How to get Chinese investors interested in your startup

- April 28, 2017 4 MIN READ

They’re our biggest trade customer and have a market economy worth more than AU$10 trillion, but China is no longer just interested in our trade. They’re interested in our startups.

Both the Australian and Chinese governments have actively committed to facilitating further involvement in Australian startups from China. And with our general relationship with China already worth more than AU$160 billion annually, and growing, there has never been a better time for Australian startups to connect with Chinese investors and advisors.

But the question many companies will be asking themselves is how they can get their foot in the door of this lucrative market.

Target areas that have a particular impact in China

When it comes to technology, China is already very good at servicing consumers. Companies like Alibaba and Tencent have the B2C space covered. But for business solutions, surprisingly, China is lagging far behind.

Any business will have a high impact in China if it can address the gap in China’s technology market. B2B servicing in particular is one area where China is looking for new solutions and potential investments. Australian companies that can offer cross border payments and wealth management, cyber and blockchain, consumer payment and online asset management will have an advantage over their immediate Chinese competitors.

Have the potential to grow overseas

Already Australia has close political and geographical ties with China, which gives us an automatic advantage over our competitors in the US and UK. But for any company looking for opportunities expanding into China, it is essential to understand the geography of China’s different growth industries.

For example, Shenzhen is famous for Tencent and Huawei, so areas such as fintech, telecom and the IT industries are developing very well. Shanghai is the key financial hub in China, a city of investment banking, securities and managed funds.

But if you’re looking at potential for animation, advanced manufacturing or medical research and development, then Chengdu is the place to be. It is just as important to decide where your best prospects are in China as to decide that you want to expand to China in the first place.

Be able to work under joint venture structures

Being able to network with any VC is just as important as selling your messaging to them. Gone are the days where investors are happy to hand over their capital and take a step back from the business. Instead, you are now well placed to take advantage of both their business and networking expertise.

With current capital control in China, institutional investors and listed companies are being cautious about their overseas investments. Areas such as direct securities, sports clubs and property investment will be harder to gain investor approval.

However, investment in technology or other products and services with the potential to grow in China is still highly encouraged. This includes, but is not limited to, health products, health and aged care, education and the financial services.

The important thing to remember when working with any Chinese VC is the differences when it comes to business culture between our two countries. It’s no longer true that Chinese business transactions are negotiated over the dining table, but this is still a very important part of the Chinese process.

What will have more of an impact on Australian entrepreneurs is the long working hours. Chinese business professionals are known for frequently working long hours and even weekends, so you may need to prepare yourself for some late night phone calls.

Likewise, Chinese professionals expect a quick turn-around when it comes to communication. It is common in the negotiation process for both parties to go back to their teams and come back with a revised plan within 2 or 3 weeks.

But if the discussion is serious, your Chinese correspondents may expect a response within a day or two. That’s why apps such as WeChat are so popular in China; they allow for constant back-and-forth communication as opposed to emails, and are also very accessible outside of traditional working hours.

Prove that you can disrupt your field

There is a myth in Australia that Chinese investors are only interested in property investment. Likewise, in China, there is a misconception that because of our existing trade deals, Australia is all about iron ore, dairy and resources.

It is up to you and your business to help disrupt these myths by providing in-demand technology and startup solutions that will be attractive to Chinese investors. Of course, disruptors in different industries will naturally have different characteristics. But what is important to investors is to see cost saving measures, and particularly, improved efficiency across the board. Blockchain is a good example of this; it has already saved millions of dollars for asset transactions in what is a more efficient and accurate method.

Understand legal and compliance frameworks to protect IP

When it comes to an understanding of legal, political, social or cultural issues around your business, protecting the IP and capital of yourself and any existing investors will be seen in good light.

Chinese VC’s treat overseas investment cautiously and they will investigate your company at length before going into business with you. This can be anywhere from your personal connection, to the business and the quality of your team as a whole, to the more standard features like potential for global scaling and your growth trajectory. By making sure you have all your bases covered you prove to not only be a considered investment for any VC, but will be particularly attractive to the Chinese market.

The capital market in China is actively looking for advanced tech. So if any Australian business can demonstrate that they are the best in their field, they will likely see sizeable interest and potential investment from China.

Eric Gao is CEO of Melbourne-based Chinese wealth advisory and management firm BMY Group.