Lee Kai-Fu: Investors in China are in a Sweet Spot

This is a part of our TechCrunch Disrupt 2011 event coverage.

Lee Kai-Fu is a popular and perhaps fatherly figure in China. On stage with Sarah Lacy at TechCrunch Disrupt today he explained that helping young people in China is one of his goals. And to do that, he wrote books and started Innovation Works to inspire and groom entrepreneurs in China. While writing is his forte, he now uses Sina Weibo to spread his message. Five years ago he said that people would come up to him and say “I read your book.” But now people say “I follow your weibo.”

There is a fair share of criticism that Lee isn’t an entrepreneur and is more of a corporate man. Perhaps many folks forget that Lee built Innovation Works pretty much like start-up. I remember Lee also mentioned at Qinghua University that Innovation Works also follows the lean startup model, the very concept that he preaches to Chinese entrepreneurs.

After several years running Innovation Works, Lee is in a good position to comment on the scene in China. He says there are a lot of engineering talents in China, and the calibre of entrepreneurs is high and are people are hungry for success.

For the first nine months, Innovation Works followed the Idea Labs’ concept. He said it works well, but the model isn’t customized for China and couldn’t attract the best entrepreneurs in the country. He said that the best Chinese entrepreneurs wish to have more control over their start-ups.

Lee says that Innovation Works has now adopted the Y-Combinator style, providing seed financing for new ideas. It also provides help in HR, design, and legal resources to new start-ups. He notes that founders should focus on the product.

Sweet Spot

Lee says that investors in China are in a sort of sweet spot right now, as labor cost remains low in China while start-up valuation is high. That of course has attracted many entrepreneurs to set up their own businesses. If you’re one of the folks looking to get funding from Innovation Works, note this down. Lee says that they are basically looking for founders who have passion, the desire for success, and strong understanding of the domain they are working on.

So a founder in the LBS market needs to understand LBS in real depth. Lee also says that he will not accept folks who are sleazy and steal source code from others. One more point is that Lee expects the leader/CEO to be strong and able to lead the company from start to finish. That’s extremely important as it is tough to change CEO in China.

Chinese society doesn’t embrace failure. Lee says there will probably be only one Pony Ma out of every 15,000 drop-out or newly graduated entrepreneurs (an arbitrary number I guess). But it doesn’t make sense for Innovation Works to invest in them, because it just doesn’t make financial sense. Rather, Innovation Works would prefer to invest in start-ups with experienced founders. He discussed the same point at Qinghua.

While talking about the prospective on Chinese companies going to the U.S, Lee says that it is tough because both cultures are vastly different. Lee recommends Chinese companies to expanding to Southeast Asia markets (hell yeah!) where the cultures are closer to China. Lee feels that if there’s a choice, a Chinese company should leave U.S and Europre as its last expansion destinations.

[Photos from Duncan Leung]