Former Google China head invests in Chinese startups

Kai-Fu Lee's business incubator Innovation Works is funding 12 startups that largely focus on the mobile Internet

One year after leaving his position as head of Google's China operations, Kai-Fu Lee is funding a dozen startups with his new company Innovation Works to seize on opportunities with China's booming Internet market.

Lee is CEO of the business incubator, which he founded last September. Innovation Works is focused on tapping the potential of China's mobile Internet and e-commerce markets, as well as gaming and cloud computing that it believes will usher in a new phase of growth.

As part of those efforts, the investment company is backing a new Android-based mobile operating system called Tapas, set to launch in China later this year, along with an iTunes-like program for smartphones and a mobile app to edit photos.

"We are clearly after the Chinese Internet opportunity," Lee said during a news conference on Monday.

Lee founded Innovation Works to foster a new wave of Chinese high-tech companies amidst a still immature business climate lacking in angel investors and venture capital for startups. After a year in operation, the business incubator has already received 100,000 resumes, hired 150 engineers, and spoken with 500 different startups, he said.

The 12 companies Innovation Works is currently funding largely center on developing mobile products. As of June, China had 277 million mobile Internet users, according to the China Internet Network Information Center.

In the next few years, entertainment applications such as media players, e-book readers, and games, will dominate the Chinese mobile market as the price of Android phones drops, Lee said. To attract Chinese users, many of these products will use the "freemium" business model, offering basic services for free and charging for advanced features.

One of products the company is backing, Tapas, is being marketed as mobile operating system specially designed for the younger Chinese user. Although Tapas is based on Android, it replaces many of the apps with local alternatives. Such tweaks include how users will be able to download photos of their contacts via Chinese social networking sites, or display lyrics synchronized with songs. Innovation Works expects Tapas to ship on more than 1 million smartphones by next year.

Innovation Works also introduced Wandoujia or WonderPod, a PC program meant to be an "iTunes-like" companion to help users manage their phone's mobile content. Users can use WonderPod to download videos, music and e-books to their mobile phones over a USB cable, rather than rely on expensive mobile bandwidth, Lee said.

Another product tailored for Chinese users is PhotoWonder, an editing tool designed for young Chinese girls who wish to modify their personal photos, such as by lightening their skin or enlarging their eyes. Innovation Works is also backing a startup called Umeng, which is helping developers analyze the mobile market by providing reports on their users and market conditions.

Innovation Works was funded with $115 million from investors including Foxconn Technology Group, WI Harper and Steven Chen, a co-founder of YouTube.

Lee highlighted how the Internet market differs in China compared to other countries, pointing to how local companies have succeeded in China, whereas many foreign multinational companies have struggled.

"Largely it's because of a lack of empowerment for the local team to move quickly," Lee said.

Having founded his own domestic business incubator, Lee wants to take advantage of a large market still reserved for local Chinese companies.

"What Innovation Works is looking at is a whole list of differences and unique aspects of the Chinese Internet and choosing where are the greatest opportunities for us," Lee said.

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