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China Tech Investment Ecosystem and Opportunities
Bruno Bensaid @ BPI/BusinessFranceImpact China launch 2016
Nov 14, 2016
Presentation Agenda
Shanghaivest at a GlanceThe China Tech Ecosystem and current trendsChinese (and European) Cross Border Tech InvestorsCase studies of fund raising and acquisitions, lessons learnedHow to approach the process for a European company
Presentation Agenda
Shanghaivest at a Glance
The China Tech Ecosystem and current trendsChinese (and European) Cross Border Tech InvestorsCase studies of fund raising and acquisitions, lessons learnedHow to approach the process for a European company
Pioneering investment banking advisory firm focusingon cross-border M&A and capital raising transactionsbetween China/Asia & Europe. Shanghaivest was setup in 2010 by veterans from the M&A and technologyinvestment industries.Shanghaivest has presence in Shanghai, Paris and SanFranciscoBuilding cross-border synergies in :1. Technology and advanced manufacturing2. Cosmetics, Luxury, Retail2. HealthcareClients include SMEs, GPs, and large strategic buyersalike looking for cross-border opportunities (exits, LPs,targets etc)
About Shanghaivest
Why Work with Shanghaivest?
Deep knowledge of several Verticals-> short time to Market when approaching funds or buyers
Track Record in raising financing and divesting companiesin China and Europe.
Fully Chinese, yet also European and US-centric team-> local and global reach of investors.
Highly reactive and approachable team
DNA -> Technology, Venture Capital and M&A Transactions
Keynote to ENGIE delegation of top executives (www.engie.com one of the largest energy companies worldwide) on the New ways to do business in and with China – Horizon 2030 (2015)
Keynote at INSEAD for CBEAD (China Business Executives Academy Dalian), Chinese Government elite training academy. Lessons From Experience & Advice to Chinese Investors in Europe (2015) - in Chinese
Shanghaivest, a recognized Specialist and Coach In the China Cross-border Investment field
Coach to Michelin China and teams of in-house entrepreneurs on building a venture, including deal sourcing for the Group (2016)
Partner of Business France & BPI since the launch of Acceleratech Programs to China in 2013
Presentation to a Senior Delegation of MEDEF in China on Innovation Ecosystems (October 2016)
Keynotes at different conferences on Investment and Cross-border M&A (Bruno Bensaid – 2015)
On Chinese TV (Ghislain de Mareuil - 2016)
Ghislain De Mareuil, Interviewed by Phoenix TV on the important role of the Asian investment bank for China-EU cooperation
Lui Kam, Partner, contributed Chapter 3 -Due Diligence in China of “Risky Business in China” (Ed. Palgrave Pocket)
Contributor to “Risky Business in China” (Lui Kam - 2015)
Presentation Agenda
Shanghaivest at a Glance
The China Tech Ecosystem and current trends
Chinese (and European) Cross Border Tech InvestorsCase studies of fund raising and acquisitions, lessons learnedHow to approach the process for a European company
China is the second largest VC market in the world.The amount of VC investments received in China almosttripled in 2015!!!
The China Venture Capital Market: #2 in the World
Amount of VC investments in 2014 ($Bil.)Split by Country
Amount of VC investments in 2015 ($Bil.)Split by Country
Sources: E&Y Global Venture Capital Trends 2015
National Medium and Long-term Program for S&TDevelopment (2006-2020) to become an innovative nation:o Increase R&D expenditure to 2.5% of GDP by 2020
o Derive 60%+ of economic growth from technical progress by 2020
Implementation platforms, means, incentives:o 129 national high-tech industrial development zones
o 1600 integrated business “Nurseries – Incubators – Accelerators” (asof end 2015) hosting around 80,000 technology startups.
o 9 international business incubators set up in or cooperatively withforeign countries for international expansions.
o Public funds (e.g. Innovation Fund for Technology Based Firms),guiding funds (e.g. Venture Capital Guiding Fund of Shanghai).
o Grants, subsidies, cash rebates, tax incentives, loan guarantees, etc.
Government policies & stimuli (1/2)
The Chinese government became the biggest financialbacker of entrepreneurship as new economy growth engine
As of end 2015, $338 Bil. were funneled into 780 startupinvestment funds (government guiding funds)
Amongst the 5 pillar policies of the 13th Five Year Plan, thedevelopment of crowd-funding for equity investment isauthorized and encouraged:o As of end 2015, there are a total of 141 crowd-funding platforms, 84
of them went online.
o As of end 2015, total funds raised through crow-funding platformsreached RMB4,374 Mil. (~$675 Mil.).
