Pedro Pinto October 24, 2020 1:58 pm

How to fund your startup in China

You’ve just launched your business in Mainland China, and are looking for the right way to go about funding your startup.

Perhaps you’re already fairly familiar with how to fund your startup in the West and are trying to do some research before diving into the Chinese venture capital landscape. Or perhaps this is the very first time you’re fundraising.

In any case, you’ve come to the right place. We spoke to the experts at CENTI, who specialise in helping UK-based startups launch in China, to share their advice on how to fund your startup in the Mainland. Here’s what they had to say!

What you need to know about fundraising from Chinese investors

For VCs around the world, investors are looking for the best return on their investments; Chinese investors are no different. However, sometimes the things that they value and put a focus on can vary slightly from Western VCs. Here’s a general overview of what you should know when fundraising for your startup in China.

Chinese investors want to see that you’re focussed on the Chinese market

Expanding into Mainland China is very, very different from expanding into, say, the United Kingdom, or to the States. China has its own ecosystem of apps and technologies that are specifically used in that region.

You’ll win points if you demonstrate a clear intention of entering Chinese market specifically, as opposed to looking for general fundraising from an investor who happens to be Chinese.

A compelling go-to-market strategy is often more important than the product itself

While you might be tempted to go into the intricacies of your proprietary technology, what most Chinese investors care about is how you’ll convince your customers to pay for and adopt your product specifically in China. This, more so than the innovations in your product, is going to convince a Chinese investor to fund your startup.

“First of all, you need to understand that you’re not talking to an investor, essentially you’re talking to a client and a user and the market. As a founder you need to understand that when you’re talking to an investor, he’s thinking about the users behind him and whether or not they’ll use your product.”

– Xu Xiaoping, Founder of ZhenFund (quoted from TechInAsia’s translation of his talk at Sina startup event)

Focus your pitch around:

  • What your vision is for the Chinese market and what your action plan is to achieve this
  • Any numbers that can demonstrate growing traction and potential growth in China
  • Any product features that you’ve developed to cater to the Chinese market (for example, a WeChat or AliPay integration)

Chinese investors want to see a clear fit between your team and your product

Beyond the product and your go-to-market plan, Chinese investors also tend to put more of a focus on who is running the company.

Does the team display strong business acumen for China? Are these the right people to take this business to fruition in China? They want to know that you not only have a great product/service and the right strategy, but also want you to prove that you’re the right team to drive it.

Here are some things to emphasise when pitching your team: 

  • What your team’s level of engagement with Chinese market is so far
  • Whether or not you already have a Chinese team (and if you don’t, what the plan for recruitment is)
  • If you’ve worked for a long time in the industry
  • If you have experience working for big names in the industry

Bonus: Western entrepreneurs are sometimes surprised at how quickly Chinese investors move in the funding process. CENTI’s advice is to simply be aware of this and to be prompt when responding to queries and proposals.

Chinese incubators, accelerators, and VCs you should know about

To give you a starting point, here is a list of some reputable startup incubators, accelerators, and venture capital firms you can take a look at.

Yangpu Ventures, based in Shanghai, is a government-endorsed VC that provides an incubator as well. It’s run by National Eastern Technology-transfer Centre which is set up by the Ministry of Science and Technology of PRC, and Shanghai Municipal Government. Their areas of expertise include: biotech, healthcare, artificial intelligence, and software engineering.

TusStar is the incubator branch of Tuspark, short for Tsinghua University Science Park. TusStar takes in both early start-ups and scale-ups, invests in them, and helps them grow.

With their network, they help connect their members with relevant industry giants, universities, research institutes, finance agencies, media, and government organisations. They’re one of the biggest names in the Chinese startup community and have a presence all over the world. Tuspark started in 1999 and to date have invested over 2 billion RMB to date.

Legend Star, in addition to funding, offers a CEO training program to teach entrepreneurs how to run a business. They focus on startups that are using technology to transform traditional industries. In particular in areas of artificial intelligence, telecommunications and media, healthcare, and biotech.

Tencent WeStart is the incubator arm of the tech giant Tencent, with 32 innovation spaces across China.

Notably, the Tencent AI Open Platform focuses on growing startups in artificial intelligence, with strong support from various major AI laboratories, such as YouTu Lab and WeChat AI. In six months, the accelerator provides support in technology, advisors, industry resources, marketing, and of course capital.

ZJ Innopark, also known as Zhangjiang Hi-Tech Park, is an enormous government-backed space located in the Pudong area of Shanghai. It’s home to a number of startups and organisations that work in integrated circuits (IC), software, and medical technology. They also offer incubation services to startups.

Linear Venture is a private VC that focuses on data and tech-driven startups, data intelligence, and FinTech. Based in Shanghai, they’ve invested in multiple startups in China, as well as companies in Southeast Asia and the United States. Their founding team includes one of Facebook’s earliest employees.

Fosun Capital is the VC arm of Fosun Group, based in Shanghai.

They primarily focus on electronics, semiconductor technology, sustainability and healthcare technology. They are consistently recognised as one of China’s top VCs.

Sinovation Ventures is a large VC that focuses on artificial intelligence, B2B trade and enterprise services, MedTech, and education. They’re headquartered in Beijing, with a presence in Shanghai, Nanjing, Guangzhou and Shenzhen too. In addition to capital, they offer custom programs for CEOs of their portfolio companies on how to lead and grow their businesses effectively. Sinovation also has a presence in the States, and actively invest in American startups, where they focus in IoT, robotics, and EdTech.

Shenzhen Capital Group primarily invests in SMEs, as well as of course startups and scale ups, across a wide range of industries. With over 1068 portfolio companies their one of China’s largest venture capital groups.

Raise money for your startup in China

Getting funding from Chinese investors can be a different ballgame from the West – but the essentials remain the same. Investors are interested in companies that they believe have the best chances of succeeding.

We want to thank the folks at CENTI for sharing their insights on how to fundraise in China! If you’re looking for more advice on expanding to Mainland China and fundraising, you can connect and learn more through their website here.

 

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