Ex-Googler Lee Backs China Companies to Foster Startup Culture

(This story was updated to include the total number of résumés received.)

Kai-Fu Lee, who headed Google Inc.'s (GOOG) Chinese division during its biggest growth years, is investing in a mobile-software maker and 11 other businesses in China to foster a startup culture and benefit from booming demand for Web technology.

Tapas, a mobile operating system customized for Chinese users, is one of the businesses to hatch from Innovation Works, a Beijing business incubator Lee founded a year ago. The software will be offered this year on mobile phones made by three manufacturers, Lee, 48, said in an interview with Businessweek.com.

As regulatory oversight of new businesses in China begins to ease and U.S. Internet companies adjust to local norms, venture capitalists and early-stage investors such as Lee are betting that young Chinese entrepreneurs will flourish.

"There are so many good people, good engineers tackling interesting problems," Lee said in his first interview on startups funded by his incubator. "We are providing what is much needed to create value and interest and excitement and help out people."

He's part of a growing number of investors seeking to build homegrown Chinese technology companies that may replicate the successes of local search leader Baidu Inc. (BIDU), Web portal Tencent Holdings Ltd. (700:HK), and e-commerce operator Alibaba.com Ltd. (1688:HK), which have more than $70 billion in combined market capitalization.

Investment Boom

"While confidence in Silicon Valley has been declining among VCs, there's more money flowing to China venture funds," says Mark Cannice, a professor of entrepreneurship and innovation at the University of San Francisco, who compiles the China Venture Capitalist Confidence Index. "That's going to help support a growing technology base."

China's venture capitalists have made 295 investments this year worth $1.59 billion, according to Chinese research firm Zero2IPO, compared with 179 deals totaling $1.07 billion in the year-earlier period.

Innovation Works, which has received funding from WI Harper Group and Foxconn International Holdings Ltd. (2038:HK), invests between $15,000 and $2.5 million in new businesses and supports them by providing access to technology-industry expertise, according to Lee.

"In the U.S., companies Like Google and Apple (AAPL) were basically founded on angel money—experienced businesspeople who want to help a company and people they believe in be successful," Lee says. "That angel community is almost nonexistent in China."

Recruits from IBM, Oracle

After leaving Google in September 2009, Lee recruited colleagues from Google China, as well as executives from International Business Machines Corp. (IBM), Oracle Corp. (ORCL), Nokia Oyj (NOK), Tencent, and Baidu.

"You almost have to have a sponsor to interface with the government and the marketplace in China, and that's the role he's taken up," says Kay Koplovitz, founder of USA Networks and chairman of Springboard Enterprises, an advocate for female entrepreneurs that has worked with Chinese startups.

Innovation Works raised $115 million to fund startups, Lee says. Lee received more than 7,000 résumés from Chinese entrepreneurs and software engineers in a single day. In all, he's received more than 100,000 and hired 150. After meeting with 500 young startups, his team picked 12 to invest in.

Finding good people is the biggest challenge for a startup, says Tian Hongfei, the founder of Beijing e-commerce startup Looa, which Innovation Works invested in. "In Chinese culture, many graduates go to work for the government, go to state-owned companies, or go to work for Google or Microsoft (MSFT). They are widely respected jobs."

"Geek Celebrity"

Lee's renown has helped recruit thousands of top engineers who want to work for startups, Tian says.

"He is a geek celebrity in China," says Jing Zhou, deputy director for the Girls in Tech conference in China.

Tapas, founded by Baidu alumnus Zhang Lei, was built by modifying the code of Google's Android mobile operating system. Rather than use Google's applications for e-mail, maps, and other basic functions, the Beijing startup has created programs that better suit the demands of mobile users in China, including a "smart dialer" for Chinese phone numbers and an app for displaying song lyrics while music plays.

The software will be shipped on 1 million phones in the next year, according to Innovation Works, and as many as 10 million phones by 2013. Sharp Corp. (6753:JP), Beijing Tianyu Communication Equipment Co., and Haier Group (1169:HK) are making models with the software.

Another mobile-software startup backed by Innovation Works is WonderPod, a store for music, videos, apps, and e-books that launched in June. The company is led by Wang Junyu, a former software designer for Google in China.

The investments also include Umeng, an analytics tool for developers of mobile apps; Photo Wonder, a program for sharing photos on mobile devices; and game company Ascending Cloud.

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