Government policies & stimuli (2/2)
Sources: http://finance.ifeng.com/a/20160201/14201246_0.shtmlhttp://fortune.com/2016/03/09/investors-venture-capital-china
Top local universities and Government arecreating innovative modelsØ In 2001, Tsinghua University set up Tsinghua Science Park Business
Incubator, Tsinghua Science Park Technology Asset Management, andTuspark Ventures (raised 3 funds since 2006)
Ø Tsinghua University’s x-lab, an accelerator program launched in April2013, with 80+ teams in the program at end of 2013, is aiming to expandfrom 500m² to 5,000m² within 3 years!
Ø Virtue Inno Valley, a Tsinghua-affiliated (x-lab alike) accelerator
Privately or publicly backed co-working spaces:Ø Government-backed Z-innoway is a CNY 200 million, 45,000m² project. It
covers 339 startups. 123 have raised funding
Ø 3W is one of the accelerators operating in Z-innowayØ 36KR, Cheku Café, Moment Café, Bingo Café etc, are among the cafés/
co-working space / media outlets / accelerators
Government Stimuli: Beijing (Zhong Guan Cun)
Newly Created Impressive Techand Investment Zone: DreamValleyØ Aims to gather 10,000 entrepreneurs, 2,000 startups projects, and host
300 investment funds or vehicles, an aggregate of RMB 100 Bil Capital
Ø Already gathered 350 startups, including one listed on the NTB (New Third Board, a recently established Beijing OTC Board)
Ø 43 startups have already raised more than RMB 1 Mil each. In total, RMB 1.1 Bil has already been raised by these startups.
Ø 89 investment funds already on site (RMB 31.9 Bil AUM)
Ø Some « star » startups » of DreamValley
Ø 59store raised RMB 200 Mil in Pre-B round in August 2015
Ø 买好车 (maihaoche) raised RMB 100 Mil round A with Northern Light VC
Government Stimuli: Hangzhou
But Markets are always Volatile in China:In June-July 2015, all local stock exchanges crashed
Amidst Chinese slowing Economy, Shanghai Stock Exchange Composite Index (SHCOMP) went down 42% in 3 Months!!
As Economy and IPOs stumble, VC funds dry up
698 investments in China in Q3’2016, down 34% YOY
Dollar value of the 631 deals releasing details totaled RMB 21 Bil ($3.1 Bil), down 12.5% YOY
From Jan to August 2016: Chinese companies raised RMB 35.3 Bilthrough IPOs at home and abroad, down 86% YOY. IPOs were down 66% from Q3’215 to Q1’2016
Sources: zero2ipo, Taihe Capital, Caixin, Capital Today
VC Investment in China Reached a Five-quarter Low in Q316
VC rounds harder and longer to raise, yet money chases later stage rounds (in more mature companies)
Source: Taihe Capital
Startup founders facing tougher scrutiny and negotiations tosecure funding. Average time spent to complete afundraising round expanded to 9.5 months (July 2016) from4 months (July 2015)
Investors seek safer, later stage, targets:
China's biggest ride-hailing company, Didi Chuxing, hasraised $7.5 Bil in 2016 (+100% compared with 2015)
Ant Financial Services, Alibaba's financial arm, raised in2016 more than twice the amount it received in 2015
Presentation Agenda
Shanghaivest at a GlanceThe China Tech Ecosystem and current trends
Chinese (and European) Cross BorderTechnology Investors
Case studies of fund raising and acquisitions, lessons learnedHow to approach the process for a European company
Despite a depressed China domestic VC environment , China Outbound Investment is THE trend to watch for Western entrepreneurs
A Silver Lining: Outbound
20-25% of the world’s Unicorns are Chinese
China’s Technology Giants rank 2nd behind the US, and have a strong M&A appetite
Total Number of Investments from BATQX in past 4 years
Baidu: ~80Alibaba: ~165Tencent: ~175Qihoo 360: ~45Xiaomi: ~95----------Total: ~ 560!!!
Source: Marbridge Consulting
Feeding China’s Unicorns Overseas
Investing outside of China has become of key driver of technology growth for China’s Unicorns (Baidu, Alibaba, Tencent, Xiaomi, Qihoo 360, Cheetah Mobile…)
What are Chinese Tech Companies interested in when they go “shopping” overseas?
