Papaya Incubator: A New Type Business Incubator Established by Ex-Googler

I don’t know anyone who works at Papaya even though I have recently become a fan of mobile internet technology, with Papaya being one of the successful social mobile gaming companies in China today. A few weeks ago, I attended a mobile social game development competition held by Papaya Mobile and had the chance to talk with ZHANG Liang, Managing Director of Papaya Incubator.

Papaya Incubator is a new strategy by Papaya Mobile, which focuses on the investments and incubation of mobile social game developers. According to ZHANG Liang, Papaya Incubator has offices in Beijing, Chengdu and Silicon Valley, and will establish a new office in Shanghai in May, 2012.

Papaya Incubator was established in June of last year and has invested in 16 startup teams to date (it’s the end March as I write this). ZHANG told me that two to three new teams join Papaya Incubator on average every month, and so far one of these 16 startup teams has been able to meet with venture capitalists, with the aim of securing A-round financing.

The Story of SHEN Si and Papaya Mobile

SHEN Si, the founder of Papaya Mobile, completed a bachelor's degree in Computer Science at Beijing’s Tsinghua University and went on to pursueher graduate studies at Stanford University.
SHEN had apparently wanted to be an entrepreneur since she was in high school, but at the time hadn’t known of any concrete approach to being a successful entrepreneur. Then, one day in 2004, SHEN Si met DENG Feng, a fellow Tsinghua graduate and venture capitalist.

SHEN was about to graduate from Stanford at the time, and DENG had told her, ”You’d better go to a technology company to work as a product manager--you’ll know how to be a CEO after gaining some experience there first hand.”

Taking this advice, SHEN joined Google, which had just listed on NASDAQ at the time, as a project manager. After working in Google for four years, SHEN then moved on to found her own company--Papaya Mobile. In the following four years, Papaya Mobile was able to secure angel investment funds from DENG Feng and two rounds of venture capital financing: 4-millon-dollar A-round financing from DCM and 18-million-dollar B-round financing from KeyTone Ventures.

Business Incubators in China

As I mentioned in a previous blog article, The Five Models of Angel Investment in China, by the end of 2010, there were nearly 800 business incubators in China, 346 of which were state-level technology incubators.

Papaya Incubator also falls under this category, but is at the time different from nearly all other incubators in China. The key difference is Papaya Incubator doesn’t ask for shareholdings of startup teams; the incubator’s income comes from the gain sharing of the mobile social games that startup teams release.
With the exceptionally competitive situation in China’s private equity and venture capital industry, more investment institutions have been trending towards investing into earlier investments (that is, earlier then their original investment stage). Additionally, more business incubators have been released, such as Innovation Works, which was founded by former Google China boss Kai-Fu Lee.

Not only that, there are also more startup events being held by venture capital companies, such as TGIF (Thank God It’s Friday), held by KPCB China. Many venture capital companies use these kinds of events to find excellent startup company candidates and startup teams. For example, Huaban.com, an emerging social network in China based on interest sharing, has recently received a round of financing from KPCB China after attending a TGIF event at the end of 2011.

Legend Capital Changes the Chinese Name of Its VC Subsidiary Company

Legend Capital, a subsidiary company of Legend Holdings, has announced it will change its Chinese name from Lianxiang Ziben (联想资本) to Junlian Ziben (君联资本), a move which seems to want to brand the company more independently from its parent company.ZHU Linan, the President of Legend Capital，explained that the new Chinese name is a reflection of Legend Capital’s working together with start-ups to visualize future successes and achieve goals.

Legend Capital has raised a total of seven funds to date, five of which are United States dollar-denominated funds and two of which are yuan-denominated funds. The total management funds are currently RMB 1.3 billion (nearly USD 207 million). Legend Capital announced the final closing of its latest United States dollar-denominated fund in April 2011 at USD 500 million, and the final closing of its latest yuan-denominated fund in December 2011 at RMB 3.2 billion.

