Chinese investors have a unique investment approach
Chinese management philosophy revolves around the idea that in any process, all components belong to a larger and complex system that, if properly assembled, can function in harmony. The difficulty lay in finding the right order or model to make each unit work in consonance, adding increasing value over time.
Chinese tech investors’ systematic thinking has translated into an investment approach that stems beyond finding a good service or product and focusing on seeking businesses committed to building entire ecosystems that can tackle a wide variety of industries and leverage data to maintain business harmony.
Chinese investors are redefining smart capital. They navigate through a tech ecosystem with companies like Alibaba or Tencent, whose market caps reach $488 and $456 billion respectively. China also hosts Ant Financial, the largest privately-held company, valued at $150 billion. As of 2018, China has 10 times the number of mobile payment users as the U.S. and 772 million consumers are on the internet. Such a vast environment has given the Chinese investors the opportunity to hone their skills and offer entrepreneurs more than just capital, they can also provide perspective and strategic vision.
About: Tencent and Alibaba market cap, Ant Financial valuation 2018
Below we outline a few characteristics that make Chinese investors a unique and strong source of capital for entrepreneurs seeking high value-added capital partners.
Chinese investors can provide a sustainable flow of capital
In 2018, Chinese startups attracted more venture capital than the U.S. for the first time. Chinese investors also do not hesitate to invest large sums. Last year, Chinese venture investors committed $70.5 billion in technology investments, focusing on artificial intelligence, fintech, e-commerce, and mobility. Remarkably, China also boasts three of the five largest IPOs globally.
Chinese Venture Capital investors are not afraid of large ticket sizes when they find the right entrepreneur attacking a strong opportunity. In 2018, second-hand car trading platform Souche raised a $578 million Series F round from prominent China-based investors like Primavera Capital Group, Morningside Capital and Linfeng Capital.
Daily goods and e-commerce platform MissFresh is an example of a sustainable flow of capital in China. The tech company has consistently raised a round every six to eight months in the past three years, including a $450 million round in September of 2018 co-led by internet giant Tencent. Since 2017, the company was able to raise a total of $1.3 billion.
About: MissFresh Rounds, CrunchBase
In addition to traditional venture capital, the Chinese investor ecosystem includes many hyperactive corporate investors. Tech giants like Alibaba, Tencent, JD, and Baidu have launched venture funds to propel the tech ecosystem both locally and abroad. Alibaba, for instance, has participated in 184 known investment rounds both through their Entrepreneur Fund and corporate balance sheet investments and Tencent has invested in 27 unicorns. This type of investor can be especially value-adding for Latin American entrepreneurs seeking technological capabilities, high-skilled talent or operational leverage.
Furthermore, the Chinese investor ecosystem is highly interconnected, gaining the attention of a small group of Chinese investors can cascade into direct access to the entire ecosystem – one great relationship can open massive investment opportunities for Latin American ventures.
Chinese investors have a wide scope and strategic vision
Chinese investors understand a wide variety of industries due to their characteristic multi-sector investment approach. JD.com, for instance, operates across traditional retail, FinTech, e-commerce, and digital technology.
An investor in a company like JD will have developed an understanding of 4 to 5 different sectors by investing in a single company. This type of experience makes Chinese investors well-rounded capable of understanding discrepancies across sectors and able to view opportunities to integrate platforms across them.
Chinese investors can provide valuable insight into different ways a venture can grow horizontally across sectors, using technology and operational capabilities to build new features that can both give consumers access to better products and also become innovators in traditional industries.
In addition, Chinese investors are continuously acquiring new knowledge thanks to an ecosystem that promotes significant knowledge-sharing. In-depth content about disruptive business models, entrepreneurs, and consumer dynamics are readily available and this knowledge is widely spread through different social and business media platforms. WeChat, with over 500,000 business channels, is just one of many examples of an information platform; ranging from generalist topics to very specific tech news and reports.
A decade ago, China went through a similar transformation to what Latin America is facing today – a growing middle-class, changing consumer patterns and rapid technology adoption. Chinese investors who experienced this transformation gained insights that could be incredibly valuable in guiding Latin American entrepreneurs today.
Chinese investors are committed to emerging markets
Chinese venture capital investors have committed capital in at least 15 emerging markets and are some of the most active tech investors in international countries, an experience that has given them a global vision and a deep understanding of different market dynamics.
In 2018, Chinese venture capital investment in India reached $5.6 billion and three of the biggest investors in India last year – Alibaba, Xiaomi, and Tencent – are corporate. These corporate giants bet on sectors such as consumer goods, logistics, retail or artificial intelligence not only due to India’s growth prospects but also increased supply chain exposure outside of China.
Chinese investors are also prone to establishing alliances with key players in strategic markets as a way to ease into a new market and increase their probability of success. The Chinese have the sensibility to understand that local players have a wealth of knowledge and can help them understand local consumer behaviors. Chinese Investors are increasingly more inclined to learn from other economies and empower local entrepreneurs to build new and ground-breaking products.
What comes next
During the beginning of the entrepreneurial journey, it is easy to feel directionless and counter-productive. Finding investors that empower entrepreneurs and help co-build a vision can give newcomers a clear purpose when navigating through the tech ecosystem.
Latin American entrepreneurs can reach new horizons by partnering with experienced cross-border players such as Polymath Ventures, who can unlock insights, provide powerful competitive advantages and create powerful connections with other entrepreneurs, experienced advisors, and potential investors.
Polymath Ventures is committed to bridging China and Latin America’s tech ecosystems. To that end, we are organizing a Tech Expedition to Shanghai, Beijing, and Hangzhou to connect and exchange ideas with leading Chinese tech companies and top VC/PE firms. Attendees will be able to establish a foundation for future cross-border collaboration. If you are interested in hearing more, email [email protected] to obtain more information.