In Search of Deep Pockets: How to Reach Chinese Venture Capitalists

Business.com / Starting a Business / Last Modified: February 22, 2017

There are many good reasons to partner with Chinese VCs, including the amount of capital they are making available for U.S. investment.

You don’t have to go far to find Chinese investors like Venture Capitalists (VCs) or incubators, because they are already here and firmly ensconced in areas of the country where start-ups are popping up.

According to CB Insights, “Between 2007 and 2013 year-to-date, Chinese and Taiwan-based investors participated in more than 150 deals totaling $2.6 billion.”

There are many good reasons to partner with Chinese VCs, including the extraordinary amount of capital they are making available for U.S. investment, their willingness to partner to develop global growth opportunities for both countries, and their ability to help start-ups get past many of the common hurdles in expansion that hit a start-up, including scaling up manufacturing and valuation.

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Here are some ways to tap into the Chinese VC opportunity:

Incubators & Idea Labs

Coming to a city near you are incubators and idea labs composed of Chinese investors who are interested in working directly with the company they are funding.

For example, in Northern California, numerous opportunities exist to reach out the venture capital community from China who are behind some of these idea labs and incubators.

There is Hanhai zPark in San Jose for technology start-ups, and another biotech incubator in South San Francisco.

While many within these spaces are Chinese start-ups that want to expand into the U.S., there is plenty of room to assist local start-ups who want to do business in China. Other cities, including Boston, are being tapped for future opportunities.

Local Partnerships

Chinese investors are also establishing central locations to meet and exchange ideas as well as consider specific investments in U.S. businesses while also serving as a gateway for investment and strategic partnerships in China.

For example, China Center “is the first of its kind where leaders from China and U.S. gather under one roof to spur interactive and growth opportunities.”

A March 2015 research paper for the Berkeley Roundtable on the International Economy, which included Chinese and U.S. researchers, examined the nature and timing of partnerships between firms and Chinese VCs.

The study found that those interested in working with Chinese VCs may be more likely to seek them out in later rounds where the company has become more established.

There is less likelihood that this type of partnership would be feasible during the seed-stage because uncertainty is at its highest.

However, if a local firm in the U.S. or another country has more experience with China, they are more likely to work with Chinese VCs at an earlier point in development and more actively seek out this partnership. 

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Overseas Connections

According to a 2012 article in China Business Review, the Chinese venture capital industry is growing and developing into a viable opportunity that can be leveraged by U.S. start-ups.

As the article noted, “Venture capital activities in mainland China have shifted from purely infrastructure development to innovation in science, technology, and consumer products and services, and foreign firms have been increasingly involved in this new wave of investment.”

More Chinese VCs are online and easier to find now given their eagerness to invest overseas. Find the best one by looking at lists of Chinese venture capital firms, which provide a way to compare by preferred investment stage, investment range, location, and fund size, as well as by industry focus. 

Technology Cooperation

Chinese venture capital firms like Haiyin Capital are inviting select technology start-ups to China to participate in technology cooperatives.

This venture capital firm is in the midst of dispersing another $50 million to U.S. tech start-ups located across the country.

Some of the companies it has invested in were invited by Haiyin Capital to visit various manufacturing regions in China and participate in entrepreneur events there in order to help the country improve its own technology prowess.

For new technologies, there is the added benefit of using Chinese partners to commercially deploy, scale, and develop a significant customer base or manufacturing partnerships as well as rapidly increase their valuation as promising start-ups.

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Final Thoughts

The opportunities to work with Chinese venture capital firms is in its infancy with many challenges and barriers to partnerships to work through before further tapping this source of investment.

Certainly, there is considerable benefit to technology cooperation, manufacturing capabilities, and innovation that can create a win-win scenario for both countries.

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