Businessman Huang Qinghua grabbed a flight from Shenzhen to Beijing earlier this month to tempt potential investors into funding his company’s expansion plans.
Since making the trip, he has already persuaded one to come on board and is confident others will quickly follow as he looks to raise 20 million yuan ($3.13 million).
On paper, his company Shenzhen Wanwulian Ltd should appeal to venture capital firms. It has been going for two years and specializes in manufacturing high-tech surveillance equipment for commercial and residential properties.
“Beijing is the best place to get funding in China,” Huang, whose office and factory are in Shenzhen, said. “Investors are open to all kinds of projects. And since we are now growing, we need extra investment for research and development for new products and other operations.”
To help start up Shenzhen Wanwulian, Huang received an initial round of funding from 10 angel investors, with seven coming from Beijing. They each invested 50,000 yuan.
“We had the right product, the right staff and we launched at the right time,” Huang, who has yet to disclose detailed financial figures about the privately owned company, said. “I believe we have a bright future.”
Huang is one of the new breed of high-tech entrepreneur-businessmen that the government is banking on to produce high quality products in an era of sustainable growth.
Beijing has become the place to fund them. Top of the list for angel investors and venture capital companies in the Chinese capital are the big three sectors-telecommunication, media and technology, or TMT.
Last month, a report released by PricewaterhouseCoopers LLP showed that about 52 percent of the “total deal volume”, conducted by equity funds and venture capital firms, in China’s TMT sector went to Beijing in the second half of 2014. Shanghai came next with 18 percent, followed by Shenzhen on 10 percent.
“Beijing has established itself as the heartland of China’s TMT industry, claiming 61 percent of the national aggregate investment,” PwC’s report highlighted, adding that the TMT sector in China received $15.9 billion last year, which was more than double the 2013 figure.
Funding, of course, is crucial to startup companies. Building a successful business from scratch takes time, entrepreneurial flair and cash.
Since most of the key venture capital firms and hedge funds are located in the capital, Beijing already has a head start on other major cities such as Shanghai and Shenzhen. But that could change in the future.
“As other entrepreneurial centers continue to emerge in China, Beijing’s advantage in the high concentration of venture capital will erode,” Frank Hawke, China director for the Stanford Graduate School of Business, which runs the Stanford Ignite-Beijing Program for young entrepreneurs, said.
“Still, Beijing does have some other advantages, which are structural and therefore long-term. The city boasts the highest and finest concentration of institutions of higher learning, which attract the best and brightest talent from all over China.
“And to the extent that government policy plays into specific areas of innovation and entrepreneurship, proximity to Beijing can be an advantage,” he added.
Another reason that Beijing has become so successful in this area is the Zhongguancun Science Park, which is situated in the capital. Commonly referred to as China’s Silicon Valley, it has nearly 20,000 tech companies, including Internet giants such as Baidu Inc, which is listed on New York’s Nasdaq, e-commerce group JD.com Inc and smartphone manufacturer Xiaomi Corp.
“We have managed to generate the right chemistry,” Guo Hong, director of the Administrative Committee of Zhongguancun Science Park, said. “When all the key factors are in place, Beijing is an effective ecosystem for innovation and entrepreneurship.”
Ren Bin, founder of the mobile app Yaogeili, falls into that category after launching his company in Beijing at the start of this year. His app allows customers to order medicines and pharmaceutical products online that are delivered by courier service to their door.
More than 70 percent of startups in Beijing are involved in these so-called “online-to-offline”, or O2O, ventures. Indeed, the Internet is overflowing with services that consumers can order by just clicking a button on their smartphones.
“The threshold to set up such business is comparatively low because you don’t actually manufacture anything,” Ren said. “In Beijing, all you need to do is hire a team of people to design an app. That is pretty easy. You can also find product managers, investors and marketing specialists here.”
But what sets Beijing apart from other major innovation cities, such as Shanghai, Shenzhen, and the Hong Kong Special Administrative Region, is the entrepreneurial atmosphere that seems to engulf the capital. You can feel the buzz and excitement when you walk into the cafes near Zhongguancun, according to Ren.
“During lunchtime, anyone can get on the stage and use one minute to introduce his or her project to the audience,” he said. “And when it’s over, those who are interested in the project can discuss it over coffee. An increasing number of cafes are doing this to encourage entrepreneurship,” Ren added. “This is the kind of environment that I love about Beijing.”
And it is “this kind of environment” that has attracted angel investors, hedge funds and venture capital companies to the city.
Wang Tianfan, an investment manager at Bertelsmann Asia Investments, has predicted that the number of entrepreneurs will grow tenfold in the city this year.
Bertelsmann has invested in online companies across China, including recruitment platform Lagou and e-commerce site Mogujie. But Wang pointed out that quantity in the marketplace does not necessarily guarantee quality.
“So many people, so many options and so much information. It all ends up in a giant melting pot,” he said. “Entrepreneurs can be distracted very easily.
“It is also very difficult to maintain the integrity of any team because people are always moving around. High staff turnover is bad for anyone when they are trying to build something,” Wang added.
Ma Si contributed to this story.