‘Returnees’ dominate Chinese startup culture

In China, the red-hot tech scene seems dominated by a small group of entrepreneurs who paid their dues in Silicon Valley before returning home to create successful Internet and software startups. Aside from finding fame and fortune, these “returnees” are also laying the foundation for a startup culture that will allow grassroots entrepreneurs to flourish as well.

Returnees — Chinese nationals who studied or worked the U.S. — head up just 3 percent of all tech companies in China, yet they represent nearly 70 percent of all startups that go public in the U.S. market (still the largest measure of success in the industry), according to an internal study by Palo Alto, Calif.-based venture capital firm GSR Ventures, which deals exclusively in China. The firm also found startups created by returnees were much likelier to become financially successful and hire more employees than startups founded by Chinese entrepreneurs who never worked in the U.S.

Part of that may be cultural: a culture Jack Jia, a partner at GSR sees changing, albeit slowly. As a Chinese-born entrepreneur himself, he’s driven to help other Chinese engineers succeed in business. Yet he still sees a “drastic” disparity between startups founded by home-grown entrepreneurs and their returnee counterparts during pitching sessions and business plan competitions all across China. Thus, he rarely funds companies headed up by Chinese engineers without managerial-level experience at tech companies in the U.S., even though he would like to encourage the growth of Chinese entrepreneurs who have stayed at home.

“Most have no clue what they are doing. The basic expertise, the passion and experience is often lacking,” he said. “And it’s not that they don’t have the same talent or ability, it’s just they haven’t been exposed to the same things as their American counterparts.”

Chinese startup culture is still in its infancy. The high-risk, lone-wolf nature of startups culture tends to clash with traditional Chinese culture, which values stability and doesn’t take kindly to failure said Jia. Moreover, entrepreneurial education and incubators, which have gained ground in the United States, haven’t permeated Chinese society.

“A lot of people don’t know how to build startups there at all,” Jia said. “That type of education largely doesn’t exist in China. This is a culture that teaches kids to behave and stay within the norms.”

But to everything there is a season, and a new wave of homegrown entrepreneurs is emerging as engineers and programmers working for returnee-founded companies gain insight into the startup arena and branch out on their own, Jia said.

In other cases, budding founders are getting their start working for Chinese divisions of American companies. For example, GSR recently funded Admasters, an online marketing consulting company that’s essentially the  comScore (s scor) of China. The company was founded by “Vincent” Yan Zhao, who never left China for school or work. Instead, he worked for the Chinese divisions of companies like Procter & Gamble (s pg) and Mars & Co, a consulting firm.

Meanwhile, Jia has sympathy for the many Chinese computer programmers and business people out there who want to strike out on their own but feel unprepared or held back by societal pressure. As the founder of  Baynote  and the founding CTO of Interwoven Inc. (now Autonomy), Jia said, “I can speak firsthand to the pressure on Chinese to stay within the lines and avoid failure at all costs. Each time I create a new company, I feel that pressure.”