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Learn from China: Why are unicorn startups in China growing so fast?

DIGITAL VENTURES August 01, 2018 8:50 AM

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Speaking of startups, especially successful unicorn startups (startups with a company value more than 1 billion USD), we may think of USA’s Silicon Valley, the center of startups, as the leader in the sector. However, today, we can’t deny that a leading country in Asia such as China is also developing its startups with leaping growth. The number of unicorns in China is moving closer to the amount in the USA. This is due to the full support from the government in its R&D. In 2015, China spent 4.09 hundred billion USD in this sector, which is similar to the 4.97 hundred billion USD spent in the USA. Nevertheless, in terms of growth rate, China’s percentage has increased to 18% annually while the USA is only at 4%. This is a noteworthy success as China grows to become the world’s number one in technology in accordance with its plan. Digital Ventures has already shared about China’s technology development plan in “China and “Techno-Nationalism” to housing the most unicorns in the world”. Today, let’s take a closer look into China’s technology development and new facts about China’s unicorn startups.

 

Beijing, Shanghai, and Hangzhou – three prominent cities producing the most unicorns in China.

The Hurun Greater China Unicorn Index 2017 reports that Beijing produces the most unicorn startups in China at 54 unicorn startups. Beijing is leading a city with the most startups in China like Shanghai. Shanghai is in second place with 28 unicorn startups while Hangzhou has 13 unicorn startups. Beijing is also the city that produces the most startups in Asia.

Credit: technode.com

Beijing has 54 unicorn startups and the total value of the unicorn stands at 1.38 trillion RMB (2017).

  • Some outstanding unicorn startups in Beijing.

Beijing-based “Xiaomi” is the manufacturer of smartphones, electronics, and applications.

 

credit: Getty Images

 

We are becoming more familiar with Xiaomi. It was established in 2010 by Lei Jun, former CEO of Kingsoft. It became a unicorn startup in 2014 from the funding of over 45 billion USD from a giant investor, All-Stars Investment and many others. In 2017, Xiaomi announced the company’s success for a revenue surpassing 100 billion RMB (around 504 billion THB), all of which, happened within 7 years. Today, Xiaomi is a unicorn with the third highest value in China. It is an extremely fast-growing startup that developed in less than a decade.

 

Credit: moderndaynomads.com

“VIPKID” is a unicorn startup in the educational sector or EdTech based in Beijing. It was initiated by Cindy Mi, a Chinese teacher who saw an opportunity to uplift the quality for education, especially to tackle below standard teachers in local areas. She launched an online platform on English teaching for Chinese kids. The service matches students and teachers similar to that of Uber’s business to match taxi drivers with passengers. VIPKID is different from other English teaching applications in that the classes are taught by native speakers from USA and Canada in real-time along with Q&A and prompt responses. VIPKID received funding from several giant corporates in China such as Sequoia Capital China, Tencent Holdings, Sinovation Ventures, Zhen Fund, and Yunfeng Capital which was founded by Jack Ma. This year, VIPKID received a series D funding of over 500 million USD and VIPKID company is valued at 3 billion USD, making it a unicorn startup.

Three core business sectors that produce the most unicorns in China.

Credit: technode.com​

If China’s unicorns are categorized by industry, we see that the sector which produces the most unicorns in China are 1) internet services at 38 startups, 2) e-commerce at 22 startups, and 3) online finance at 18 startups. However, in terms of company value, we find that internet services, online finance, and culture & entertainment are the industries with the highest value.

60% of China’s unicorns are not over 6 years old.

Credit: technode.com

It is worth noting that 60% of China’s unicorn startups are not over 6 years of age and 35% is not over 4 years old. This reflects a good ecosystem and a dedicated support for startups to become successful unicorns in such a short period of time.

Credit: medium.com

Furthermore, China houses a startup that successfully became a unicorn within a year called “Cambricon”. Cambricon Technologies is a startup who produces AI chips that can be used with smartphones, cars, and home appliances. They are the first startup in the world to produce AI chips for commercial purposes. Cambricon was established in 2016 by the two brothers Chen Yun Ji and Chen Tian Shi, researchers from the Chinese Academy of Sciences. Eighteen months after the startup was founded, Cambricon received a series A of over 100 million USD. The investment was partly from the government as this technology relates to the government’s goal to become the world’s number one for AI development. This round of funding increased Cambricon’s value to 1 billion USD, making it a unicorn within a year.

These are just some of the useful information about unicorn startups. There are more stories regarding China’s technology development plan that everyone can learn as case studies. Follow the Digital Ventures blog for more updates.

Reference: Technode.com, Chinadaily.com, Ceoblog.co