5 tips all expats should consider before launching a startup in China

Rui Ma is close to closing her 10th early stage tech investment in Greater China since joining the global seed fund and accelerator 500 Startups last year. She has funded a handful of teams with expat founders. Follow her on Twitter @ruima.

When I came to China via an internal transfer in September 2007, I was one of very few eligible candidates for the position I took. This was because my job in private equity required that I not only speak but also read and write Chinese. This was in stark contrast to my tentative efforts in the China job market in 2004, when the ability to speak Mandarin with some primitive proficiency was already seen as a major asset. Compare that with now, when I believe (and often counsel) that not only are bilingual and bicultural skills must-haves to be competitive in China’s business environment today, but deep industry knowledge and local contacts (or the ability to quickly assemble a local network) have become absolutely crucial. In the last decade or so, the bar has been raised ever higher with accelerating globalization and there is no more “low hanging fruit.”

Now that we are in 2014, the allure of China remains strong, and its booming tech scene particularly attractive. To quote one Korean journalist I spoke with this month who had spent a significant portion of the previous year in Silicon Valley trying to understand its “magic,” – “Everyone on Sand Hill Road that I spoke to seemed to agree that Beijing is the next closest thing to the Valley.”

Even though I personally had been espousing this view for a while, I was surprised to learn that it had become such an established viewpoint. Either way, while I am used to fielding questions from friends and acquaintances who want to know – “should I come to China?” – I was still taken aback when a successful American serial entrepreneur from the Valley recently asked me, in all seriousness, “should I do my next startup in Beijing?” At least in some pockets of the world, it seemed, the mythical perception of tech entrepreneurship in China seems to have gotten ahead of itself, and I thought it would be helpful to share some of my insights on things that expat entrepreneurs should keep in mind – some well-meaning advice, if you will – before jumping into founding a tech startup in China.

Let me be clear – I am not targeting returnee (i.e. mainland Chinese born and bred) entrepreneurs with this article, although depending on how “localized” you are, and how much time you have spent overseas and away from the mainland, some of the below points are probably applicable to you. Additionally, on a broader basis, some of the points extend beyond tech entrepreneurship and are relevant to any working professional, particularly those who are mid-career.

1. Stick to what you know (or can learn very quickly)

Let’s face it, entrepreneurship is hard enough without having to address the challenges of a new country, language, and culture. The odds are already heavily stacked against you as it is (a study by a Harvard lecturer shows that 75 percent of startups fail), so why would you want to bias them further? China, by sheer virtue of its massive population and relatively scarce resources, is an extremely competitive society. It is a mad dash to the top. Yet if you are very strategic (and very brave!), there are always opportunities and markets or niches where explosive growth may await.

When my friend Soul Htite, former co-founder and CTO of Lending Club, decided to come to China to establish his new company, guess which kind of venture he embarked on? That’s right, he established a peer-to-peer lending platform called Dianrong.com. Not surprisingly, he was able to hit the ground running. Why? Well, for one thing, he had already helped build a billion-dollar company in the same industry in the US. With that experience, he brought along substantial credibility to policymakers, investors, and media outlets.

Of course, not all of us have a billion-dollar company on our resume, but doing what you know will always help you be more successful. One of our investments, Chinanetcloud, is founded by an American named Steve Mushero who had worked for over a decade in the IT consulting business. Later, when he joined Tudou (a YouTube-esque site in China, now known as Youku Tudou) as CTO, he spotted a problem that many Chinese companies faced – a lack of infrastructure services. Chinanetcloud was born from his experience at Tudou in that it allowed him to recognize a specific business opportunity. But his company is thriving because of his prior experience in consulting and IT project management, which he accumulated in the US and in Asia.

A notable (but by no means the only) exception where I think it may make more sense to deviate from one’s former career path is in the case of completely new emerging industries where no one has a real head start. Cryptocurrencies, for example, are so new that there’s no significant local knowhow yet, and where being English speaking in particular might actually be an advantage, as most of the original white papers, code, and ongoing community thought leadership seems to be still originating from overseas.

2. Find a trusted and qualified local partner

Please don’t roll your eyes at me when you read this. It’s no trivial thing to find a trusted local partner, and most expats, especially if they are new to China, can even misunderstand the definition of “local.” Some expats mistakenly believe that cofounders who are ethnically Chinese but hold passports from Hong Kong, Taiwan, or somewhere in Southeast Asia are sufficiently local. Very rarely is this the case. Additionally, associations matter. There are distinct advantages to partnering with someone who is part of the Tsinghua mafia (the top engineering school in China and the alma mater of its current and several ex-Presidents), or someone who used to work at one of the Internet giants like Baidu or Tencent, just like there is social credibility associated with co-founding with a Berkeley EECS grad or an ex-Googler.

When my friend Greg Nance started his online admissions consulting platform ChaseFuture, he partnered with fellow Cambridge Business School student Han Shao, a local Chinese from Wenzhou. Han is both savvy about his target market, having been one of those same wide-eyed students applying to study overseas a few years ago, and also trusted because of their common business school experience. When Dave Kanel and Ravi Kotichintala, two founders based in America, decided to form BOXC (one of my investments), a cross-border e-commerce logistics company servicing Chinese vendors who sell to the US, they got local Shanghainese Nicholas Ni to be their third co-founder; someone who was both qualified and trusted from years of working together in the import-export business.

One additional note on all-expat teams – all-expat teams have virtually no chance with a purely domestic-facing product, so if you are contemplating such a move, I would suggest you rethink your competitive advantages, and focus on a global or entirely Western-facing product, in which case you’re going to have to go home a lot (see point 5).

3. Bring the (best of the) West with you

There is a lot that is good about the West, especially in the tech space, but I’m going to focus on company culture and to a degree, management integrity. Chinese startup culture can be extremely cut-throat, with regular poachings of key employees, active sabotage by competitors, and high staff turnover all par for the course. Due to many cultural and systemic reasons I won’t go into here, some of the best talent still opt for large companies over startups, and are notoriously hard to retain. However, by bringing the more transparent and meritocratic business culture associated with the West to China, you can use this as a powerful differentiator and motivational tool to both hire effectively and drive performance in your startup.

4. Use your foreignness to your advantage

5. Go back home (more) often

In conclusion