How UK SMEs Can Reach Chinese Investors — CBBC Focus Magazine
This article was originally published in the China Britain Business Council Focus Magazine in February 2019.
In the first half of 2018, Chinese outbound foreign direct investment (OFDI) has dramatically veered towards Europe over North America. The value of completed Chinese investments was six times higher in Europe ($12bn total with $1.6bn in the UK) than in North America ($2bn), according to Baker McKenzie and Rhodium Group. This trend looks set to continue, with technology firms in particular considered the “crown jewel” of Britain for Chinese investors. According to Mckinsey, China’s outbound investment will resume its upward trajectory with a focus on Manufacturing 2025 sectors and digital technology, such as AI and IoT.
This upwards investment trend is partly due to China’s fluctuating stock market and lower real estate returns at home. China now has the second-highest number of billionaires globally. Many are diversifying their investment portfolios to include UK assets, which are perceived to be more stable. Investments firms, such as the newly established China Heritage, where I serve as Chief Marketing Officer, are responding to this need by helping private investors diversity their portfolio abroad. We find that UK SMEs are particularly attractive for Chinese institutional investors, due to the strength of “Brand Britain” and the UK’s status as a world leader in innovation. Due to the potential for a post-Brexit UK-China trade deal and the rocky China-US trade relationship, there has never been a more encouraging outlook for UK SMEs to raise Chinese funding.
“Along with capital, Chinese investors can provide important market knowledge and distribution capabilities, while the sheer size of the market enables companies to test and refine products with condensed timescales,” says Mark Hedley, technology lead at the China Britain BusinessCouncil.
Types of Investors and How to Reach Them
Angel Investors and High Net Worth Individual (HNWI)
Angel investors typically provide seed funding through a one-time investment or an ongoing injection of funds to industries where they understand and can offer value. The best way to find angel investors is by reaching out to your network and their peripheral relationships in the same or complimentary industry.
Family Offices
A single family office (SFO) is a private company that manages investments and trusts for a single family. Much of their wealth is in its first or second generation, so many families are still aggressively seeking greater returns instead of wealth preservation. SFOs are particularly common in China and many can be found through professional wealth management firms in Hong Kong and Singapore.
GovernmentGrants and Funding
Both the UK and Chinese government routinely offers grants and funding to collaborative projects. In 2015, both governments collaborated on a £16m fund for joint projects in energy, healthcare, urbanisation and agri-food. At Oval Branding, we have also helped a UK clean tech firm Loowatt raise ¥1m yuan (£110k GBP) joint funding from the Guangdong Provincial Department of Science and Technology. Keep an eye out on government websites for these opportunities.
Venture Capital Firms
While Chinese venture capital firms don’t often disclose financial information, there was a considerable uptick in financing activity during 2017, with total annual Asia funding activity increasing by 117% YoY, according to CNBC.
“A venture capitalist looks for a strong product or service that holds strong competitive advantage, a talented management team and a wide potential market” according to Will Jiang, Partner at N5Capital, a Beijing VC firm and previous client of Oval Branding.
Firms that are looking to establish their brand in China are particularly attractive to VCs because they like to lend their expertise to help their portfolio companies succeed through activities such as marketing and recruitment. The key to finding the right venture capital firm is by researching the firms that typically invest in your geographic location, funding series and industry. Websites such as Crunchbase and 36kr can identify suitable firms.
