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Too Many 'Wanta-preneurs' In China Can't Be A Good Thing

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Startup investors Hans Tung and William Bao Bean predict top trends for Chinese market

The arrival of the billionaire angel investor and the rise of the serial entrepreneur in China are trending as hot topics in the Chinese venture and techpreneur community as a new era unfolds. But don't count on it all working out.

Speaking at Silicon Dragon Beijing 2013, William Bao Bean of SingTel Innov8 and an angel investor, observes that the venture capital market is shrinking in China while angel money is on the rise though still small. Compared to a U.S. angel pool of nearly $20 billion, he figures that China has about $1 billion, and most of it from friends and family.

Dave McClure, founding partner at 500 Startups, which is branching out to China, observes the same trend of increased angel investment along with a growing number of  incubators that are fueling the startup phenomenon. While all that might sound good, he predicts the result will be too much (dumb) money chasing too many entrepreneurial ventures at excessive valuations.

Countering, Bean noted that valuations to invest in China startups are still a fraction of what it costs to fund a U.S. deal.  Whatever the perspective, it's clear that venture capital returns are already strained due in part to a weak IPO market for Chinese startups and a slowing economy.

On the upside, Hans Tung views this era of  anyone-can-be-an entrepreneur as a great opportunity for young Chinese graduates to jump in and get some experience while still in their 20s and mature as seasoned founders of tomorrow's new businesses and innovations.  "It's very hard to find a Mark Zuckerberg here, someone in their 20s," says Tung, noting that the big hits in recent years such as Qihoo and Youku have come from entrepreneurs in their late 30s.

With IPOs under lock in China, O'Melveny & Myers lawyer Ke Geng predicts that mergers and acquisitions will continue to be the exit route for entrepreneurs and venture investors to cash out of their startups. Whether trade sales can absorb all the capacity is a question, however. Geng sees startups spending more time building their core business rather than looking to go public immediately.

Baidu , Alibaba and Tencent have been the hunters on the acquisition trail and will continue to be active as consolidators, the panelists predicted.  The BAT, as they're called, may also be pressured into opening up to startups rather than trying to crush them, adds startup investor Bean, creating an ecosystem in partnership with small businesses.

Turning to tech investment sectors to watch, Stella Jin of Keytone Venture sees wearable devices as a trend that is catching on in China and other markets. Not everything getting funded is in such a hot area as Google glass and big data.

McClure highlighted online education for children and services for seniors as sectors with promise for startups investors. "These kinds of products are not sexy and haven't attracted a lot of attention, says McClure, adding "a lot of entrepreneurs are male and single and don't understand, for instance, the needs of parents."

Qiming investor Tung observes that angel investors looking where to put money would be wise to follow the net generation of expert bloggers in their early 30s who are increasingly influential in setting trends in China's tech innovation land.