After dozens of trips to China during the past 20 years, I’ve been an eyewitness to the nation’s remarkable economic transformation. Nothing compares, however, to what I’ve seen as I’ve traveled there for Bambu Tech, my two-year-old, LA-based, Ai-for-audio software startup.
China’s sweeping and much-publicized “Belt and Road” building plan, which will connect it to 68 countries and 40 percent of the world’s population through a modern transportation system, is still under construction. However, several other similarly ambitious multiyear, multi-billion-dollar economic development initiatives have already rolled right up to Bambu’s doorstep.
Along with Belt-and-Road, China’s central government has targeted all the hottest new technologies for supercharged support – biotech, virtual reality, autonomous vehicles, 3D printing, and drones. Perhaps most significantly, however, is President Xi Jinping’s publicly declared goal to make his nation the world’s leader in artificial intelligence by 2030. To start getting it there, government-associated consortium has already spent $150 million of VC funding.
Even for a seed-stage startup like Bambu, China’s dreams of economic supremacy are opening new vistas. We’ve found so many promising prospects for customers and venture funding that we’re going where few other early startups dare: We’ve adopted a “China-first” strategy.
Our rationale may have mostly to do with the very nature of our own business. We’ve developed one of the world’s first-ever Ai-for-audio technologies for improving the fidelity of devices such as smartphones, smart speakers, soundbars, TVs, headphones, and tablets – all now mostly made in China.
Nevertheless, our plan may offer some insights to other startups and Corporate America in general as China’s state-driven economy fuels a vibrantly expanding, capitalistic business environment.
Some background first: Before I co-founded Bambu Tech, I’d started a company that specialized in developing new consumer products. It outsourced the manufacturing, developed the packaging, created the market plan, and put them into distribution through major retailers. While most of those products weren’t high-tech, some were. We introduced to the U.S. the first wireless and Bluetooth transmission devices to connect mobile phones to car audio.
The business took me to China dozens of times, starting in the 1980s. After we started Bambu, the experience gave it a leg up. I was familiar with the landscape in China, I had a sense of how the Chinese operate from a business and cultural perspective, and I developed close, longstanding relationships with leading Chinese technologists who have since moved into venture capital.
Even at that, however, Bambu hasn’t pushed into China. Instead, it’s been pulled there by the dynamics turning the nation into an economic juggernaut giving the U.S. a run for the money.
China’s Value-Chain -- One to Many
For sure, we own a compelling value proposition: Our Advanced Wave Sound Method, aka AWSM Ai Audio, improves the fidelity of any compressed audio file or stream, saves money, and makes for a potent market differentiator. The world’s top global companies have opened their doors to listen to our “Ai Audio” trademarked technology on the smartphone, automotive, and consumer electronics product categories we’ve targeted. But dealing with these individual “blue whales” across such disparate verticals requires prolonged sales cycles.
By contrast, we’ve discovered we can scale more quickly by leveraging China’s well-established and still expanding tripartite value chain.
One part consists of Original Design Manufacturers (ODMs) or the outsourced makers of products for brands such as Foxconn, which makes products for Apple.
A second includes China’s independent design houses that engineer the hardware-plus-software solutions that go inside devices. Example: Linkplay Technology. It’s a strategic partner of ours which became one of first Systems on a Chip (SoCs) to be certified by Amazon as a wireless processing platform for its ubiquitous Alexa Voice Services.
The third encompasses Chinese semiconductor makers whose ranks are growing under yet another government-backed plan – to spend $150 billion through 2025 to expand China’s domestic chipmaking capacity.
The players in all three parts of the value chain have two things in common. One, each owns an established base of customers. Two, they all have ravenous appetites for the newest embedded software to attract and retain customers desperate to distinguish themselves in a crowded and commoditized market.
As such, they’ve given rise to Bambu’s a go-to-market approach we call “one-to-many” – penetrating one Chinese prospect anywhere along the value chain enables us to scale far faster than we can on our own.
The Hunt for “New Era Solutions”
During my last visit to China in February, I had the good fortune to be the only Westerner invited to speak at a meeting of 150 Chinese venture capitalists, thanks to a longtime business associate and friend leading his own $2.5 billion fund. I heard VCs there talk time and again about their focus on “new era solutions,” or the same disruptive technologies and business models that have been Silicon Valley’s stock-in-trade.
