China is Fine for Startups; Twitter and Facebook Aren’t Everything

Earlier today I came across this piece on ZDNet in which Vinnie Lauria of Golden Gate Ventures talks about his experiences as a VC in Asia. It’s an interesting piece, but I must say I take issue with his assertion that China isn’t a good market for startups because Facebook and Twitter are blocked there.

Rather than summarizing Lauria’s argument, I’ll just quote it verbatim. There are two sections of the article in which his position on China is explained. The first is in the introduction:

Vinnie Lauria, founding partner of venture capitalist firm Golden Gate Ventures, told ZDNet Asia in an interview a major disadvantage in China was its blocking of Facebook and Twitter.

“Startups often get out in the market leveraging both networks. They are so vital to a startup’s success so they can’t easily operate in China,” he said.

Then later, in answering a question about what startups he invests in, he says:

There’s been a lot of traction around social networks but if you’re creating something similar to Facebook or Twitter, you’re crazy. You need to leverage it, but not compete with it, unless you’re in China when both are blocked […] China has a tremendous amount of opportunity but most products are very China-focused and I will be late to the game if I decide to be a venture capitalist there.

I certainly agree with Lauria’s assertion that startups would have to be crazy to be creating a competitor for Facebook or Twitter and that leveraging platforms like that is a great idea. But why does that put startups in China at a disadvantage?

Sure, Facebook and Twitter are blocked in China. But Chinese startups can leverage platforms like Renren and Sina Weibo and WeChat to exactly the same end. They may not be as international as Facebook and Twitter, but with hundreds of millions of users, China’s major social networking sites offer some pretty impressive opportunities to startups willing to leverage them.

In fact, for some startups, working with Chinese platforms may even bring an advantage: access to a huge number of users with minimal hassle. Sure, Facebook offers more users than Renren, but they’re spread out across dozens of countries with different laws, regulations and tax codes. China’s bureaucracy may be a labyrinthine nightmare, but at least there’s only one bureaucracy for Chinese startups to worry about. A startup can set up operations in China, leverage a platform like Sina Weibo, and have access to 300 million-plus users who (for the most part) share the same language and culture and live in the same regulatory environment.

But to leverage 300 million Twitter users, a startup has to worry about users in at least twelve different countries. That means that your product has to be equally appealing to Americans, Turks, Japanese, Mexicans, and Indonesians (among others) and you’ve gotta be sure that whatever you’re doing is available in all those different languages and works across all those different cultures.

This is not to say that being international is a bad thing, or that international appeal for startups is impossible. But let’s be honest here: leveraging Chinese social networking sites gives Chinese startups access to a massive number of users without requiring those startups to worry about things like localization and culture clashes, let alone regulatory enforcement or tax policy. In China, if you don’t get China, you’re totally screwed. But if you do understand the market, the possibilities are enormous. The country may not have Facebook and Twitter, but to startups that want to leverage social networking communities’s massive user bases, that’s probably an advantage.

[Image via Shutterstock]