Caffeinated Capital

By Yuan Yuan

Caffeinated Capital

By Yuan Yuan

Coffeehouses in Beijing’s hi-tech zone show promise as platforms for business startups

NOT AN ATTIC: Garage Cafe, a business hub nearby Zhongguancun Hi-tech Zone

OPEN OFFICE: People in discussion at Garage Cafe

A cafe in Beijing’s hi-tech zone has become more than a place to get a quick buzz or an open wireless hotspot. Now it’s the buzz of investors and entrepreneurs and a warm place for incubating startups.

With a name like Garage Cafe, one might expect a ground-level operation, but it is actually located on the second floor of a shabby hotel at the edge of the northwestern corner of Beijing’s Fourth Ring Road in Haidian District. Where people used to swarm to the Haidian Book Market complex to buy reference books for examinations before the days of online bookstores, prospective hi-tech entrepreneurs are trickling in.

Why? Because a $3.50 cup of coffee is a small price to pay in lieu of office space and Internet access in neighboring Zhongguancun Hi-tech Zone, a high-rent area known as China’s Silicon Valley.

When Su Di decided to open the cafe, he intentionally chose the quiet book market as the location. “Even though it is the neighbor of the hi-tech area, the rent here is just half price,” Su said. “And our target market is totally different from those in regular cafes.”

And with customers like presidents of HSBC Holdings, McKinsey & Company and MetLife as well as the mayor of Beijing and U.S. ambassador to China, this is no mere boast. Su’s clients are banking on prospective investors eavesdropping on their conversations.

Idea incubator

For Su, his cafe is not only a place people can just drop in for a cup of joe. Having previously worked as investment director of ChinaCache, a Chinese content delivery and cloud computing service provider, opening a cafe where startups and investors could hook up was just a random idea Su came up with while stuck in traffic.

He didn’t take it seriously at the beginning but his friends, after hearing this idea, thought it might be feasible, so he decided to give it a shot.

“I started it for fun and was ready to lose money,” Su said. “I wanted this cafe to be a utopia for business startups and it seems no utopia can make money.”

Su and his friends named it Garage Cafe, noting that Apple, Hewlett-Packard and Harley-Davidson all started in garages. Rent is an eminently important detail for throngs of Chinese entrepreneurs in uptown Beijing. “We wanted it to be an open office for business startups and they can team up and stay here at very low cost,” Su said.

Nonetheless, the cafe’s first month of business in April 2011 worried Su. Only three startup business teams showed up, and the coffee they bought couldn’t even cover 10 percent of the cafe’s 100,000-yuan ($16,150) monthly rent.

The turning point came when Mo Xiaoxi, one of that first batch of customers, found his first investor with Su’s help. Mo lived in a suburb 30 km away but commuted to the cafe every day during its first month to discuss a Web project with his two partners. “I decided to try for three months, and if we didn’t succeed, I’d go back to my hometown,” said Mo, who only had 30,000 yuan ($4,845) to start.

Su saw the perseverance and hardworking spirit of the young business starters, and persuaded his friend Lin Xinhe, an investment manager from 58.com, a Beijing-based classified advertising site, to cut them a deal. Before they knew it, Mo’s company had another 150,000-yuan ($24,255) investment.

Entrepreneurs began to pour into Garage Cafe upon hearing the story, hoping to seize similar opportunities to find investors. “I talked to everybody that came into this cafe to see what they wanted,” said Su, who enjoyed listening to people’s various stories as well as the increased business. Well-known angel investors Xue Manzi and Cai Wensheng became regular customers and hyped the cafe in their microblogs.

In December 2011, the Zhongguancun Haidian Science Park’s Administrative Committee called Garage Cafe an “innovative incubator” and simplified registration procedures for some of its hosted startups. For Su, it was a great honor for his fledgling business, which enjoyed profitability in only its second year thanks to clever merchandising. The Garage Cafe brand was born.

Cafe boom

Unlike the locally owned and operated Garage Cafe, the nearby Beta Cafe was born two years earlier in Hangzhou, east China’s Zhejiang Province. Bai Ya, designer of China’s leading third-party online payment platform Alipay, was one of the cafe’s founders. He just wanted a fixed place for his friends to get together.

INVESTMENT BULLETIN: Notices seeking cooperation and investment cover the information board at the entrance to 3W Cafe

More than 300 people queued up for Beta Cafe’s grand opening. To Bai’s utter shock and amazement, they came not for coffee and food, but to get to know more people in the IT field.

A Beta Cafe franchise moved in to the Zhongguancun area in February 2011. With comfortable U-shape sofa and unblocked Internet access, it too also allows customers to relax for a whole day for the price of a cup of coffee. Most customers work for Youku.com, a video hosting site analogous to YouTube, or Tencent, operator of the immensely popular QQ Web portal.

Xu Dandan’s idea of opening a cafe was quite similar to Bai’s. Xu is the CEO of Danseq Investment Consulting. When a cafe where he was hosting an investment salon tried to shake him down for extra money, a distraught Xu microblogged his intention to open his own.

His idea won support from major industry players including Wu Yimin, President of InfoBird, a cloud computing service provider, and Zhuang Chenchao, CEO of Qunar.com, a leading Chinese travel service portal. Within a month, about 100 people expressed willingness to invest in the cafe. 3W Cafe opened its door in Zhongguancun in August 2011 and had accumulated 200 shareholders within just one short year.

The three cafes are more than meets the eye, said Sun Dayang. Sun works with two of his Peking University classmates, exploring development of iOS and Android apps.

At the entrance of the cafes, there are big boards for people to post notices seeking cooperation or investment. “You don’t need to have a mature business plan to be here,” Sun said. “You are welcome to talk any idea, even if it sounds unrealistic and crazy. This is what makes me feel comfortable.”

Smart money

“Starting my own business sounded distant and unrealistic before I came to this cafe,” said Li Min, a student from Tsinghua University. Li and two schoolmates came to Garage Cafe out of curiosity. “Everybody here is very friendly and Su offered us quite a few suggestions on changing what we learn to practical use.”

Talk of venture capital and user interfaces are overheard as often as fun, passion and aspirations at Garage Cafe, which has an iMac and two Windows laptops open to customers free of charge, as well as a low-cost copy machine and 3D printer.

“I think I am more like a go-between for investors and entrepreneurs,” said Su, who stays in the cafe for more than 10 hours every day because he so sincerely enjoys his work.

But the buzz in these cafes isn’t about the coffee. China Central Television,The Washington PostandThe Economisthave reported on Zhongguancun’s cafes, and now journalists are working the cafe beat hoping for a scoop on the next rising star of China’s hi-tech sector.

Beta Cafe plans to open another chain store in Guangzhou, south China’s Guangdong Province, and 3W Cafe prepares to expand into Shanghai and Shenzhen in Guangdong.

Yuan Gang from the Central Academy of Drama plans to direct a TV drama about Garage Cafe, but Su is still thinking locally.

“What makes the cafe unique is not the cafe itself but the environment of the Zhongguancun Hi-tech Zone,” Su said. “So far, we just want to stay in Beijing right now and hopefully in the near future, this quiet book market will turn into a place for startups.”

yuanyuan@bjreview.com