Over the years, China has become a major global economic powerhouse. The country is one of the most important countries in terms of foreign investment, and now Chinese investors are searching to new investments. The development of the country’s economy through the emergence of a middle class, which plays a prominent role in consumption and the improvement and development of the technological sectors, represent many opportunities for foreign startups wishing to establish themselves in the country.
In this article, we will analyze the major trends in terms of investment from Chinese investors and the means needed to attract their interest.
China is a Startup Nation : Competition for Fund Rising is High
A large economy of services lacking in technological solutions
The government’s plan to restructure the economy is aimed at turning the Chinese economy into a service-based economy. Indeed, its previous model turned to heavy industry and exports is no longer enough for the Middle Kingdom to develop its image of world power.
By 2020, the country’s objective is to develop the country towards a service economy oriented towards innovation in order to maintain sufficient growth in its size.
This restructuring takes considerable time in sectors such as education or health because of the degree of government involvement in these areas. The service industry in 2016 generated over $ 5.5 billion, which was half the country’s GDP. A figure that is expected to increase in the coming years to approach the 70%, average of developed countries.
In this industry, the technological and e-commerce sectors are experiencing a certain enthusiasm among individuals because of their rapid appropriation. Digital and E-commerce are two sectors that have taken a leading role in the economy but lacks technological solutions and a certain capacity to develop its economy efficiently. In order to do this, China needs to have access to and learn from the know-how of other countries, notably the United States and Europe.
This enthusiasm for technological investment accounted for more than 90% of the total investment made by Chinese investors in 2016, the vast majority of which came from private companies.
China aims to facilitate and promote trade with foreign countries, this interest in investments with foreign startups follows three main objectives.
As a first step and as mentioned above, the aim of the country is to move from an industrial economy to an economy based on service consumption. Domestic companies are not yet ready to conquer foreign markets in the face of the many opportunities offered by domestic markets.
Then, the devaluation of the yuan facilitates foreign investment becoming more attractive to Chinese investors.
Finally, to acquire the knowledge and skills of foreign actors in terms of technological know-how is to reinforce and confirm the dominant position of national companies in the country. Moreover, consumers’ enthusiasm for foreign products perceived to be of higher quality than their Chinese counterparts encouraged many Chinese firms to invest abroad.
Entering the lucrative markets of China becomes an Eldorado for many companies. However, the functioning of this economy remains different from that of the Western countries and sometimes becomes difficult for these foreign actors to settle there.
In this section, we will present the skills that foreign startups must have in order to qualify for entry into the Middle Kingdom.
Having a competitive market advantage to offer in niche markets
As said before, China has a more developed digital environment if we compare it to that of Western countries. E-commerce is a practice adopted by a majority of consumers and whose players have a large coverage on the territory. However, the weakness of this sector lies in the inability to propose commercial solutions.
Startups that will have a know-how or a skill to fill these technological gaps in China will attract the interest of Chinese investors. This point is especially valid for the B2B sector which is an area in search of potential investments.
Have sufficient capacity to expand abroad
The apprehension of the economy and of the industry in the country upstream of any implantation is a key point to the development of your company abroad. Indeed, you will have to identify the strategic geographical points of the country and strategically place yourself on it. For example, Shanghai is the key city in China for everything related to finance, Shenzhen for computing or Chengdu ink for the medical sector.
Prove your ability to work in Joint Ventures
With capital control in China, companies are less and less inclined to invest in foreign markets. This does not, however, apply to services facilitating the growth of the country.
Working in Joint Venture is of interest to both parties. However, it will be necessary beforehand to understand the professional and commercial culture of the two partner companies in order to cooperate effectively.
It is clear that companies with the strong capacity to disrupt the economy of a market are strong innovations and new visions. This type of competitive advantage is highly sought after and attractive to Chinese investors. The purpose of the disruption is to address a problem found in a given market by different characteristics. But the main objective is to develop the efficiency of a business model at all levels of the value chain while reducing costs.
In view of these opportunities for foreign startups, it is interesting to see what strategies and means are being put in place to attract the interest of these Chinese investors.
In the latter part, we will provide you with some tips to build your reputation in China and promote your products and services in order to raise funds from investors.
How to arouse the interest of Chinese investors to invest in your startup?
The need to work on your reputation as a key part of your strategy
When it comes to dealing with transactions with significant financial values, investors take no risk in their development strategy and are meticulous in looking for companies that are interesting for their business.
