Chinese entrepreneurs: Under pressure

When Rui Zhang, the 44-year-old founder of Chinese healthcare app Spring Rain Doctor, succumbed to a heart attack two weeks ago, the start-up community expressed its shock and sorrow. The tragedy also prompted serious social media debate among entrepreneurs and investors about the toll that launching a company and getting it to scale can have on one's health.

Zhang was well-known for working long hours and driving himself to exhaustion. In an interview last year, he admitted to being concerned about Spring Rain - to the point that he couldn't sleep well or eat properly: "Before going to sleep, I worry about what would happen if the capital supply to my business suddenly stopped. But when I wake up each day I inspire myself by remembering that my products can help cure others' sickness. A meaningful business can of course raise money. It's only a timing issue."

Mobile healthcare businesses were once the darling of investors looking to ride the online-to-offline (O2O) services wave, and Spring Rain is no exception. The company - which operates a platform through which users can submit health queries to medical professionals and make appointments for hospital consultations - has received several rounds of funding since inception. Most recently, it raised a RMB1.2 billion ($183 million) pre-IPO round in June at a valuation of $1 billion.

Much of this capital was pumped into a battle for market share against other leading VC-backed players such as Guahao and DXY plus a string of smaller operators. Some companies offered free consultations even though they didn't have enough doctors; others were paying doctors RMB50-100 at a time to download their apps.

This competitive dynamic was the product of relentless ambition. Every entrepreneur envisages becoming the dominant force in their space and is willing to do whatever takes to get there, even if it means sacrificing profits in the short term for market share in the long term. It translates into extreme pressure: start-ups can employ a cash-burn model for only as long as investors are willing to support them. Zhang was probably not the only founder to lie awake at night worrying about it.

Last year, some investors started calling on these start-ups to end the war and focus on product quality and achieving profitability. Indeed, Spring Rain is already shifting its focus to offline functions, building clinics for the client base it has accumulated online. Meanwhile, the online consultation business moved into the black towards the end of 2015. However, not all backers are so easily appeased. Wanting to secure a path to liquidity, they reportedly pressed Zhang to go for an IPO. He demurred, but eventually agreed to spin-out the consultation unit and list it through a reverse merger.

While this kind of investor pressure is not a problem for all Chinese start-ups, they share a common problem in the form of a weakening economy. Even in a sector known for strong fundamentals and rapid growth, the deteriorating environment means start-ups must dig deeper if they are to reach their targets. It only serves to intensify already intense competition.

The concerns aired in the start-up community following Zhang's death were that working long hours in the hope of making a quick fortune has become a way of life for Chinese entrepreneurs. (In the early days of Spring Rain, Zhang required all staff to work from 9 a.m. to 9 p.m. six days a week, although a company representative said this approach had been abandoned long ago).

No one will ever be able to say conclusively that Zhang's job was responsible for his sad early passing. But the situation does give investors pause for thought. Are they placing a high enough priority on the welfare of founders in their portfolios? What more could - or should - be done to support them at a time when market conditions might be more challenging than ever before?

China is a start-up industry on steroids, covering ground in years that it took other markets decades to traverse. It lacks much of the supporting infrastructure typically found in larger companies - or in more developed economies, for that matter - and yet the competition is brutally intense. How entrepreneurs respond to stress and manage their lifestyles could have implications that go beyond the bottom line.

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