As of January 2012, Legend Capital has invested in nearly 150 companies of which 20 are already listed on the NYSE, NASDAQ, HKEx, Gretai Securities Market, Shanghai Stock Exchange, GEM and ChiNext of Shenzhen Stock Exchange, while another 11 companies achieved exit through M&A.
Among the companies that Legend Capital has invested are Renren, BitAuto, AutoNavi, and Joya.

There are currently four investment departments in Legend Holdings: Legend Star, Legend Capital, Hony Capital and Legend Holdings’ own direct investment department. Legend Star is a department that mainly focuses on angel investments, Legend Capital is a subsidiary company that mainly focuses on venture capital investment, Hony Capital is a subsidiary company that mainly focuses on private equity investment, and Legend Holdings’ direct investment department mainly focuses on strategic investment.

Who is China's FACEBOOK?

Facebook's recent IPO decision is one of the hottest topics in China's Internet industry. And even today, three days after Facebook filed the IPO, "Facebook to start IPO" is at the top of the hot topic list on Sina Weibo, China's Twitter-like website.

Many people ask "What about China? Who is China's Facebook?" The answer to this question has nothing to do with so-called “Internet clones” merely existing as carbon copies of the likes of Facebook or Twitter, as a lot of innovation and timely changes have also helped China’s “Facebooks” and “Twitters” gain the wide recognition they enjoy today.

According to a survey by Sina Weibo, 41% think Tencent is China’s Facebook, 40% chose Sina Weibo, and 19% selected Renren. Although these were the only choices when participating in the survey, Tencent, Sina Weibo and Renren, are in fact the three companies Facebook itself considers as its rivals in China.

Facebook itself may consider as its rivals in China.

Tencent is a listed company that went public on the main board of the Hong Kong Stock Exchange in 2004. Even though Tencent boasts 410 million users and Tencent Weibo 310 million users, many insiders insist that Tencent is still not as open as Facebook is regarding third-party deals for apps and other social games and thus still holds potential for further growth. However, it has recently adopted an open-platform model and CEO of Tencent Pony Ma has mentioned that "The open-platform move was Tencent's most significant accomplishment for 2011."

Sina Weibo is a Twitter-like website that has been one of the most popular social networks in China. The number of Sina Weibo users is currently 250 million. Even though Sina Weibo originally followed the Twitter model, it has since also added many social networking-based functions, such as increasing application gateways and friend recommendations. Sina Weibo is becoming an increasingly mature social network.

Renren is a social networking site that went public in 2011. Renren was initially a Facebook-style website, but later turned to be a combination of social networking site, social gaming site and group purchasing website by the time it listed on the New York Stock Exchange. Similar to Facebook, Renren is a social networking website that owes its early success to a user base consisting mostly of college students who then spread the word on Renren among themselves. However, the age bracket of Renren’s users has yet to expand as rapidly as in Facebook’s case.

I can’t say I really agree with the widespread use of terms like “Facebook clone” or “Twitter clone,” or even such-and-such”-like website,” and would like to believe that China’s own social networking and microblogging websites will be further able to develop their own feel, with their own unique character and user appeal.

The Five Models of Angel Investment in China

Angel Investment is still a new concept for most people in China and has only really taken hold in the past two decades.According to a report released by Zero2IPO Group, a PE/VC research company in China, there are five major models of angel investment in the PRC--Individual Angel Investor, Angel Investor Team, Angel Investment Fund, Incubator and Angel Investment As a Platform.

Model 1: Individual Angel Investor

There are two major groups of individual angel investors in China. The first group is made up of successful entrepreneurs and venture capitalists, while the other group is made up of professionals such as attorneys, accountants, executives in large corporations and other industry experts.

Some well-known individual angel investors currently active in China are ZHU Min, XUE Manzi(Charles Xue), LI Kaifu(Kaifu Lee), LEI Jun, ZHOU Hongyi. Additionally, some successful entrepreneurs such as XU Xiaoping and ZENG Liqing can even be considered as part of a new wave that is driving China's current angel investment industry. The report emphasizes that the country's affluent second generation, especially in China's South, is turning out to be a new generation of angel investors.