For this, they must have complete confidence in your offer of products or services. This confidence passes through your reputation in China. The higher your visibility, the higher the guarantee of quality services.
The online reputation takes a dominant position in the Chinese markets as seen by the appropriation of the digital by the individuals. Therefore you must embark on a strategy that will help you to build and consolidate your status on the country and develop your image and your visibility to forge profitable and lasting commercial relations with your interlocutors.
- Increase visibility on Baidu by creating a Chinese website
To facilitate your place in the market, it will be necessary to develop a Chinese version of your site exist. Indeed, your site is the showcase of your business and is one of the tools of particular importance to arouse the interest of investors. The version of your china has to be done in Mandarin to meet your potential prospects and familiarize you with their environment.
This should be optimized for the Baidu national search engine and ideally hosted by Chinese servers for better visibility on search results. Feel free to complete and link your site to QR Codes to propose many contents.
As a startup, you will have to explain clearly and precisely your mission and your objectives. The more investor to information about your business the more he will be interested in it.
After you create a Mandarin website, you need to start increasing your visibility. Baidu (known as the most popular search engine in China) is the most interesting place to start developing your reputation.
Make sure you have the right search keywords in order to drive traffic to your potential prospects. The production of quality content is also a way to push your site into the best search results. Indeed, it is interesting to know that not appearing in the first results of a page on an engine reduces your chances of generating traffic on your site by 65%. An important tool for your startup!
- EPRs are essential for high visibility
The press is mainly focused on digital today. Gaining visibility in China is often synonymous with good coverage in the Chinese media. This visibility is often a guarantee of confidence on the part of investors. Developing your PR should be done with the aim, first of all, to adapt to the Chinese market and all its characteristics and to propose quality content, interesting for the media so that they can thus find a real interest in you publish. Investors usually search for information on media such as Sohu, Ifang or News168.
- Social media as launchpad: The most well-known of them WeChat
WeChat is the first step in converting your prospects. As a flagship application in the Middle Empire, you need to be familiar with its use in a professional setting to help you promote your startup and offers.
The majority of companies based on WeChat, set up a professional account called “official account” to offer a certain proximity and availability to individuals.
These official accounts help foster content sharing and business news in a more direct and instant way, allowing investors to stay active and up-to-date.
1 Setup Official Account
Setting up an official WeChat account will give your audience the feeling of having a more direct contact with you. It will also allow potential investors to stay up to date with updates regarding your business.
Establishing a WeChat account may seem surprising for Western countries who still see social networks as a social sphere referring to the private domain. However, in China, in an ultra-connected world, it promotes trade and communication that needs to be done quickly. Moreover, the QR Codes platform makes it possible to be considered as a transition to get investors to redirect to your website.
Working on your pitch for Chinese investors
The pitch has become a must to convince your investors to believe in your project. This art of persuasion requires a great preparation beforehand to lend itself to exercise. Indeed, the goal of the pitch is to convince in a minimum of time, maximum 10 minutes maximum to convince your audience. To do this, you will need to be clear and concise and summarize your project a few essential points.
Unlike providing a business plan, the pitch is not a document that you can distribute to your prospects to interest them. However, it must guarantee the same content as a business plan while being dynamic and concise.
Your goal following your pitch is to get the funding needed for the idea you want to put in place. Your pitch should clarify the opportunities for the investor to engage in your project. In addition, the fairness you are willing to give and the value you are applying to this equity must be based on real statistics, the numbers you present must be logical, coherent and realistic.
China is a attractive Market for Chinese investors
China is a relevant market for startups with an international vision of their project. However, succeeding in attracting investors requires you to have a solid strategy to attract their interest.
The diversification of Chinese sectors and the desire of the government to focus the economy towards a service industry offers your project various opportunities to raise the necessary funds for your idea.
How the Gentlemen Team can help you?
We can …
- Work on your Reputation
- Maximize your Visibility among Chinese Investors
- Help you to Improve your Pitch – Pragmatic Consulting
- Bring your Investors Lead
- Send your pitch to our Data base of VC, PE and Business Angels in China
We have strong experience in prospecting and have developed solutions to attract investors from China for Real Estate, and financial investments, so We are able to do that for a Good startup.
Do not hesitate to contact us for more information, and to receive our case studies.