Will China’s Best Coders Flock to Kai-Fu Lee’s New Incubator?

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Kai-Fu Lee has confirmed reports that he’s leaving his post as head of Google China to start something called Innovation Works, a mix between an incubator, a development lab and an angel investing firm. The plan is to hire 100-150 smart young Chinese engineers, help nurture their ideas, then spin off 50-75 of them a year, with seed funding from Innovation Works. He’ll hire up another 50-75 more smart, scrappy kids to fill that gap and keep the cycle going.

Incubators have certainly had mixed records in the U.S. Idealab flamed out in the Internet bust along with some of its once-brightest companies. Even incubators that spawn successes– like Max Levchin’s MRL Ventures that spawned Slide and Yelp or Evan Williams’ Obvious that was an early home to Twitter—frequently dissolve once a hot idea is found. Y Combinator and TechStars have been lauded as launch pads for the Web 2.0 generation, but it’s too early to tell if any truly huge home runs will emerge from them.

But in China, things are different and Lee sees a much greater need for something like Innovation Works. He says the country is at an inflection point in entrepreneurship, thanks to cultural changes encouraging people to be more risk adverse, huge market opportunities in mobile, ecommerce and cloud computing and billions of later stage venture capital in the country.

The trouble is there’s a dearth of angel capital and early stage coaching, Lee says. In other words, smart would-be entrepreneurs need both a push and a helping hand.  “In terms of maturity start-ups and companies in China are 15 years or more behind the Valley, but it won’t take that long to catch up,” Lee says. Indeed, Lee says this new company is playing a transitional role in China—one that may not be needed in another ten years.

The $115 million investment funds came from WI Harper Group, YouTube founder Steve Chen, Foxconn Technology Group, Legend Group and New Oriental Education & Technology Group.

Chinese market opportunities are certainly there, and we’ve written before about the $20 billion in capital chasing Chinese high-growth ideas. So the biggest gamble in Lee’s analysis is whether or not that culture of risk taking is indeed changing in China. The question isn’t whether he’ll find 100-150 kids to employ, it’s whether he’ll be able to pull the best ones.

In the past, it was a no-brainer that the smartest kids would go to Google, Microsoft or another big multinational because of the prestige and the comparatively outsized paycheck, Lee said. Indeed, he enjoyed those magnets as a vice president of Microsoft and head of Google China.

With the new venture, Lee doesn’t expect the bulk of people he’s hired in the past would come work for him now, nor does he necessarily want them to. “Employees from the multinationals are good at working on global problems, but they’re not necessarily entrepreneurial or scrappy because they’re not in a Darwinian environment,” Lee said in an interview earlier this weekend. “I’m not going to offer Google salaries. If a smart engineer trusts me, he should come join me. We’ll do an idea and if it fails, we’ll do the next idea.”

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