own Asia-based trade and finance company, China was one of the markets I covered, but it wasn’t the main one. And I made sure those clients who wanted to pursue market opportunities in China fully understood what they were in for.

And, wouldn’t you know it, China looms large once again.

Several decades later, here I am scouring the country for exceptional startups.

The Evolving Chinese Marketplace

This time, these startup companies are much younger and smaller, and they have less experience and fewer financial resources. They also often lack a strong marketing track record in the U.S.

But that’s not all that’s changed.

In the ’70s and ’80s, China’s “billion consumers” were a myth. The country had just started to modernize, and China’s middle class was a slender slice of the population. Free enterprise was strictly forbidden.

It was the Wild West in many ways.

Fast-forward to today. The picture looks completely different. China has…

  • The most internet users in the world
  • The most smartphones in use, 574 million (the U.S. has 184 million)
  • Two of the six biggest mobile companies in the world (by worth) – China Mobile and Alibaba
  • And about 140,000 internet cafes.

China’s startup ecosystem is also growing quickly and quickly growing up. Of the top 15 Unicorns (startups valued at $1 billion or more) listed in The Wall Street Journal‘s Billion-Dollar Startup Club, four come from China (Xiaomi, Didi Chuxing, Meituan-Dianping and Lufax).

Even more telling, China has an elite group of startup investors following a pattern similar to one we have in the United States…

Here, we have the “Paypal Mafia” – the group of former top executives at Paypal that has gone on to invest in and found numerous startups.

Prominent names include Peter Thiel (co-founder of Funders Club), Elon Musk (founder of Tesla and SpaceX), Reid Hoffman (co-founder of LinkedIn and partner at Greylock Partners) and Dave McClure (founder of 500 Startups).

China has an equivalent that I call the “Alibaba Cabal.” In addition to Alibaba, it includes Tencent, Didi Chuxing and Xiaomi. Collectively, they’re pouring hundreds of millions of dollars into startups in China and around the world.

But they’re not the only ones. One of China’s biggest private equity companies created a seed fund called the CSC Upshot, which invests in the top syndicates listed on the startup portal AngelList.

CSC Upshot is backed by $400 million worth of Chinese money.

When all marks are tallied, the Chinese are investing in startups almost as much as the U.S. Remarkably, in 2015, $60.5 billion of Chinese money flowed into startups, compared to $68 billion of U.S. capital. Not much difference there.

China’s “New Normal”

Yes, a billion consumers is still a mythic number.

Half of China’s workforce – some 387 million workers – comes from its rural areas. They make $2,000 a year. And the average Chinese consumer spends only $7 a day. In America, the average is $97 a day.

But the worm is beginning to turn…

China’s economy is finally becoming more consumer-oriented. Its middle class has grown to a half-billion strong (much bigger than the U.S.’s total population of 319 million).

And online shopping is going through the roof.

Last November, Alibaba’s Single’s Day Shopping Festival recorded $14 billion worth of sales in the first 24 hours. The closest thing in the U.S. is Black Friday, which has never generated even $5 billion in sales.

In 2013, China accounted for 35% of the world’s total online shopping. By 2018, China’s spending is expected to exceed that of the rest of the world combined.

For startups, these two trends – bigger consumer market opportunities and a rising tide of venture capital – have merged into a single powerful force…

Deep-pocketed Chinese companies that offer both money and marketing muscle to selected U.S. startups.

China Is Calling

If these highly sought-after companies come knocking on your door, as a startup founder you need to listen – especially if your startup is looking to make hay in e-commerce, mobile or internet-related markets.

My partner Adam and I have found a startup operating in a market that is exploding here in the U.S. – and even more so in China.

Not one, but two powerful Chinese companies have recently become major investors and partners.

Actually, none of this is surprising. This startup fully deserves the attention it’s getting from China. I truly believe its upside is off the charts.

Which is why we’re recommending it to subscribers of our new equity crowdfunding service, First Stage Investor.

The service launches today – along with all the details you need to invest in this exciting startup. Look for an email this afternoon letting you know how to join us.

It would be great to have you come on board. We’re excited to be in a position to offer these startup opportunities to you.

So I hope you can join us.

Invest early and well,

Andrew Gordon
Founder, Early Investing