Foreign VC funds have long faced a lack of policy transparency and market volatility in China, but China is attempting to grant foreign VCs easier access and simplify investment procedures to sustain the entrepreneurial wave, according to a guideline released by the State Council last September. As the environment to invest across borders becomes friendlier and more lucrative, foreign VCs that are traditionally not active in China are gradually getting more involved with the China scene. On Day 2 of TechCrunch Shenzhen, we talked to three of them.
500 Startups: One of the world’s most active investors in early stage startups, 500 Startups first entered the greater China region in 2013. Its newly appointed China Partner Edith Yeung previously serves as vice president of overseas markets for Dolphin Browser, one of the earliest Chinese mobile startups to achieve overseas success.
Sparklabs: Founded in Seoul four years ago, Sparklabs opened its first China accelerator in Beijing this May with a focus to help Chinese companies go global. It is also launching a fintech vertical in Hong Kong and in Taipei later this year, according to Bernard Moon, co-founder of Sparklabs.
Presence Capital: A VR/AR focused venture capital fund, Presence Capital was founded in 2015 and is headquartered in San Francisco. Although the fund does not have a particular China focus, it works with the BATs to help them scout for new technology, says Phil Chen, Founding Managing Partner at the firm.
China insights from overseas VCs
“For most [Chinese] parents, they would rather not eat or do any sort of entertainment, but at least 40-50% of the household income will go to education,” says Yeung when asked what startup trends caught her eyes in China. “So companies like New Oriental have been quite active in coming to the Bay Area talking to some of our portfolio companies and wanting to do partnerships and licensing deals.”
China’s hunger for knowledge is reflected in domestic players’ aggressive acts in the education sector, such as Tencent’s $15.3 million funding in online language learning startup ABC360. This trend has inspired Yeung to ponder how certain foreign companies will be able to go to China by meeting the need for education.
“There are a lot of exciting things that are happening in China that most of us in Silicon Valley, unfortunately, don’t pay attention to,” says Yeung. She cites the example of BAT, ZTE, Huawei and Didi who have all set up shop in the Valley.
“[The] timing was right to launch our accelerator in China,” Moon remarks, as he observes not only the established players but also new players like Xiaomi and Cheetah Mobile starting to have more global influence. “Like a lot of other VCs, we invest in trendy startups,” Moon admits. “But we also discount it a lot. Probably 70%-80% of AI startups we look at aren’t looking at. Everyone just puts AI in their business plan.”
Another 2017 buzzword in the technology field is VR/AR. However, big companies in China have not jumped on the VR/AR boat too quickly, according to Chen.
“Take examples of the BATs and Xiaomi. They saw the huge trove of mobile and then they wanted to jump next to IoT and wearables. In some sense, they got burned. Those marketplaces didn’t really take off as they invested,” says Chen, whose firm’s close activity with China’s unicorns have given him an insight on their investment activity. “So when VR/AR came along, they are actually a lot more cautious.”
“They are a lot more hands-off, a lot more mature in thinking about the timing of these markets,” Chen adds. With AI, on the other hand, China’s big players are more aggressive and are willing to start an AI lab and have a big team under that “. . . [b]ecause AI can have productivity gains.”