Today, we spoke to Virgil Archer, one of the guys behind the TechYizu and the Startup Leadership Program in Shanghai, China. For all of you developers, entrepreneurs, and nomads considering heading out East in search of adventure and riches – this one’s for ya’ll.
Virgil splits time between working his venture capitalist gig for a noted telecom fund, building a robust startup ecosystem in China, and frequenting happy hours in Shanghai’s storied expat spots. We caught him on a Friday night – he made sure to let us know that he passed up one such opportunity to field our call.
Gun.io: Can you give our users some intel on why they should listen to you?
Virgil: I was involved in the tech community in Boulder, where I went to school. After I graduated, I worked as a banker in London, and then found myself working for an Internet startup in China. I parlayed that position into a gig for one of our lead investors, which later turned into a full-time role. I split my time now between my job, TechYizu, where we put on tech-related events, and hosting workshops for entrepreneurs. As a foreigner in China, my experience isn’t unique – job- and industry-hopping is par for the course in a labor market as fluid as China’s.
Gun.io: Can you identify a few peculiarities in launching a business in China?
Virgil: From the perspective of an entrepreneur, even if you prove traction, it’s hard to get taken seriously by institutional money in China if you’re lacking a native, Chinese, co-founder. If you scale to a medium- or large-sized company, and the government takes notice, you’ve almost got to have a member of the Communist Party as one of your C-level executives. You see many foreign founders getting forced out during Series-B financing for this reason. From an investing perspective, founders will accept terms that would never fly in the US. For example, it’s common to have term sheets that, in the event of liquidation, provides the firm claw-backs, but also permits them to go after founders’ personal assets. On top of all this, there’s also mimicking of effective business models. 36kr.com, for example, originally sourced much of its content from TechCrunch.
Gun.io: Could you explain this ‘mimicking’ process a little more?
Virgil: A while ago, group buying was popular. Then, it was ecommerce. More recently, you’re finding Pinterest clones. Entrepreneurs typically accept having clones spring up as a part of bringing new products to market.
Gun.io: Are there many foreign entrepreneurs in China? What’s the ratio of foreign entrepreneurs to local entrepreneurs?
Virgil: A foreign founder of a fairly successful service business in Shanghai jokingly said that foreigners – men especially – when they come to China, realize that they’re treated and paid exceptionally well by locals. They’re invited to the hottest clubs, and often hang out with very wealthy people. This sort of inflates their ego and gives them the impression that they could easily launch a business in the country too. On the Chinese side, there are cultural expectations that demand that children – again, men especially – are financially independent and able to support a wife and two sets of parents by age 30. These obligations make the initial periods of being an entrepreneur especially challenging, and that’s why many Chinese entrepreneurs never get started. Because these trends are occurring simultaneously, you tend to see more foreign entrepreneurs than local ones in China, for now at least. That said, foreigners rarely quit their day job, even if they’re finding that their project is getting traction. Projects are likely to flame out and even their support networks are far away.
Gun.io: How’s the outlook for Asia in general from the startup perspective?
Virgil: Singapore’s very supportive of new businesses – they make it easy to file your documents and receive grant money. Indonesia looks promising. For now though, China is the place to be. I think we’ll see more Internet companies listing on the Shenzhen exchange, instead of going to the NYSE and using esoteric techniques such as reverse mergers that obfuscate their financials from foreign investors. Currently, Chinese companies have to keep two separate sets of books – one for themselves and one for the government – a practice which understandably worries foreign investors. Successful start-ups are typically started by former employees of large, reputable technology companies such as Tencent and Alibaba – sort of similar to what you see in the US with alums of Google, Yahoo, etc.
Gun.io: Can you specifically speak to hiring practices in China?
Virgil: HR is a hell of a thing, at least in China. Once you hire someone, it’s almost impossible to get rid of them. You can get dragged through courts fairly easily, and all the while, you’re paying their salary. I’d recommend having a Chinese co-founder that can pull contacts from his social circle.
Gun.io: What general advice can you give to entrepreneurs looking to scale a business in China?
Virgil: Make sure you have a Chinese engineer as a co-founder. There are no open sources of industry-wide data comparable to Angel List in China quite yet, but 17startup.com does put out an annual report to do some research.
Edit: Previously, this piece incorrectly quoted Virgil as saying that 36kr sourced all of its content from TechCrunch. His comments have been edited.