Kai-Fu Lee, Founder of Microsoft’s China Research Lab, Quits Google to Head $115M Startup Incubator in China

Kai-Fu Lee, the charismatic former Microsoft VP and founding director of the company’s research lab in Beijing who reported last week that he was quitting as head of Google’s China arm, has announced that he has raised $115 million to create a new incubator for high-tech startups in China.

The new organization, Innovation Works, will mentor and prepare entrepreneurs to launch new businesses, chiefly in the Internet, mobile Internet, and cloud computing spaces, according to its website. A particular area of focus inside these sectors is e-commerce targeting the financial, medical services, and educational markets.

Innovation Works will be based in Beijing, apparently near the famous Tsinghua University, China’s most prestigious science and technology university. It is funded by a high-powered group of investors and VCs that includes Steve Chen, a co-founder of YouTube, Foxconn Technology Group, the Legend Group, and the New Oriental Education & Technology Group. The lead venture investor is WI Harper Group. Lee is named as founder, chairman, and CEO.

The goal is to target “the Greater China market, and build ‘dream teams’ to collect, analyze, prioritize and execute on the most promising ideas,” according to the Innovation Works website. “Innovation Works will accelerate an entrepreneur’s ability to prove ideas, obtain additional external funding, and then spin-off into an independent company.”

“The Chinese entrepreneurial environment is still in its formative stage, with significant barriers for the early-stage entrepreneur: the lack of management experience and coaching, the reluctance of venture capitalists to invest in companies in the formation stage, and the lack of networking and experience to pull a company together,” said Lee in a statement. “These barriers all contribute to a dearth of high-tech start-ups in China. Innovation Works is matching entrepreneurs, engineers, ideas, and capital with a unique business model that improves success rates and speeds time-to-market…Through the rigorous development and testing of prototypes, and identification of a ‘founding executive’ to lead the venture, Innovation Works will provide capital, manpower, legal, financial and IT support.”

TechCrunch reports that the plan is to initially hire 100-150 entrepreneurial Chinese engineers, mentor them and cultivate their ideas, and then provide seed funding to spin off roughly half of them each year—replacing those who left with a new wave of recruits.

Lee amplified this idea in an interview with the New York Times. “After one year, we’ll send the companies into the open. If they get venture capital funding—great; if they don’t, they won’t live,” he said.

It was only a matter of time before something like Innovation Works got going in China—and indeed there are no doubt others out there already, if on a smaller scale. Developing nations like China, as they develop, rise ever-higher in the innovation ranks. A few decades ago, China was looking to be the source of cheap manufacturing. Then it moved to higher-end manufacturing, and then to becoming the source of new ideas as big companies like IBM and Microsoft, and much later Google, tapped into its growing talent pool to help create vast R&D operations. Instead of being a place where companies would spin off “localized” versions of U.S. products, China has become a fountainhead of innovation that has spawned products for worldwide use in areas such as wireless, speech recognition and natural language processing, search, graphics, and more.

Lee himself has a long history of helping blaze trails in innovation, but mostly with large corporations. He was born in Taiwan but attended high school and college in the U.S., receiving a PhD from Carnegie Mellon University, where he was widely recognized as developing the first speaker-independent continuous speech-recognition system. After a brief stint teaching at Carnegie Mellon, he moved to Apple, where he worked on early speech recognition products, among other things. Then he moved to SGI, and later was recruited to open Microsoft Research Asia in Beijing. He next shifted to Redmond and became a corporate vice president for Microsoft, where he led teams that developed server products, as well as products in natural language processing and speech that were incorporated into Office and other offerings. In 2005, he suddenly announced he was leaving Microsoft to help lead Google’s operations in China, sparking a contentious legal battle between the two companies that was settled out of court that same year.

Bob is Xconomy's founder and editor in chief. You can e-mail him at bbuderi@xconomy.com, call him at 617.500.5926. Follow @bbuderi

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3 responses to “Kai-Fu Lee, Founder of Microsoft’s China Research Lab, Quits Google to Head $115M Startup Incubator in China”

  1. Kai-Fu Skeptic says:

    Kai-Fu already tried this actually at Microsoft with a Beijing-based Advanced Technology Group (“Incubator”) that was supposed to bridge the gap between Microsoft Research Beijing and the Redmond product units. They were an abject failure and never shipped a product. Redmond teams saw this group as third-class Engineering talent who also were suspect in terms of their intellectual property. As a former Microsoft executive who has worked closely with Kai-Fu’s former MSR teams, I can say that while he is a brilliant scientist in his own right, he is unfortunately neither an operator nor someone who has ever built successful businesses even in a consultative/VC capacity. It seems that China is enamored purely with his self-burnished image.

  2. Good luck Kai, you will be needing it!

  3. emenot says:

    Well Kai-Fu step stoned on Microsoft and got China to back him, luckily as above mentioned people knew better, he is up the creek without the Microsoft paddle…..