Artificial Intelligence, machine learning & ApplicationsAutonomous vehicle technology and applicationsIndustry 4.0 (Robotics, smart systems, automation etc)Internet of Things (IOT)Sea and land-based cleantech, water treatment, pollutantdecontamination, pollution fighting techAerospace & Aeronautics systems and techs, new materials…Financial and insurance technologiesHealthcare & Medical TechnologyAgriculture technologyE-commerce & online marketing; Design and creative skills
Beijing Kunlun putting £23 million ($34 million) into peer-to-peer mortgage lending marketplace Lendinvest (2015)
For Chinese investors, Europe has become a strong opportunity
Chinese PR Group BlueFocus Buys London-BasedWe Are Social (acquired 82.8% for $30 Mil) in 2013
2015 - Huawei buys Cambridge Internet of Things pioneer Neul for $25 Mil to strengthen its position in Narrowband IoT (part of future 3GPP cellular standards for connecting low data rate devices that have exceptionally long battery life) consolidate a prized relationship with Vodafone
Chinese Firm CSC Group to Fund Artificial Intelligence Incubator in Britain (2016)
Chinese state-backed private equity firm CSC Group has inked a multimilliondeal with British startup incubator Founders Factory.Planning on hiring 60 people and investing in five early-stage AI startupsPlans to launch two new companies every year. CSC Capital is the thirdlargest private equity fund in China (more than $60 Bil AUM)
Chinese private equity fund Angel Plus unveils new incubator for startups in London (2016)
Chinese private equity fund Angel Plus ($760 AUM!!) led the launch of anew incubator called IUIA – A+Labs to help technology-oriented Britishfirms commercialize in ChinaThe new incubator is said to provide office space, engineering tech support,manufacturing partnership and financial investment in the form of equity toUK startups in smart city, Internet of Things, and financial technology
New Chinese VC Cocoon Networks Opens For Business In London With A GBP 500 Mil ($713 Mil) Fund in 2016
“In China, valuations are quite high, and we see the same quality ofcompanies in Europe at one-third of value in China and one-fifth of thevalue of the same companies in the U.S” and “There is real innovation inEurope too!”
John Zai, CEO of Cocoon Networks
Backed by China EquityGroup and Hanxin CapitalPlans to invest in UK andEuropean startups in areaslike fintech, creativeindustries and biotechCocoon also partnering withUniversity of London to build“London’s biggest incubator”
In the mean time, in France…
Ø “King of Sino-Europe Cross-Border Funds” – Cathay Capital is deployingits Sino-French Innovation Funds
Ø IDInvest manages Electranova, a recent fund invested by EDF targetingcompanies with strong China presence or potential
Ø Demeter Partners and Emerald Technology Ventures signed anagreement in June 2015 with China Energy Conservation andEnvironmental Protection Group and Europe-China Commercial Union tosetup a Sino-French fund
Presentation Agenda
Shanghaivest at a GlanceThe China Tech Ecosystem and current trendsChinese (and European) Cross Border Technology Investors
Case studies of fund raising and acquisitions,lessons learned
How to approach the process for a European company
Case Studies of Successful fundraisings of Western-lead Companies in China
WITHME.COM (US/China founders)
Focusing on ecommerce workflow tools includingcross-border ecommerce.
Ø Incubated by Chinaccelerator (batch II) in DalianØ Won its Demo Day and pocketed first investment
from SOS Ventures and Infinity Ventures Partners($3 Mil) Series A in 2011
Ø Moved to Las Vegas in 2013 following Series Binvestment from several investors ($6 Mil)including Zappos CEO
Ø Series B’ ($28 Mil) in 2014 with a syndicate ofexisting and new investors
Now Called
Case Studies of Successful fundraisings of Western-lead Companies in China
VISUALEAD (Israel)Visual QR code technology
Ø Had raised series A in IsraelØ Founders decided to relocate to
China in 2013 with NO TRACTIONat all on the local market
Ø Failed to raise $$$ from localangel groups (mainly because ofhigh valuation)
Ø Finally got hooked onto anAlibaba team and after a year ofnegotiations, landed a $5 MilSeries B investment (Jan 2015)
Case Studies of Successful fundraisings of Western-lead Companies in China
GLAMOUR SALES / MEI.COM (France)
Leading Luxury Items Flash sales site
Ø Created by a team of French executives,formerly from Coach, L’Oreal etc.
