China is becoming Superpower in the tech industry. According to the Straits Times, China is the only place in the world where it takes less than six years for a startup to become a unicorn – seven years in the US, eight years in the UK and 11 years in Germany. Despite geopolitical tensions and recent reforms in CFIUS, China is hard to ignore.
When I joined Runa Capital about a year ago, my job was to help our portfolio companies enter the Chinese market, find suitable partners and raise funds from Chinese investors. And on almost every call with our startups, Runa or other global VC colleagues, I heard: Is it a good idea to raise from a Chinese VC? Is it okay to co-invest with Chinese investors? I was surprised to learn that there is little research to answer such a question, as there is a lack of sufficient information in English about Chinese investments.
Entry into the Chinese market seems a clear reason to invite Chinese funding, but only 20% of Western startups with Chinese capital operate in China.
So as a Mandarin speaking expert, I decided to fill this gap by studying the Chinese VC database ITJuzi (Chinese version of Crunchbase) with the help of our powerful data science resources developed by Daniel Oklopkov.
Below, I will try to answer the following questions using a statistics and case-based approach:
- How much does a Chinese fund invest abroad?
- What is the current trend?
- Can Chinese investors bring any value to Western startups?
- Who are the most active Chinese investors abroad?
- In what areas can Chinese funding bring the most value?
- What value can Chinese investors bring?
- When is it better to invite a Chinese investor?
Chinese investors are interested in Western startups
After studying ITjuzi’s data, we estimate that Chinese funds have invested about 250 250 billion in 2020 (three times more than the Crunchbase figure). The figure puts Chinese VC investments only 30% lower than US funds, but three times the UK’s funds, 12.5 times the German funds.
However, only 15% of investments were made in 2020, and 17% in the first half of 2021 in companies outside China, which is significantly less than in 2019. , So many Chinese investors chose to redirect their capital flows to the domestic market.
On the other hand, if borders are reopened and the global economy begins to recover, there is a great potential for a resumption of foreign investment.
We can also see that Chinese investors are looking in favor of European startups, which is related to the US-China geopolitical tensions as well as the fact that the European VC market is maturing.