Innospring is diving into a “blue ocean” of American startups entering China

Most American companies do not think about international expansion in their early years for the simple reason that opportunities already abound within the US market. By the time they cast their eyes towards Europe or Asia, they have already grown considerably in stature and value. Innospring, a startup organization dedicated to bringing American startups into China, is trying to change that.

Innospring is a cross between an incubator and an advisory service. The investment and incubation arm took on 19 companies over the past two years with its first round of capital. Besides providing advisory services for its own firms, Innospring also welcomes inquiries from American startups looking to crack the China code.

Some major firms, chief among them being Kleiner Perkins Caulfield & Byers and Northern Light Venture Capital, have invested into the Innospring vision. Sitting down with Tech in Asia, CEO and chief firestarter Xiao Wang says that Innospring achieved a three-fold return on its first fund, allowing them to start a second, larger fund of US$5 million. She confirmed that Innospring is currently finalizing the paperwork for the new fund.

The lure of bridging the American and Chinese tech spaces is not a new one. In fact, Wang learned the ropes of handling startups while an associate member of the Tsinghua Entrepreneur and Executive Club (TEEC). The organization is made up of alumni of Tsinghua – a member of China’s Ivy League and the site of Mark Zuckerberg’s Chinese language debut – looking to support promising China-related startups. “I just witness how really good decisions were made. And some not so good decisions. That really educated me on investing,” she notes.

The schooling paid off when Wang was tapped last December to lead Innospring. There she is taking the TEEC mission one step further, actively working to create business opportunities in China for non-Chinese firms. Despite China’s billion-plus consumers and staggering economic output, the country remains baffling for many would-be entrants. “Most internet companies in the past decade failed in China,” Wang says. She notes that exceptions like Evernote were assisted by China Broadband Capital (CBC), one of the investors in Innospring.

Localizing both the product and the team are essential according to Wang. “[Local teams] need enough independence to entirely change how they actually sell their current product to consumers,” she says. “I still see big companies go out and hire a Hong Kong-born investment banker to be the general manager of their China team. That is a red flag. Most of the companies which have gone that route failed.”

Despite the obvious needs that large tech companies have for a firm that can lead them into China, Innospring prefers focus elsewhere. “Our strategy is to invest early because early stage is the best time to develop personal relationship with the founding team. So it actually takes time for them to grow to a point where they can actually aggressively go to China,” Wang explains.

One portfolio company that seems poised for a China entry is If You Can, an educational game for kids. Founded by Trip Hawkins, who also happened to found Electronic Arts, the company just received US$6.5 million in series A funding, lead by Greylock Partners. When Hawkins started talking with Innospring last year, he was clear that he expected to enter China within 18 months.

“Gaming is very hot in China. So they cannot ignore China. Second is that it is an education game. Online education is also really big in China,” Wang says, explaining why she has high hopes for the service.

Despite the opportunities posed by companies like If You Can, Wang does not anticipate much competition coming from mainland China either. “No one [from China] really has the access to sit down and have coffee with entrepreneurs [in Silicon Valley]. That is where there is a blue ocean, a missing link. Our mission is to become the hub for US entrepreneurs to go to immediately when they think of anything China related,” she says.

As Innospring’s new fund is in the process of closing, entrepreneurs looking for a relationship with China should consider her words. It is located a short drive away from Palo Alto and Wang’s prerequisites for investment are quite concise. “We are looking for a minimum viable product and a founder who knows what they are doing,” she says.

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