China to create $6.5B venture capital fund to support start-ups
reuters.com
reuters.com
In fact, what often happens is that the investors manage to funnel a large portion of the funding back to their own pockets by requiring the startups to pay for bootcamps and trips that are run by the investor and mentors (i.e. investor's buddies) and pay for services and facilities that the state provides the investors for free.
On top of this, the investors get very generous salaries and reimbursed for many if not all expenses (i.e. a great opportunity to double dip, see above).
Finally, if the investor has any money at risk in the fund it is normally all but fully insured by the government and they get the lion's share of any returns, if there are any. All in all, it is a great deal for the investors with almost no accountability and little net benefit for the startups.
Sometimes I am even impulsed to make an email client that has all the Gmail features I love so that I can migrate to another IMAP-enabled email service like FastMail, but I know it's not easy even if I have already built http://ownmycopy.com which already does cloud-to-desktop backup for Gmail and has a viewer for Gmail labels and emails......
And sometimes I think, if I ever fight against the evil GOV, such a frustration is what make it happen. Well, this is just a thought, I'm putting me in danger if I wrote this in Chinese and on a Chinese website......
When government puts up such program, the people whose expertise in convincing government agents would end up getting such money. Convincing a VC and convincing a government agent are pretty much orthogonal because VCs are generally directly responsible for that money.
The one saving grace is that this is government run, which means it will likely be less efficient than privately run VCs. I've seen government run startup "accelerators" in action and it is usually pretty messy.
Many successful startups, for example, were directly conceived as ways to fix the problems of other startups. Indirectly, a startup such as Uber was only possible due to the mass adoption of technology driven by Apple, Google (and Samsung, Xiaomi etc) and an app ecosystem invigorated by hundreds of other startups.
There is certainly competition within industries or niches, i.e. Uber vs Lyft. But the "startup space" is really about creating new (or at least re-configuring existing) niches in the "non-startup" world.
So while I doubt this particular initiative will work, or even get close to returning the investment, we certainly shouldn't fear its success. Rather we should celebrate successful startups regardless of where it comes from, as it means that a problem has been solved and the human condition improved in however small a way. The idea that our species is going to run out of problems that need fixing seems a bit paranoid.
I can think of two possible differences but perhaps there are more:
A) For independently wealthy VCs, the money comes directly from personal funds, so investment is presumed to made carefully
B) For VCs where a panel/firm decides how to invest capital provided from someone else's fund, commission on success and legal contract may provide incentive for firm members to be careful
In theory, similar leverage (bonuses, legal trouble) applied to those making analogous top down decisions in a governmental organization would produce like incentives and therefore competitive efficiency.
Theoretically the public/governmental investment model could have other benefits. For example projects like Wikipedia, which provide 'social' income rather than 'financial' income, can be invested in. Another benefit is that the VC is more free to ignore investment bubbles (hyperlink, ad space, 'social', big data). Finally, since private VC circumvents the IPO process and is able to capture the majority of growth value of new businesses, it highly concentrates wealth. This caustic side effect may be side stepped by public programs.
C.) That the possibility of the firm going out of business puts pressure on decision makers to be more careful
D.) That the firms who make bad bets (or get unlucky) may stop participating, in which case the VC industry becomes better "on average"
Or a combination of the two (or is it something else)?
C to me seems to be a generic rephrasing of A and B. D isn't all that simple since one has to make some nontrivial assumptions data hasn't really borne out (acknowledging here that data hasn't conclusively borne anything out): e.g. that investment is neither primarily chance or primarily networking effects, that predictive quality of firms is mostly invariant across changing technology, that turnover internal to firms moves slower than turnover in the market, that the damage done to the market by lost capital investment is outdone by better average performance, that firms moving in to replace losers don't 'undo' gains to average, and that there even exist (and that the market can support) enough potential big-payout startups to benefit more than a few lucky VC firms to begin with.
Certainly the point is taken that in cases where both harder work matters and where leverage exists (be it slavery, authoritarianism, competition, financial pressure, legal pressure, etc) to get people to work harder, better results are likely to be had. There is a question both to what degree harder work matters in capital investment and also to what degree leverage that exists in private top-down firms does not and can not exist in public top-down firms.
One can consider the internet itself as a product of public investment (where there was competition among researchers AND private firms for capital to develop and research packet switching) among countless other examples; namely public investment isn't devoid of its own very large successes.
In the discussion is also the subject of 'efficiency' for which reasonable arguments to include 'social income' exist. Counter to this in the public space there are dangers of conflicts of interest and cronyism (these exist, but less problematically, in private sectors).
Foreign websites are, as a rule, very badly reachable from within the country. I don't even want to use them personally, let alone build a business on them.
As an example, the rest of the world hasn't mass-adopted Baidu and isn't going to. The same has and will go for most of China's services.
Baidu is heavily shielded from external competition due to both nationalism and government controls (censorship etc). A protectionist's dream? No, a trapped nightmare, they can never compete properly with Google on a global scale. Seeing as China represents about 10-12% of global GDP, Baidu will never derive a meaningful business from perhaps 3/4 of the global economy accordingly.
Live by censorship, die by censorship.
I can access Baidu from the US... but they clearly aren't trying to get my traffic -- the site is in mandarin.
So I don't understand why you think they're trapped... if they wanted to, they're free to expand outside of China.. there are few countries that have similar censorship.
I'm able to get something as basic as food stamps from the government (if I desired that) but I'm not aware of private small scale relief outside of religious organizations. I also benefitted from Pell grants and a first time home buyer grant with my girlfriend.
I think public venture funding is compelling and could lead us in all kinds of new directions because funds would be more easily obtained for the public good than sole profitability. I'd even go as far as to say that the reason so many ventures have a vacuous (if not suspect) goal is that currently we are in an era where most of the world's liquid wealth is held by private institutions rather than the people or the commons. For example I don’t see something like the moon landing happening today, or even large public works like Hoover dam (whose cost/benefit analysis can be left to a later discussion).
Will the West end up fighting its own lawyers, while the East avoids such at times either through differing social structure or a top-down mandate to "get out of the way so it can get done"?
The flipside, perhaps: Your startup is yours, until the State decides it is important to the State. Thereafter, maybe not so much.
I'm no expert -- hardly. But these differences come to mind when I stew on the topic.
Part of this is in response to TRIPS obligations. But Western countries have been trying to get China on board for decades. What's changing now? What's changing is that Chinese companies have IP to protect now.
We're all over-hyping China these days, as they get larger, they will become more like a Western country (unless they want to experience the riots of the middle class, like Turkey, Brazil, etc). I think people fail to realize that China's authoritarianism is incredibly unsustainable. As they open up their markets, country, etc., the channel of ideas and information becomes larger and much more harder to regulate. Just take a look at the comments Weibo, NetEase, etc. There are a lot eye opening anti-government comments before the sensors come in.
If you can read Chinese, here's some "inner people" commenting about it: http://www.zhihu.com/question/24838323