Is it so dangerous to take cash from Chinese language enterprise funds?


Denis Kalinin

Denis Kalinin works at enterprise fund Runa Capital as Asia Enterprise Growth Supervisor, dedicated to connecting the Western and Asian VC worlds and bringing long-term worth to each.

China is changing into a superpower within the tech trade. In line with Straits Instances, China is the one place on the planet the place it takes lower than six years for a startup to turn into a unicorn — it takes seven years within the U.S., eight years within the U.Ok. and 11 years in Germany. Regardless of geopolitical tensions and up to date amendments in CFIUS, it’s onerous to disregard China.

After I joined Runa Capital nearly a 12 months in the past, my job was to assist our portfolio firms enter the Chinese language market, discover the suitable companions and lift funding from Chinese language traders. And nearly on each name with our startups, colleagues from Runa or different world VCs, I heard: Is it a good suggestion to lift from a Chinese language VC? Is it OK to co-invest with Chinese language traders? I used to be stunned to be taught that there’s little analysis answering such query, as there’s a lack of sufficient info in English about Chinese language investments.

Entry to the Chinese language market appears to be an apparent purpose to ask Chinese language funds aboard, however solely about 20% of Western startups with Chinese language capital have operations in China.

In order a Mandarin-speaking specialist, I made a decision to fill this hole by conducting a examine primarily based on a Chinese language VC database ITjuzi (the Chinese language model of Crunchbase) with the assistance of our highly effective information science sources developed by Danil Okhlopkov.

Beneath, I’ll attempt to reply the next questions utilizing statistics and a case-based method:

  • How a lot do Chinese language funds make investments overseas?
  • What’s the present pattern?
  • Can Chinese language traders convey any worth to Western startups?
  • Who’re probably the most lively Chinese language traders overseas?
  • Wherein areas can Chinese language funds convey probably the most worth?
  • What worth can Chinese language traders convey?
  • When is it higher to ask a Chinese language investor?

Chinese language traders are fascinated by Western startups

After learning information from ITjuzi, we estimated that Chinese language funds invested round $250 billion in 2020 (thrice larger than the determine in Crunchbase). This determine places Chinese language VC investments solely 30% decrease than investments by U.S. funds, however thrice that of U.Ok. funds, 12.5 instances greater than German funds.

Comparison of investment amount from different countries in 2020, $bn. Source: Crunchbase, ITjuzi

Fig. 1 – Comparability of funding from totally different nations in 2020, $bn. Supply: Crunchbase, ITjuzi. Picture Credit: Denis Kalinin

Nonetheless, solely 15% of investments in 2020, and 17% of investments within the first half of 2021 had been in firms exterior China, considerably decrease than in 2019. This seems to be as a result of throughout COVID, China’s financial system recovered a lot quicker than different nations’, so many Chinese language traders most well-liked to redirect their capital flows to the home market.

Then again, there’s nice potential for abroad investments to rebound as quickly because the borders reopen and the worldwide financial system begins to get better.

Dynamics of Chinese investments. $bn. Source: Crunchbase, ITjuzi

Fig. 2 – Dynamics of Chinese language investments. $bn. Supply: Crunchbase, ITjuzi. Picture Credit: Denis Kalinin

We will additionally see that Chinese language traders are eyeing European startups favorably, which is said to U.S.-China geopolitical tensions in addition to the truth that the European VC market is changing into mature.

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