Since its launch in fall 2009, InnovationWorks has evolved into what founder Kaifu calls a combination of the plug-and-play of Y Combinator and the VC Andreessen Horowitz. For the first nine months, Lee said that for the first nine months, InnovationWorks closely resembled the IdeaLab model, where the incubator itself conceives a a business and then recruits entrepreneurs to run it.
Lee, in an interview at TC Disrupt Beijing, said the hit rate was high, “But that model cannot attract the best of entrepreneurs. They want to control their own destiny. And they want the great majority of shares in what they do.”
Today, on his Sina Weibo, Lee posted:
When setting up InnovationWorks we visited Y Combinator several times and concluded the essence was this: 1) Experts with sharp industry analysis; 2) assistance in product development, employing the Lean Startup school of thought. We studied this, but also have differences: 1) We provide a lot of funding and build big teams to get the product out the door; 2) We provide office space and comprehensive support (legal, financial, recruitment, etc.); 3) InnovationWorks has its own fund.
For entrepreneurs, Lee said, the three most consuming things are: hiring, mundane administrative tasks, and fund-raising: “If we can mostly take care of these three things, we can drastically improve time to market.” Lee added, “The campus environment is very important to chemistry and mutual assistance among teams.” I’ve noticed this myself in interactions with InnovationWorks teams: it’s a tight clique that helps each other out.
Lei Jun, a Chinese super angel and CEO of Xiaomi, is visiting the Silicon Valley with the Great Wall Club. At Y Combinator he posted to his Sina Weibo:
I just discussed the Silicon Valley’s superhot incubator Y Combinator with a friend. They invest $20,000 in early stage companies and take 6% of shares. I’m curious: How can you startup with $20,000 in the Silicon Valley? By purchashing power that should be 40,000 RMB. With 40,000 RMB how could you startup in Beijing?
Kaifu Lee replied,
Y Combinator’s model is this: 1) Entrepreneurs are full of burning passion, they don’t need salaries; 2) U.S. salaries are high, no way a startup with $20,000-30,000 could hire employees. 3) $20,000-30,000 gives 2-3 founders enough to rent an apartment and eat, and 3 months later at Demo Day they seek more funding. Y Combinator’s strength is that it has an excellent brand, the percentage of firms that acquire VC funding is extremely high, and they’re even guaranteed a convertible loan [$150,000 from DST].
Like with Y Combinator in the U.S., InnovationWorks now has the brand name to guarantee that their startups all receive good exposure upon launch. Just two years in, it’s still too early to judge returns, but I think early signs are promising.
This August a press release announcing a new $180 million fund, drawing from a Who’s Who of Silicon Valley investors, shared this: ”Innovation Works has incubated and invested in about 34 project companies, and nine of them have successfully obtained sizable Series A financing from third-party VCs.”
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