Page 102 - How China Is Winning the Tech Race

I ask Fang if the company is profitable now. No, he admits. Then he hur-
riedly adds that his goal “is to break even in six months, and then make some
money in the next six months, and then go IPO.” That doesn’t sound step by
step to me and doesn’t jibe with what I’ve been told about his conflict with
the board over his management. I ask him if he’s still CEO. I figure he must
be getting pretty annoyed by now, but he doesn’t seem perturbed. He reluc-
tantly admits that he’s no longer in charge. A management committee,
including his three key managers and himself, is running Bokee. He asks me
to keep that information confidential even though I’ve already been alerted to
this by close sources and by now it’s a well-known fact. Fang says he’s
spending about half his time running Chinalabs, where he is incubating
several start-ups.

Fast-forward self-destruct

The problems began to percolate when Fang turned to venture capitalists to
finance his start-up. He raised $500,000 from Japan’s Internet powerhouse
Softbank Corp. in 2004 and $10 million the following September from three
7
additional American venture capital firms. Regulatory snafus almost pre-
vented the funds transfer. The Bokee team spent two months without pay-
checks, waiting for clearance from newly issued regulations that required
approvals for new investments from foreign entities.
Money in hand, Fang went into a self-destructive fast-forward. Without con-
sulting his new investors, he hired 200 editors and technicians; that was a stretch
financially even though the cost of starting a small business in China is substan-
tially lower than it is in the United States. At the first board meeting, the new
investors, who had a 30 percent-plus ownership stake in the start-up, had a fit
and demanded that he lay off employees. One of Bokee’s investors and former
board members sums it up this way: “This company is all about emotion.”
Bokee is feeling the pain from competitors. Bokee still claims to be the
leading blog-hosting site in China with 13 million registered users, but SINA
has gained market share quickly, according to blog publisher Chan of China
Web 2.0 Review, and already claims as many as 6 million registered bloggers.
Yet another new rival, the Shanghai-based Blogbus, raised $3 million in late
2006 from Chinese and Japanese firms.

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