19 Oct Seeking investment from China? Read this.
This article is authored by Ying (Stefani ) Lu, a speaker at AsiaBerlin Summit 2020. Stefani participated in a panel on “Intersectional talks: Internationalisation and Expansion done right”. She also conducted a masterclass on “Seeing investment in China post-CoVid 19.”
(Opinions expressed by the author in the article are their own)
As the first country in the world to recover from COVID-19, China has achieved a V-shaped rebound in GDP since the second quarter of 2020 with achieving a growth rate of +3.2% in Q2 GDP compared to a negative rate of -6.8% in Q1 as the country was experiencing the initial impact of COVID-19, according to data from National Bureau of Statistics of China.
China capital markets trend
China’s capital markets have rapidly recovered from the initial impact of COVID-19. Although the “Consumer Internet sector” had been a hotspot for China’s capital markets in recent years, the “industrial internet sector”, driven primarily by technology penetration, has arisen as a key driver in the growth of China’s capital market.
As per 1st half-year report of China Renaissance (China’s leading investment bank serving the new economy), the Top 5 internet giants(Tencent, Alibaba, Baidu, Bytedance & JD) in 2020 are all taking technology as their primary investment field, accounting up to 35% of their total investment.
“New infrastructure” as a general term has become the outlet of the investment circle in 2020 – covering a range of areas including the technology filed of 5G infrastructure, UHV, Inter-city high-speed railway and inter-city rail transit, new energy vehicle charging piles, big data centers, artificial intelligence, and industrial internet.
Besides above, given the huge base of population & consumption, the overall upgrading of the food and beverage – “New consumption sector” is another hot spot for major venture capitals in China.
As a surprising example after the pandemic, a beverage start-up brand “Energetic Forest” experienced unprecedented valuation surges – The brand’s valuation rose to 3.5 times the last financing within 9 months, reaching RMB 4 billion, and its growth rate set a historical record in the new consumption sector.
The pandemic has had a profound impact on the global economic structure. Facing the recovery environment after the pandemic, is there an opportunity to get involved in China’s capital game and to help start-ups to strike through the cash flow bottleneck?
Opportunities from China Capital Markets
Compared with the European market, the capital environment in the Chinese market is more rapid and bold. For start-ups, many incubators in the European market provide an initial investment of 50,000 Euros, whilst in China, angel investors are more willing to bear higher trial and error costs with most angel investments being in the range of 800 thousand -1.5 million US dollars.
Sheen Hu, the founder of the Berlin start-up – MXC foundation, has an industry 4.0 solution for smart cities. His company raised funds from China, Germany, and the United States. He mentioned: “China has a “try it” culture. Chinese investors are more willing to take risks (compared to European investors). Many deals can be closed quickly, as long as investors are interested. there is no need to go through complicated “notarization” procedures as we have in Germany. Sometimes just by email or even written confirmation through wechat, we could receive the money. This cultural difference always shocked my German co-founder.”
Chinese investor Chao Wu who is investing in early-stage tech start-ups also mentioned: “In the deep technology field, normally there are enough funds to support within Europe already, but with the blessing of Chinese capital, you can quickly find much more application areas in the Chinese market, given the huge and diverse ecosystem. The opportunity lies in how to leverage resources across geographies.”
Barriers for fundraising in China
On the other hand, the overall ecosystem of the Chinese market is completely different from that of Western countries. Different language environments, cultural habits, opaque policy environments, and many European companies considering the protection of intellectual property rights often discourage founders to consider China as an opportunity or consider China as an opportunity at start-ups’ early stage. Lack of local insight and operating experience in China is also a flaw in getting close to the Chinese capital game.
The biggest difficulty lies in the openness of the start-up founder. If the founder is willing to understand the Chinese market and build a unique approach instead of simply relying on a local business partner to take care of everything, the Chinese market can return with unlimited possibilities.
Fundraising in China is not simply on the money itself, but the resource, connections behind the investors, they can help you to navigate the Chinese market more easily.
It is also important to understand Chinese culture and how to get connected to Chinese investors, as the cold-approach in western countries generally do not work in China. Most of the investment only gets through referral, or through professional medium – Financial Advisor. (FA)
AsiaBerlin content related to China that we recommend :
- Learn more about the Chinese community in Berlin in a Linkedin post by Rainer Seider, Founder, and Initiator of AsiaBerlin
- Watch #AsiaBerlin Fireside Chat with Enrico Jakob, Managing Partner & COO, Awesome Capital group, who shared about the 1st German-Chinese Investment Platform with Venture DNA and Mali Baum, Founder & CEO, LOUNGE and Magda Group. Here is the link to the video.
- On 21 September , we celebrated signing a Memorandum of Understanding (MOU) during the #AsiaBerlinSummit 2020 in Berlin and in Beijing, in order to strengthen cooperation on innovation projects and technology developments through Plug and Play (China), its international acceleration platform, and the Berlin Business Liaison Desk in China, as well as with a goal to support collaboration between Chinese and Berlin companies. Watch the video here.