Dancing with the Dragon: FunderTech and how to expand into China

There’s more investor money in China than anywhere else in the world. But there’s a right, and a wrong, way to expand into the Chinese market.

There’s a pile of US$338 billion in funds available to startups in China in 2016 alone.

To repeat: there’s US$338 billion. In funds. Available to startups that want to expand to China this year.

That’s some serious money any way you look at it, and it’s one reason why a group of Kiwis is helping to get New Zealand startups into the Chinese market to get funding from angel investors.

FunderTech partner Rob Thomas says that while the potential money is the largest of any nation in the world, it’s important for startups to actually meet potential investors face-to-face because of Chinese cultural norms. “New Zealand is a hot-bed for testing great ideas but often lacks access to global capital and consumer markets. China is currently awash with cash and is looking abroad for venture capital investment opportunities.”

Rob Thomas, left, and David Liu.

What FunderTech does is simple enough on the surface: it helps bring Kiwi companies to China by organising events and seminars with a Chinese investor club. The club, which has offices in cities including Beijing, Shanghai, Chengdu and Shenzhen, has a monthly membership fee of more than US$10,000. In other words, all of its members are serious about investing.

About every month, FunderTech helps bring between five and eight businesses from around the world to China to pitch to a group of 500 to 800 angel investors. It also brings well-known guest speakers. At the next event, to be held in September in Chengdu, Kiwi Innovation Network (KiwiNet) co-founder, government advisor on the development of New Zealand’s SME ecosystem and former ICEHOUSE business incubation hub director Tenby Powell will speak.

“Our doors are open to anyone wanting to have a chat,” says Thomas. “China is an amazing place full of opportunities and we want to provide Kiwi businesses with an easy, reliable and affordable way to access the market.”

Face-to-face meetings are key for breaking into China, Thomas explains. Trust is vital, and as such a phone call or video conference usually won’t cut it when trying to make inroads into the Chinese market. “We see that as really critical for our business, the relationship side,” he explains.

A key part of the relationship side is handled by partner David Liu, who speaks fluent Mandarin. Strict minimum growth targets set by China’s central government for provinces and individual cities means investors are keen to grow their wealth, he explains. “China provides rapid growth in global market share,” he says. “There is nowhere else on the planet that has that level of opportunity.”

David Liu speaking in China.

Aside from the obvious access to a massive market, China is also far more technologically advanced that it’s sometimes given credit for, Thomas explains. He says that’s just another reason why it’s an attractive place for Kiwi companies to expand into. For proof, he cites the fact that the majority of shoes sold in China are now sold online, and the booming mobile sales industry. “The Chinese market is becoming very sophisticated,” he says. “The Western world is not as sophisticated as transferring funds via social media like WeChat. China is no longer the global flea market.”

Chinese investors often look for tangible products and business ideas, Thomas says, such as a new type of beverage or a plate. “Investors want something they can put in their hand and hold.”

But for all the potential advantages of expanding into China, Thomas is honest in that it carries a lot of risks as well. For one, businesses need to be aware that not every foray into the Chinese market is successful, and that even large companies, such as Uber, can fail. There’s also the need for business ideas to be “mature,” Thomas says, so that investors can know what exactly their money is going towards.

The strong perception of New Zealand within China as a country that produces high-quality goods and services is a strong selling point for many investors, Thomas says. Yet he still recommends businesses that come to FunderTech for helping getting into the Chinese market have identified a customer need, conducted validated customer research, have growth ambitions and management plans, an understanding of price points and competition in China, and a clear exit strategy if needed.

Still, the opportunities China presents means it’s well worth the risks. As Thomas explains: “There is so much lack of knowledge of the outside world in China. It’s a culture that’s set up for growth. Our experience is everyone wants to be in China.”