Is it so bad to take money from Chinese venture funds? – TechCrunch

China is turning into a superpower within the tech business. In response to Straits Occasions, China is the one place on the earth the place it takes lower than six years for a startup to turn out to be 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 arduous to disregard China.

Once 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 proper 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 boost from a Chinese language VC? Is it OK to co-invest with Chinese language traders? I used to be stunned to study that there’s little analysis answering such questions, as there’s a lack of enough 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 based mostly on Chinese language VC database ITjuzi (the Chinese language model of Crunchbase) with the assistance of our highly effective knowledge 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 development?
  • Can Chinese language traders deliver any worth to Western startups?
  • Who’re probably the most lively Chinese language traders overseas?
  • By which areas can Chinese language funds deliver probably the most worth?
  • What worth can Chinese language traders deliver?
  • When is it higher to ask a Chinese language investor?

Chinese language traders are eager about Western startups

After learning knowledge from ITjuzi, we estimated that Chinese language funds invested round $250 billion in 2020 (3 times increased than the determine reported in Crunchbase). This determine places Chinese language VC investments solely 30% decrease than investments by U.S. funds, however 3 times that of U.Ok. funds and 12.5 occasions greater than German funds.

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

Fig. 1 — Comparability of funding from completely 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 have been in firms outdoors China, considerably decrease than in 2019. This seems to be as a result of throughout COVID, China’s economic 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.

Alternatively, there’s nice potential for abroad investments to rebound as quickly because the borders reopen and the worldwide economic 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 are able to additionally see that Chinese language traders are eyeing European startups favorably, which is expounded to U.S.-China geopolitical tensions in addition to the truth that the European VC market is turning into mature.

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