Ø Raised $13 Mil seed capital from AXAPrivate Equity & Mandra Capital (2010)
Ø Raised several follow on round fromNeiman Marcus ($28 Mil) in 2012 andChow Tai Fook ($65 Mil) in 2013
Ø Partial sellout and last fundraisinground with Alibaba July 2015 ($100 Mil)
Case Studies of Successful fundraisings of Western-lead Companies in China
VIRTUOS GAMES (France)
Outsourcing Shop to major movie and gaming studios
Ø Created by a former (French) Ubisoft GM in ShanghaiØ Raised Series A with Legend HoldingsØ Raised Series B from Xuhui Venture Capital (2014)Ø Now more than 500 staff working on the most
popular franchisesØ Finally opening an office in Paris !J
Cheetah Mobile gobbling 2 French Mobile Marketing Startups, MobPartner and News Republic in 2015/2016
MobPartner / News Republic
Ø MobPartner (backed by NewFund) and NewsRepublic (backed by XAnge, Creathor Venture,Intel Capital and business angels) were bothacquired by Cheetah Mobile (NYSE: CMCM) in2015 and 2016 respectively
Ø Cheetah Mobile is a Chinese leader in mobilegaming and mobile utilities
Ø Transaction amounts: $58 Mil and $57 Milrespectively (% of ownership not disclosed)
Theraclion & Median (France)
Ø Median - Medical imagery specialist inoncology and Cancer treatment(Alternext: ALMDT) with EUR 3.9 MilRevenue 2015, raised EUR 19.6 Milfrom Inner Mongolia Furui MedicalScience (300049:CH)
Ø Furui will own 13% of Median
Ø Earlier in 2016, Furui acquired 20% ofTheraclion, a specialist in Echotherapy(thyroid and bread cancer treatments)
Ø Theraclion is listed on Paris Alternext
Medical Sciences, Biotech is a strong, new trend of China Outbound investment: Furui Medical shops in France
Case Studies of Successful fundraisings of Western-lead Companies in China
APPANNIE (US/China/France)
App Annie is the largest mobile appintelligence platform in the worldØ Spin-off of a Western-owned game
outsourcing company in BeijingØ Successfully raised $1 Mil (IDG VC) in
Beijing in 2011Ø Raised 4 subsequent round totalling
$157Mil from IDG, Infiniti Ventures,Sequoia Capital, IVP Capital, GreycroftPartners etc. in 5 rounds
Ø Subsequently relocated to SanFrancisco; made several acquisitions
APPANNIE: fundraising lessons learned in China
The first investor is the hardest to getShow traction, KPIs etcBuild relationship with VCs earlySeek investors already using yourproduct or who learnt about yourproduct from peersBetter work with investors withinternational experience or genuinelyseeking international expansionSeek VCs with stellar reputation, asthey will help attract visibility, newtalents, customers (beware: attractingsub-par VCs will deter new investors…)VCs in China and US have the mostexperience in scaling services tohundreds of millions of users
Presentation Agenda
Shanghaivest at a GlanceThe China Tech Ecosystem and current trendsChinese (and European) Cross Border Technology InvestorsCase studies of fund raising and acquisitions, lessons learned
How to approach Fundraising for a Europeancompany
Opportunities & challenges for foreign companies
Opportunities depend on company’s size, activities, andwhether it is already present in China:o Localizing R&D activities with both global and local visions
o Localizing China operations in a High-Tech Industrial Park (or Free TradeZone) that is close to an innovation cluster/center
o Partnering with a Chinese firm looking for innovative technologies,advanced know-how and skilled team
o Investing in the China innovation ecosystem (including in startups)
o Raising funds from Chinese investors bringing strategic values
Main challenges to consider:o Hiring, keeping and motivating skilled talents
o Fierce competition, protectionism, increasing nationalist feelings
o Local (Chinese) entrepreneurs/teams will often be favored…
o Speed: window of opportunity very narrow in China
Solowheel Patent Nightmare in China – what lessons?
IP Matters, but Speed, Cash & Partnerships matter more
Find an angle and strong local sponsors/partners/clientsPut yourself in the shoes of the local VCs managers -> helpthem defend the project to their Investment CommitteeLocal investors are wary of communication with foreign ownedcompanies -> Localize team; hire a local co-founder (or CXO…)Research competition before pitching (hire local analyst toscout the market) ->VCs will gauge you against local competitionIt is likely VCs have seen your competitors’ decks before seeingyours -> Drop the confidentiality “sign me an NDA” spiel…No need wasting time approaching VCs not doing cross borderBe relentless & don’t settle for term sheets local VCs offer(milestones-based payment, controlling stake, quick exit etc).
Additional Challenges of Fundraising in China
