Cathay_investor_4yfn

An investors perspective on the Chinese startup ecosystem

For the second year, 4YFN will be opening a gateway for the Chinese tech ecosystem to easily access a wide range of international startups and investors.

The Chinese startup ecosystem has been developing more rapidly than any other ecosystem in the world and one after the other unicorns are popping up from all over the place within this emerging economy! You simply can’t compare the Chinese ecosystem and volume of its investments with any other startup ecosystems in Asia and around the world. Therefore, we wanted to know more about this curious part of the world as we will be in Shanghai later this month for our second edition of 4YFN at Mobile World Congress Shanghai.

We asked Nicolas Du Cray, Investment Director at Cathay Innovation in Shanghai all about his experience as an investor within the Chinese and Asian market. Here is what he had to say…

 

Can you tell us a bit about your experience within the Chinese startup ecosystem?

I have been in China since 2002. I started working with the Chinese startup ecosystem in 2004, while working for Orange. I became a VC in 2008 and worked for corporate venture funds as well as independent funds, but always in a position where I help startups work with corporates.

 

What are the main differences between the Chinese and European startup ecosystems?

The Chinese market is a very special market and should be treated differently from the “Asian” market, which is much more fragmented. On its own, the Chinese market is a massive market, with good adoption of technologies and a tech-savvy population, well equipped with smartphones, which leads to a penetration of digital services much higher than in Europe. Because the tech adoption is high and the market is huge, it is an amazing breeding place for digital services and technologies.

 

Are there specific advantages of investing in startups situated in Asia?

Asia is very fragmented, so we cannot generalise. Korea and Japan have good technologies, but they are markets very difficult for foreign investors to invest in. China is a market on its own, with more and more innovation. The volume of VC investment in China represents from a third to a half of the VC investments in the US. New frontier markets are in South East Asia, with India, Vietnam, Thailand and Indonesia showing interesting perspectives, because of the high utilisation rates of smartphones.

 

Do you have some success stories from some of the portfolios you have acquired from doing business in China?

We invested in China’s largest social mobile commerce marketplace, which is seeing growth in sales volumes never seen before.

 

Why should European investors attend 4YFN at Mobile World Congress Shanghai?

China is ahead of the world in many aspects of the digitisation of traditional industries such as education, health, payment, financial services, on-demand services, etc, and has very ambitious objectives in the digitisation of the manufacturing sector as well, investing massively in robotics, AI and other ‘smart manufacturing’ technologies. The speed of adoption of new technologies in China is comparable to nowhere else.

 

Can you tell us more about how the investor ecosystem is shaped in China?

Initially, the VC investors in China were actually local franchises of Silicon Valley VCs, and they brought global operating standards in the local VC industry. Over time, the investor ecosystem has become more and more local, with many local funds doing extremely well, because they are able to identify good entrepreneurs more efficiently and move faster than the rest. There is still a strong dichotomy in the Chinese investor ecosystem scene between offshore, USD-denominated investment, and onshore, RMB-denominated investment. Many fund managers manage both kinds of funds, but it is usually difficult for them to invest together. The angel investment scene is developing very well however, with many successful entrepreneurs in China investing in new projects.

 

Is there anything else that you think investors from outside China should know about China’s startup ecosystem?

It is increasingly innovative and the time of “copy-to-China” is long gone. There is a lot of VC money in China, because the government is encouraging everyone to become entrepreneurs. And because the startup costs are still relatively low in China, there is a huge number of startups that are created in China every month. The consequence of this is that the startup ecosystem in China is one of the most competitive in the world, both on the side of the investor, and on the side of the entrepreneurs. That can make it a challenging ecosystem for foreign investors to participate it.

 

Want to know more? During 4YFN at Mobile World Congress Shanghai, we offer investors a chance not only to meet disruptive startups, but also to take part in numerous networking activities with local investors and entrepreneurs. Investors are invited to sign up to our Investors Club through which they will get updates about the latest activities planned for investors at 4YFN in Shanghai, as well as our other events around the globe.