Their resolve signals another watershed for China. Chinese entrepreneurs and venture capitalists are more resolved than ever to be innovators, not replicators. While the untapped opportunities in their domestic market are massive and legion, they’re in the hunt for products and services that can be exported, too.
While anecdotal, it all speaks volumes about China’s rise as an epicenter of tech innovation. While China still hasn’t topped the U.S. – at least not yet – it’s certainly achieved a status as the second-place rival.
Venture capital investment in China, for example, is exploding. According to Preqin, a financial markets research firm, venture capital funding in China in 2017 hit $64.8 billion, second only to North America’s $77 billion.
Again, the government is playing a role beyond explicitly targeting Ai and other future-shaping technologies. Many of China’s provinces have established their own venture funds – upwards of $450 billion in aggregate – as they look to entrepreneurs under yet another central-government mandate to move China’s economy away from its dependence on manufacturing to one that rests more on services and technology.
Something is clearly working. According to McKinsey & Co, about a third of the world’s 262 “unicorns” (startups valued at more than a billion dollars) hail from China.
Source of Higher Valuations
As a Series Seed startup looking to a A-round this year, we’re also intrigued by China’s funding environment, especially for what’s it’s signaling to investors about that ultimate in exits – the IPO.
American unicorns and other potentially IPO companies remain happy to remain private. Only 160 companies went public in the U.S. last year. By comparison, according to KPMG, Chinese investors subscribed to 440 IPOs on the Shanghai and Shenzhen exchanges, compared 227 the year before. They raised $235 billion RMB, compared to $150 billion RMB the year before – up 56 percent.
What’s more, 17 went public on the U.S. Nasdaq exchange last year, up from seven in 2016.
As a startup with an innovative technology in the hunt for funding, it’s almost as though we have a fiduciary responsibility to weigh the potential rewards for doing business in China.
Time to Market in Weeks, not Months
One of the major frustrations we’ve faced is the lumbering pace at which our best prospects move. On our frequent trips to Silicon Valley, we’ve been inside several of the “innovation centers” established by big, traditional companies in their quest to subsume some of Silicon Valley’s DNA.
Unfortunately, we’ve heard mostly talk and seen little walk. Time and again, we’ve watched recommendations to adopt our technology bog down as big companies do business by committee.
By contrast, our dozens of Chinese prospects sit at the table with a decidedly different mentality. If they see something they like, the decision to move forward comes more quickly. They lay out their timetables for business terms and integration in weeks, not months.
The Chinese corporate risk profile is different. In the U.S., the conventional wisdom among startups – and even big companies – is to innovate in iterative steps. It’s an approach that owes its roots to “lean” startup and management methods, where you find inexpensive ways to validate assumptions by real market responses.
In China, however, the working hypothesis comes down to this: “Go big or go home.”
Several factors unique to China buoy this attitude. Even to the eyes of an American, the opportunity in China seems limitless, given government largesse, a GDP growing at 6.9 percent, and a domestic market of 1.3 billion inhabitants attaining the wherewithal to fuel consumer consumption.
But I’ve also observed a generational hallmark. In establishing a sales and engineering team in China, I’ve networked with many of China’s twenty and thirty-somethings. They are driven. What’s more, they have the faith of their elders, who are placing their own wealth into the hands the younger generation.
Amid so much plenty, it’s easy to see why the Chinese are far more sanguine about failure. Their mindset: Oh well, if we fail, we’ll just get back up and try something else.
As bullish as we are about China, however, we recognize that we’re a U.S. startup. Our eyes are open to the risks of doing business half a world away. Even with all my experience with China, I can’t pretend to grasp all the nuances for success there. But moving ahead with “China First” we are. To be metaphorical once again, China’s Belt and Road may still be under construction, but the routes from our West Coast HQ to China remains far too compelling for this one American startup stay put at home.
Dayne Sieling if the CEO, co-founder, and seed investor in Bambu Tech, which has developed an AWSM Ai Audio™ technology that vastly improves the fidelity of any streamed or stored audio file, at the same time it saves money and differentiates products in the market.