Model 2: Angel Investor Team

For individual angel investors, they cannot invest in too many start-up companies because of limited energy and time. As a result, some individuals group together to work with other angel investors in much the same way as angel groups in the United States.

Some well-known angel groups in China include Shanghai Angel Investment Club, Shenzhen Angel Investment Club, AAMA Angel Group, K4 Forum Beijing Branch and Zhongguancun Entrepreneurs Alliance.

Model 3: Angel Investment Fund

In many cases, these angel investors combine to set up investment funds together, so that each individual investor can complement each other to benefit the fund overall. For instance, one investor may be specialized in company operations, while another investor may be specialized in human relations.

Some well-known angel investment funds in China include Zhen Ge Fund, which is set up by Xu Xiaoping, a former director of New Oriental Education Group; Today Investment, which is set up by He Boquan, the former chairman of the board of Le Baishi; Dexun Investment, which is set up by Zeng Liqing, co-founder of Tencent.

Model 4: Angel Investors as Incubators

The concept of incubator can be defined in both a broad sense and narrow sense.In the broad sense, an incubator includes science parks comprising many high-tech enterprises, such as the Shenzhen Gaoshan Enterprise Park of High Technology, the Shanxi Yangling Agriculture Park of High Technology and the Shenzhen Yantian Biology Park of High Technology.The narrow sense refers to institutions that help with the commercialization of one or more projects from the start-up company being invested in.

The incubators in China can be divided into several groups, which are usually in the form of high-tech zones, science-technology systems, university technology parks, private enterprise-owned incubators, and innovation (venture) parks for students returning from studies abroad. By the end of 2010, there were nearly 800 business incubators in China, 346 of which were state-level technology incubators. According to a report by Zero2IPO,there are currently more than 51 thousand companies being incubated in China, with the total number of employees working at these companies numbering more than 1.05 billion. According to a report by Zero2IPO, there are currently more than 51 thousand companies being incubated in China, with the total number of employees working at these companies numbering more than 1.05 billion.

Model 5: Angel Investment as Investment Platforms

Along with the development of the Internet, including mobile phone access to the Internet, in China, more and more application terminals and platforms have begun to support compatibility to external systems, which gives start-up companies the opportunity to establish businesses based in the growing application development industry. Take Apple's App Store as an example--there are many applications and games released by different kinds of start-up companies there.

Some platforms have also been setting up investment funds in order to encourage innovation and new products. These funds help start-up companies to develop quickly and also bring in more resources to the platform being invested in.

ChinaEquity Injects CNY4.5m into Longwen before A-share Market Debut

ChinaEquity Group chairman Wang Chaoyong recently revealed on his microblog account that ChinaEquity and another investment company have signed an agreement to inject CNY450 million into the Longwen Education Group, making this round of financing the largest single investment into China's education sector to date.

According to a report by China private equity and venture capital news specialist site PEdaily, Wang said that he had been in contact with Longwen since July, and had selected Longwen as a portfolio company due to the high qualification standard of its instructors.

Longwen Education is an educational institution based in Beijing, with more than 1,000 learning centers covering more than 50 major cities. This latest round of financing will be the last before Longwen's initial public offering.

Note: This news was first released on Dec.16,2011 on PEdaily.cn.

Preface

As for the first blog, I'd like to say something about myself. I'm a fan of Chinese private equity and venture capital industry, so I'd like to report what is happening in Chinese PE/VC industry.

Even though I'm not good enough in English writing, I'll tell you the true stories and real data with all the English vocabulary and grammar that I know. And also, I'll learning English writing in these days, plz let me know if there are any mistakes in the articles.

Leave a message if you want to get further information.

P.S. Thank Tesen for helping me with my English writing!