[11 July 2007]
Chicago Tribune (MCT)
BEIJING—In the office after hours, the Chinese economic miracle didn’t feel much like magic.
Spent cups of instant noodles lay in the trash can. Cubicles were empty for the night. Among the last to leave the office of Internet start-up HiU were Jacques Ding and Susan Su, the two entrepreneurs who had everything on the line.
After more than 18 months in business, they had pitched their idea to top venture capitalists but were still hunting for the backing they needed; they had attracted advertisers and more than 1.5 million members but needed many more; and they had poured years of savings into the business without knowing if it would survive.
To follow the ups and downs of a single Chinese start-up—one among thousands today—is to glimpse how entrepreneurs are battling for an edge in the world’s hottest Internet boom. The changes sweeping China in the early 21st century not only are ushering millions of people into the middle class, but also are spurring many others to reach for a life beyond it.
American venture capitalists are scouring China for the dot-coms they calculate could be the nation’s next big hits, the next Google or YouTube. Ding and Su were betting that HiU could be one of them.
“We think we can change people’s lives,” said Ding, a tall 32-year-old with rimless glasses. “And we’ve put our money into it.”
Ding, once the top-scoring high school student in a Chinese city the size of Dallas, gave up a stable job as a tech executive to start HiU. Su, his wife and business partner, built a thriving marketing firm but put it aside to help launch the Web venture.
If their start-up succeeds, they could be China’s next dot-com superstars. If it doesn’t, they could lose everything.
Their gamble began days after Su gave birth to their second son in February 2005. She had stacks of clothes that no longer fit, so she posted for-sale fliers in their leafy middle-class apartment complex; neighbors streamed in and spent more than $1,000.
The couple saw an opening: They could create a Facebook.com for the Chinese middle class, a social-networking site that would connect like-minded people for community and commercial purposes. Their site would attract users by offering hyperlocal news and information, arranged by neighborhoods, and it would charge advertisers to reach specific audiences.
The concept mirrored their lives. A generation ago, Ding and Su’s parents lived, like so many Chinese citizens, in housing supplied by employers. But Ding and Su were born late enough to avoid the trauma of the Cultural Revolution. They caught China’s surge toward the free market, graduated from good schools and entered the business world. They own a three-bedroom apartment in a typical new Beijing compound.
“Chinese people used to be tied to their homes chosen by their work units,” Ding said. “Now they are able to choose their communities, their neighborhoods. It’s a fundamental change in their lives and we could capture that.”
SAVINGS SPENT ON FUTURE
Four weeks after the maternity-clothes sale, the couple and two partners launched HiU with $125,000 drawn mostly from the couple’s savings. Su became chief executive; Ding was chief operating officer. They spent the first month working from the dining room table, clearing it off each night for dinner.
By July, the site was online. They were drawing about $10,000 a month in income, they said, which was not enough to cover salaries but enough to be encouraged. The following spring they moved into a large airy office on the 22nd floor of one of Beijing’s many new business towers. The building was so new that the Citibank and KFC downstairs were still under construction.
The business was all-consuming. The couple often went a full week without seeing their sons, ages 9 and 1 ½, before bed. The little one had started calling the nanny “Mom.” Su’s fashionable life as a high-flying marketing executive had abruptly ended.
“Handbags to shoes, I used to match perfectly,” said Su, 36, a mile-a-minute talker with short hair. “I looked stylish and had good taste. Now I’ll wear the same sneakers for a month straight.”
Ding’s parents had started traveling to Beijing from the eastern city of Hangzhou to help care for their grandkids. Ding’s father, who retired from a cardboard packaging company, thought the idea of a start-up was crazy. But his mother was intrigued by the unfamiliar new world and spent hours scouring the Web for information on China’s Internet growth.
PRIVATE BACKER HELPS OPEN DOOR
In January 2006 they found their first investor—a private backer offering a half-million dollars—and they set out to grow. By September 2006 HiU had a sprightly orange-and-white logo, a straightforward Web design and a staff that had grown to 60 people—virtually the same size as YouTube in the days before Google paid $1.65 billion for it last year. Most important, by September 2006 the site was touting a membership of 1.5 million users.
But they knew it would take more than that to break out of China’s vast new ranks of aspiring tech ventures.
“Yesterday I met 12 Internet firms,” said Liu Xiaoxuan, who screens start-ups for the Beijing-based advisory firm Zero2IPO, which links entrepreneurs with investors. “I tell each of them that they get 20 minutes, and sometimes they open a PowerPoint (presentation) and after 5 minutes I tell them, `Thanks, but I don’t want to waste your time.’”
Inspired by Silicon Valley and partly funded by it, China’s Internet revolution has spawned thousands of Web start-ups in the last three years. By July 2006 China’s 137 million Web users were looking at 2.9 million Chinese Web sites of various kinds. Venture capitalists invested in 122 Chinese tech start-ups in 2006, according to a Zero2IPO report, though nobody tallied how many more like HiU were still vying for funding.
Succeeding online in China poses particular challenges: A site needs content that is provocative enough to get noticed by users but not shut down by censors. Like all Chinese sites, HiU filters out obscene content and keeps up to two editors at a time scanning it for politically sensitive content to ensure that it never makes it online, said Chief Technology Officer Zhang Chunyun.
HIU CHASES ADDED FUNDING
Chinese entrepreneurs are of particular interest in the West because U.S. Internet giants have not fared as well in China as once expected. Google and Yahoo trail Chinese rivals, and eBay recently abandoned its Chinese site. By contrast, companies little known in the West—such as Tencent, Tudou and YoQoo—have growing audiences in China and millions of dollars in backing from American investors.
That was the trajectory that Ding and Su were aiming for. With help from Liu, they began meeting venture capitalists. The reaction was positive, Liu said, but non-committal. The investors wanted to watch HiU for a while longer before committing cash. They wanted to see it build a larger audience and make more money.
But for Ding and Su, every month without funding raised the stakes. They began talking about whether they would have to sell their apartment, a home their parents never could have dreamed of buying. They began to think twice about taking the kids out to dinner. They scrapped a trip to Disneyland. They bought a pet squirrel instead.
But they had no intention of slowing down.
“No matter the risk, we will carry on,” Su said.
As autumn arrived, they embarked on a major overhaul of the Web site. They were going to need to cut staff. Things were getting more complicated.
“The reality is that most companies will not make it,” Ding said over lunch one day. “Maybe it’s funding, maybe it’s communication, maybe it’s execution. But everything has got to be in place for it to work.”
Lu Jingxian contributed to this report.