Y Combinator Is Heading to China

Former Baidu Inc. executive Qi Lu has been named head of Y Combinator China, marking the American startup incubator’s first full-fledged international effort.

Y Combinator, which has seeded companies including Airbnb Inc., Stripe Inc., Reddit and Dropbox Inc., will start its program in China as soon as next summer. In the U.S., the accelerator selects two batches of companies a year for financing, advice and connections in exchange for a small percentage of equity. Lu will lead the Chinese program, which will be called YC China and adopt a similar approach though there may be tweaks to fit the domestic market, said Sam Altman, Y Combinator’s president.

Altman said he first spoke to Lu about running the initiative before he joined Baidu. The Microsoft Corp. veteran was hired in 2017 to accelerate the Chinese search giant’s efforts into everything from autonomous cars to digital assistants. But he surprised investors in May when he announced he was stepping down because he could no longer work full-time in China for personal reasons. That departure hammered Baidu’s shares.

At Y Combinator, Lu will split his time between China and the U.S. He’ll spearhead an effort to discover high-growth startups and help them explore the U.S. market. The organization will seek to raise funds in Chinese yuan and potentially work with American backers if dollar financing is required, but Lu declined to provide more details. Down the road, YC China hopes to leverage local founders’ expertise to help U.S. entrepreneurs get into the world’s second largest economy.

“How to help American companies land well in China has been a common struggle,” Lu told reporters during YC China’s launch in Beijing. “There’s structural reasons, there’s a lot of reasons for these companies having difficulties.”

Y Combinator’s deeper forays into China come as an increasing number of American investors back Chinese startups despite escalating tensions between the world’s two largest economies. In addition to Sequoia Capital and Lightspeed Venture Partners that have an established track record of investing in Chinese startups, Bloomberg reported that Peter Thiel is considering strategies to invest in the country.

The growing interest is a result of the rapid growth in Chinese technology companies. Five years ago, the U.S. had nine of the world’s 20 most valuable internet companies and China had just two; today, while there are 11 American firms on that list, the number from China has surged to nine, according to Mary Meeker, a partner of venture firm Kleiner Perkins Caufield & Byers, in her May “Internet Trends Report 2018.”

Earlier this year, Y Combinator held its first official event in China at Beijing’s Tsinghua University, aiming to recruit more startups to its program in Silicon Valley. Lu will continue to find Chinese startups for the U.S.-based effort later this year; after that, he will focus on building the program in China, Altman said. Currently, of more than 1,700 companies Y Combinator counts as alumni of its program, fewer than 30 are based in China, he said.

Willett Advisors, the investment arm for the personal and philanthropic assets of Michael Bloomberg, the founder and majority owner of Bloomberg LP, invests in Y Combinator startups.

Lu “will be able to take what works with YC in the U.S. and adapt it for China,” said Altman. “My best guess is that a significant portion of tech companies in the next decade will be in China or the U.S. Adding Chinese founders to the community will be exciting.”

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