China is rapidly becoming a global tech superpower. Straits Times reports that it takes China six years to make a startup a unicorn. It takes seven years in America, eight years in Britain, and eleven years in Germany. It is difficult to ignore China, despite geopolitical tensions or recent amendments in CFIUS.
My task when I joined Runa Capital nearly a year ago was to help our portfolio businesses enter China, find the right partners, and raise funds from Chinese investors. Nearly every conversation with Runa Capital colleagues or global VCs I heard the following: Would it be a good idea for a Chinese VC to raise funds? Is it okay to co-invest in China with Chinese investors It was surprising to find that very little research has been done on these questions. There is also a shortage of English information about Chinese investments.
Although access to China seems like a good reason to bring Chinese funds aboard, only 20% of Western-funded startups have any operations in China.
As a Mandarin-speaking specialist, this is what I did: I conducted a study based upon Chinese VC database ITjuzi (the Chinese equivalent of Crunchbase), with the assistance of our powerful data science resources created by Danil Okhlopkov.
Below I will attempt to answer the following questions with statistics and a case-based approach.
What amount do Chinese funds invest in foreign countries?
What's the current trend?
Are Chinese investors able to bring value to Western startups
Which Chinese investors are most active abroad?
What areas are the best places for Chinese funds to bring value?
What can Chinese investors add to the world?
Is it better to invite Chinese investors?
Chinese investors are interested to invest in Western startups
We analyzed data from ITjuzi and found that Chinese funds had invested approximately $250 billion in 2020. This figure is three times greater than the Crunchbase number. This means that Chinese VC investments are only 30% less than those made by U.S. funds. However, it is three times as high as investments made by U.K funds and 12.5x more than German funds.
However, only 15% and 17% respectively of 2020 investments were made in companies other than China. This is significantly less than in 2019. It is likely that China's economy recovered faster than any other country during COVID. Therefore, many Chinese investors prefer to direct their capital flows to the domestic markets.
However, overseas investments have great potential to rebound once the borders are reopened and the global economy begins to recover.
It is also clear that Chinese investors are looking favorably at European startups. This is due to U.S.-China tensions and the fact that Europe's VC market is maturing.
