Two Entrepreneurs Survived China’s Tough Tech Decade. Only One Remains.

This atmosphere has now worsened with the Chinese leader targets what it calls the ills of unchecked capitalism. Although he still strongly supports strategic technology sectors, Mr. Xi aimed to take a regulatory step against the “monopolistic” practices of internet giants. citizen data storage.

The change put the two entrepreneurs on different paths. Mr. Concerned about today’s environment, Chang moved to the United States. Li, who sees the change as a shift in the country’s steady upward trajectory, said he will remain in China and continue to expand his cutting-edge technology enterprise.

Their decisions typify a crossroads in China where entrepreneurs are running out of opportunities, regulators are tightening and the economic gloom is deepening.

According to investment tracking firm Preq, the amount of money raised by private equity and venture capital funds focused on Greater China in 2021 was only half of what was raised at its peak in 2017.

Some entrepreneurs, especially those with global experience and networks, don’t want to deal with uncertainty and move out of China. Others, who have experienced previous ebbs and flows in China’s policies and targets, still see plenty of growth potential and reason to stay put.

Tall, thin and showing a quiet intensity, Mr. 45-year-old. Li was born in Henan province to a teacher and laborer whose monthly salary was only 30 yuan, then only 3 dollars. As China’s economic reforms created new wealth, the family went from one bedroom to three bedrooms and from eating meat once a month to regularly eating both meat and seafood.

Mr. I studied computer engineering at the prestigious Shanghai Jiaotong University. He briefly considered going to graduate school abroad, but stayed in China to become an entrepreneur. His first two businesses, which developed textbooks and educational materials, were both successfully listed – one in Hong Kong and the other in Shanghai.

Mr. Chang, 32, is more moderate, approaching decisions with cool logic. The son of engineers in the inland province of Shanxi, he appreciated English while hanging out with foreign students and teachers on weekends.

After reading a local newspaper profile of a Shanxi student attending college in the US, he convinced his parents to support an unconventional route and won a place at Yale University on a full scholarship. After earning a degree in economics, he took a job at McKinsey & Co. Over the offers in New York, Shanghai called home what appeared to be a dizzying array of possibilities.

Mr. While still at a consulting firm, Chang started his first business, Ivy Path, with a fellow Yale graduate. As Mr. Lee, he was in the education sector—helping Chinese students apply to Western universities. In the first six months, it generated more than $1 million in revenue.

By then, the technology industry had become an all-consuming force in China.

Baidu Inc.,

Alibaba Group Holding Ltd.

and

Tencent Holdings Ltd.

were the three hegemons of the Chinese internet that led the wave of mobile technology innovation.

On top of that, China’s mobile internet users almost doubled between 2013 and 2018 during Mr Xi’s first term. Alibaba’s annual Singles Day shopping event has overtaken Black Friday as the world’s largest online shopping event. Tencent’s do-everything app WeChat has amassed one billion users.

Excited Mr. Lee co-founded a mobile gaming enterprise with his cousin. When the company quickly failed, he tried a social media startup to rival WeChat. It attracted money from big tech investors, but was crushed just as quickly by the competition.

Mr. Chang also focused his business on technology investment. He and his partner invested in a number of startups, including one that became a giant.

Didi Global Inc.

The options were endless. Inflowing venture capital funds, startups built out of coffee shops and rundown apartments became household names overnight. “There was something new coming out every day,” he said. Chang said.

At the end of 2014, Mr. Lee tried again, this time with Squirrel AI, a company that develops artificial intelligence-powered tutoring software that students can use in private tutoring businesses.

Over the next four years, it experienced spectacular growth, amassing nearly 30 million enrolled students and surpassing a $1 billion valuation.

Mr. Lee became a phenomenon himself, regularly appearing on news programs and game shows to demonstrate his approach to education. At one point, he tried to launch his own reality TV show inspired by Donald Trump’s The Apprentice.

Around that time, in 2018, Mr. Chang began to sense the cooling of the broader technology market. The cost of acquiring new users for companies has increased. Rookies could no longer hold a candle to the giants. Government signals have also changed. Beijing began withdrawing subsidies and oversight in sectors including online lending, video games and live streaming.

Mr. Chang and his partner turned their sights to Latin America, a booming market that reminded them of the early years of China’s tech industry. The following year, they invested in Laika Universe Inc., a Colombian e-commerce platform for pet products. In China, they have turned to education and consumer products like other venture capitalists, looking for sectors they believe Beijing still favors.

Similarly, mr. I believed that Squirrel AI, which is focused on education, is in the safe zone. It moved forward with plans to expand into the US and prepare for an IPO.

Then came the pandemic, followed swiftly by Mr. Xi’s broad stance against the tech industry.

The crackdown peaked in July 2021, when Chinese regulators banned for-profit after-school tutoring for students in kindergarten through ninth grade. A ban was intended to control the rising cost of educationThis is Beijing’s increasing inequality and discourages couples from having more children— Reduced Squirrel AI’s income to zero.

The company suddenly found itself in a $125 million debt hole. “All gone,” said the gentleman. i read

Many of his edu-tech peers jumped ship. Yu Minhong, one of China’s largest private tutoring firms, has launched selling agricultural products through live broadcast shows.

The ban also shook the gentlemen. Change to basic. As a wave of layoffs swept the industry, investors in US venture capital funds began to withdraw from China. “Startup founders worry whether they will be selling groceries like Yu Minhong in 10 years,” he said. Chang said.

From this low point onwards, Mr. Lee and Mr. Chang’s paths diverged sharply.

Mr. Lee considered giving up on Squirrel AI and starting over—this time in the government-favored robotics industry. In the end, he did not dare to leave the company. He also says he agrees that the tutoring ban is intended to reduce pressure on families.

“These policies come from long-term thinking,” he said. “They’re not random—it’s not like the United States where you change directions when you change presidents.”

Despite this, he was punished with a ban and became introspective about what he said were his shortcomings. “Our relationship with the government was not that great.

For Mr. Chang, there was no longer any point in staying in China. As an entrepreneur, he said, it’s not the 10-year or even the four-year perspective that matters. “It’s what you can do today,” he said.

Late last year, he moved back to the US and co-founded About Time, a no-nonsense coffee shop brand. This year, he left to start Skyrealm, a real-time location-data analytics platform built for commercial real estate.

Mr. Chang hopes to build a global company targeting the US market by tapping into China’s tech talent pool. But growing US-China tensions have created mistrust among Chinese entrepreneurs. About Time looking for a new showcase, the host Mr. Chang had ties to the Chinese government or telecommunications equipment maker Huawei Technologies Co, which U.S. officials have called a national security threat.

Mr. to avoid falling under the control of Washington. Chang said his company would base its R&D teams outside of China and avoid any funds with possible ties to Chinese state-backed entities.

Back in Shanghai, Squirrel AI has moved from working with private tutoring opportunities to manufacturing smart tablets loaded with its own training software. The company sells them directly to consumers and gives them to public schools for free.

$125 million in debt remains, but the company has paid off half of that with new revenue. Her confidence is slowly returning, sir. Okudum is once again talking about expanding to the US

type Shen Lu horse shen.lu@wsj.com and Karen Hao horse karen.hao@wsj.com