China Startup Outlook 2018

Silicon Valley Bank and SPD Silicon Valley Bank released the "China Startup Outlook” for the third consecutive year. We conduct annual survey on innovative enterprises in China to understand their views on the business environment, financing, talent recruitment, policies and regulations, and gives insight into the development of China's innovative economy based on the findings of the survey. The "China Startup Outlook" has become an important part of Silicon Valley Bank's annual "Startup Outlook" which aims at the global innovation ecosystem in its ninth year.

Entrepreneurs are optimistic and confident about the economy and their own business conditions. Although the challenges still exist, the positive factors of industrial upgrading, consumption upgrading and technological innovation are bound to bring great vitality to China's innovation economy in 2018.

Chinese startups are optimistic about 2018

Eight in 10 Chinese startups say business conditions in 2018 will be better than in 2017. This reflects the optimism in the country’s economic prospects and a growing demand by mobile-first consumers for goods and services.

Describe your outlook on business conditions for your company this year compared with last year.

Much better or somewhat better

Fundraising remains difficult

More Chinese startups (88 percent) say the fundraising environment is extremely challenging or somewhat challenging compared with peers in the US and the UK.

What is your view of the current fundraising environment?

Extremely challenging or somewhat challenging

2017

2018

Most startups say M&A will increase

More than two-thirds (69 percent) of Chinese startups believe that acquisitions will increase in 2018. The percentage is up significantly from a year ago. In September 2017, the China Securities Regulatory Commission (CSRC) revised rules to encourage more domestic M&A activity, and large, successful tech companies such as Tencent and Alibaba are making acquisitions. Additionally, large companies themselves have merged to dominate certain sectors.

How do you think the M&A market will change in 2018?

Expect more acquisition

No change

Expect fewer acquisitions

VC and private equity are top sources of capital

Looking ahead, 55 percent of Chinese startups expect their next source of funding to come from either venture capital or private equity. Those saying angel/micro VC/individual sources increased substantially in the past year, from 2 percent to 14 percent, signaling that companies hope to raise money earlier in their life stage.

What do you expect to be your company’s next source of funding?

2016

2017

2018

Venture capital Venture capital

Private equity Private equity

Angel/ micro VC/ individual investor

Corporate investor Corporate

IPO IPO

Note: Asked of private companies that successfully raised capital. Other sources of funding include bank debt, organic growth, merger, government grants and crowdfunding and represented 22% in 2016, 20% in 2017 and 13% in 2018.

Fewer startups say IPO is their long-term goal

Although IPOs hit a record high in 2017, looking ahead fewer entrepreneurs expect to go public and more expect to stay private.

What is the realistic long-term goal for your company?

2017

2018

IPO

Acquisition

Stay private

Don’t know

The most promising sector is AI

Artificial intelligence and life science/healthcare are the top two areas that Chinese entrepreneurs say have the most promise.

Which area will be the most promising in the innovation economy in 2018?

Finding tech talent is challenging

Reflecting China’s expanding tech ecosystem, Chinese startups, like their US and UK peers, say it is challenging to hire talent with the skills needed to grow their businesses.

How challenging is it to find workers with the skills necessary to grow your business?

Extremely challenging

Somewhat challenging

Not challenging

2018

33%

66%

2017

30%

67%

2016

40%

58%

The majority of startups have women in leadership

About two-thirds of Chinese startups (63 percent) have at least one woman in a senior role, a considerably higher percentage than in the US. Half of Chinese startups say they have programs in place to increase the number of women in leadership roles.

Percentage of startups with women in a senior role:

2017

2018

2017

2018

2017

2018

Taxes and access to talent are top policy concerns

Corporate taxes and access to talent are the top two public policy issues that Chinese startups say have the most impact on companies like theirs.

What are the most important public policy issues affecting companies like yours?

2017

2018

Corporate taxes Corporate taxes Corporate taxes

Access to talent Access to talent Access to talent

Banking payments/ regulation

Increasing cost of living or CPI

Access to talent

Cybersecurity Cybersecurity Cybersecurity

Note: Respondents could choose up to three responses.

“Reducing corporate taxes would help R&D-intensive companies spend less on operations and focus more on research and development.”

Biotechnology executive, China

Chinese startups plan to expand offshore

Seeking to expand their opportunities and access to resources, two in three Chinese startups say they are locating nonsales jobs and operations outside China. In part, local laws and regulations have affected these decisions. Respondents cite tax policy and the regulatory environment as leading factors.

Have laws and regulations in China materially affected your company’s decision to locate facilities or hire nonsales employees outside China?

Expanding operations offshore

65%
Yes

“We need more flexible tax policies to reduce operation costs and simplify the process for technology, media and telecom (TMT) companies like us.”

TMT executive, Beijing

Our annual survey of technology and healthcare startup executives offers insights into what is on the minds of today’s technology and healthcare leaders. For this year’s survey, we received responses from startup executives in innovation hubs around the world.

Total respondents 1,045

Industry sector

70%
Technology (net)

13%
Healthcare (net)

17%
Other

Size

59%
0–25
employees

23%
26–100
employees

18%
>100
employees

Company age

64%
< 5 years old

36%
> 5 years old

Profitable

58%

Yes

42%

No

Primary place of business

60%

11%

18%

11% Other

Ownership

US companies with at least one founder born outside the United States

53%

Founder gender

25%

Female founder(s)

75%

Male-only founder(s)

Revenue stage

≤ $25 million in revenue 63%
> $25 million in revenue 17%
Pre-revenue 20%

About Silicon Valley Bank

For more than 30 years, Silicon Valley Bank (SVB) has helped innovative companies and their investors move bold ideas forward, fast. SVB provides targeted nancial services and expertise through its offices in innovation centers around the world. With commercial, international and private banking services, SVB helps address the unique needs of innovators.
Learn more at svb.com/startup-outlook-report

About SPD Silicon Valley Bank

SPD Silicon Valley Bank (SSVB) is the first Sino-U.S. joint venture bank in China, established by Silicon Valley Bank and Shanghai Pudong Development Bank, and is devoted to offer unconventional banking service exclusively for China’s innovation sector. As the first technology bank, SSVB is committed to redefining the banking experience for innovation companies of all sizes as well as building the “Innovation Ecosystem” in China. SSVB strives to become the most sought-after bank for China’s innovation economy.
Learn more at spd-svbank.com/en/ieo/

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