HEDA Ventures recently held a seminar at which we updated latest legal and economic developments in China cross-border investment as well as international trade and finance, and offered some insights on what to expect from the China landscape in the coming year.
Co-organized with LYVC and Wisemont Capital, HEDA Ventures provided a networking forum for investors and entrepreneurs engaged in cross-border investments to change ideas, information and experience in order to advance their knowledge to current news in cross-border investments, practice and procedures affect cross-border investment activities in and beyond the Asia-Pacific region. We brought numerous Chinese entrepreneurs and investors who are actively searching for U.S. investment and business collaboration opportunities. Impressive line up of investors from U.S. and China shared challenges and opportunities in areas such as: Cross Border M&A, Fund Raising, business expansion to China and more.
In the seminar, Jun Li (Founding and General partner of Wisemont Capital), Michael Ma (General partner of Liquid2) Melissa Wang (COO of LYVC), and Howie Wang (CMO of LYVC) joined the discussion panel and shared us insights in cross-border investments.
Q1: What are recent updates on the dynamic of capital market?
The number and volume of cross-border investments have increased significantly around the world in recent years, especially in Silicon Valley. Deals involving Chinese companies have been a major factor contributing to this trends.
Capital flow reversed. For the past decade, Silicon Valley money flowed to China as the communist country opened its markets and companies sought to expand there. That cross-border investing reversed as Chinese companies started to look outside their borders for investment opportunities. While Chinese investors have made their impact felt in the U.S. real estate, energy and transportation sectors, it was only in recent years they turned to tech, at a time where the slowing of China’s economic growth and the depreciation of RMB, have increased investors appetite for high yield capital growth. We expect it would be a sustained run in the following few years.
Q2: Why Silicon Valley and how do Chinese funds succeed in Silicon Valley?
HEDA Ventures’s CEO Hongbin Zheng indicated that “fueling the Chinese capital is a perception that the majority of innovation is still coming from the U.S., and that China is playing catch-up. Innovations root in Silicon Valley as the fields breed series of successful entrepreneurs and startups. Few stocks held more promise for the new year than a certain technology companies – today’s FANG stocks are nearly 50% of the market cap. That's why Chinese investors are increasingly looking to the U.S. for fresh opportunities. We are chasing U.S. innovation and help them grow fast and big.
Q3. What kind of barriers do U.S. startups face with when they access to Chinese markets?
Today's startups are looking not just for financial capital, but interpersonal capital with expertise and knowledge of the education market in China. More and more Silicon Valley startups turn to Chinese backers for funds. But this wave of Chinese investment has called into question whether advanced technologies that are seen as critical to U.S. strategic interests are, instead, going to a competitor. How do Chinese investors get involved into those deals and how do these startups survive at different countries once accept their checks. There are bunches of questions remained to be solved.
One issue that could stymie the rise of Chinese investment is the ongoing difficulty international companies face trying to access to Chinese markets. Rising trade barriers are blamed for tighten restrictions on capital outflows and control "irrational" outbound investment by Chinese firms. Meanwhile, U.S. alarms about potential security and economic risks over Chinese takeovers of American companies have been heightened during the recent presidential election.
Jun: We’ve talked about China’s escalating crackdown on capital outflows for a while. While China’s capital controls affect investments overseas, I identify a clear trend that strong strategic partners always able to help U.S. tech startups get favorable terms from the government and gain partnerships with market leaders in China.
Additionally, Chinese investors have become more savvy, with an emphasis on working with Silicon Valley companies to test their ideas in the U.S. first, before thinking about the Chinese market. “hot money” is cooling down while the pursuant for innovation and disruptive technologies never stopped.
Q4. What do U.S. startups need and how can Chinese funds help?
Jun Li: Getting funds from China's leading tech companies can help U.S. companies gain an entry point to China, an immediate on-the-ground presence and strategic insights such as how to best customize products for the local Chinese market. As one of the mass China-backed funds, HEDA Ventures is unique and special. The funds performed well in the first half of 2017, and received quite attentions from the top media in China and U.S.
Q5: How favorable does the tech park (Hangzhou Economic Development & Technological Area) provide for startups?
In the tech park, startups enjoy perfect municipal functionality, excellent entrepreneurial environment and abundant scientific research resources in addition to “state aids”. HEDA Ventures own two RMB funds in Hangzhou and just launched a $50M US fund in Belmont, CA. In the past 6 months, the U.S. team has closed 5 deals with a check size between $0.5-2.5M dollars.
Several startups HEDA Ventures invested recently expand to China and setup office at Hangzhou Economic Development &Technology Area. Those company develops well in Hangzhou and recently partner with market players in China.
In the remaining year, the team will strive to forge even deeper bilateral link. We expect more U.S. companies expand within and beyond U.S. markets with the supports of HEDA team.
About the speakers:
Hongbin Zheng: the founder and General Partner of HEDA Ventures, a Venture Capital focusing on early stage startups in the areas of Biotech, IoT, Fintech and Enterprise Softwares. Mr. Zheng achieved his master of management from Zhejiang University. With 14-year experience in investment, Mr. Zheng played key roles at Juhua Group, Hengdian Group and several capital management companies. Mr. Zheng has rich experience in business operations management, project investment and capital management that contribute to cross-border investments and better serve in various funds.
Jun Li: the founder and General Partner of Wisemont Capital, a VC fund focused on early stage technology startups, especially in B2B and enterprise software, IoT, and healthcare. Previously she is a Sr. Vice President of Beyondsoft (002649.SZ) and managing partner of Beyondsoft U.S. Startup investment. With over 16 years industry experience in Enterprise Software and Services, Jun is also a member of Tsinghua Entrepreneur and Executive Club (TEEC), mentoring and contributing to the startups communities in both U.S. and China for many years.
Michael Ma: Founding partner at Liquid 2 Ventures. Ma previously sold his Y Combinator backed startup TalkBin to Google in 2011, where he held various roles including lead mobile product manager for Google My Business.
Melissa Wang: COO of LYVC
Howie Wang: CMO of LYVC
About HEDA Ventures:
HEDA Ventures is an early stage venture capital firm focused on accelerating disruptive innovations and trends in enterprise sectors. We are a US dollar fund and currently managing over $150 million in assets. We focus on innovative high-tech industries showing fast growth rates, including Biotech and frontier technologies. We are committed to helping entrepreneurs and startups build world-changing businesses, with the potential to create new market opportunities and change the world.