China has been an extremely popular business destination in the past few years.
Thanks to 49B dollars venture capital flooding to China’s startup sector, China is now world’s second largest VC market after the US, and world’s first in value of VC-backed Internet businesses. Top that number with startup friendly government policies, over 720 million Internet users market and 2d place in the amount of unicorns and you will get one of the most robust startups scenes in the world. Despite all the attractive numbers, entering Chinese market might be a tricky task. Here is a step by step manual of how to conquer Chinese startup scene.
“In 2015, about 12 000 new companies were founded each day in China and the number of newly registered companies grew to 4.4 million with a growth rate of 21.6% year-on-year.” – data from Tekes
Do your own research
Compared to Europe, startup ecosystem in China is heavily influenced by government. Before going there it would be a good idea to make your own research about the state of the industry you are in, and local legislation policies. Most of those information can be found online. For example, Tekes Market Access Program page has plenty of resources for startups entering Chinese market. Once that part is done, you can start planning your field trip.
The best way to get to know the local startup ecosystem is actually going out there to different startup events and fairs and start building personal connections.
Finland has done on that front. Slush Shanghai is one of the best examples. Their first event organised in 2016 brought together over 5,000 attendees, including 270 startups and 360 investors.
Events are truly where the magic happens. Good quality networking at conferences will guarantee to bring you a lot of useful insights and contacts. By simply attending startup conferences in China you can learn from people who have opened offices in China, ask them how they succeeded and also how they failed, expand your business network.
Explore funding options
Getting funding in China is not a problem if you understand how it works. Chinese startups have access to funding from the government funds, venture capitalists, private equity firms and Internet giants, like Baidu and Alibaba.
When it comes to Chinese start-up investors, there are 3 types of funds – USD venture capital funds, CNY vc funds, and funds that combine both. The latter are usually located in Hong Kong or other offshore zone. As a foreign company you may want to narrow your focus on the USD and mixed venture funds, since by law a foreign company is not entitled to receive funding from CNY venture capital. There are ways to get funding from CNY VC as well, but the level of bureaucracy will be overwhelming.
Stories of Chinese copycats are filed as a history. Today China puts a lot of effort to ensure high level of protection of intellectual property rights. China’s legal and policy environment is getting more mature. The government has done extensive research and education reforms by funding independent projects carried out by research institutes. Chinese companies have established engineering centers to enable technology innovation collaboration between businesses and universities. However IPR violations may take place. One way to tackle it is to seek help from a Chinese legal partner. Otherwise you may consult free advisory of China IPR SME Helpdesk
China is the 4th largest country in the world, with largest startup concentration in 6 major cities – Beijing, Shanghai, Shenzhen, Guangzhou, Chengdu and Hangzhou. Each city has its own benefits. For example, Beijing is the nest of a majority of China’s unicorns, top talents and the focus of venture capital and is known to be the Silicon Valley of China. Shanghai and its surrounding cities – Hangzhou and Suzhou – are fostering companies in the field of e-commerce, digital services and social media. Shenzhen, on the other hand, has a long history of being the pilot zone for a more open market economy in China and the hub of hardware innovations and OEM manufacturers.
Integrate into the local community
China offers variety of incubators and accelerators, the number of which is expected to reach 5,000 by 2020. Before choosing a program, be mindful of the fact that in China, incubators and accelerators differ in their primary functions and services. Incubators focus on providing office space and shared services such as an online community and a digital platform for the members of the office space. Plus, they help start-ups to develop their MVPs. Accelerators, in turn, focus on mentorship, training and helping start-ups and entrepreneurs to build connections to customers, partners and sources of capital. Accelerators also assist a start-up to scale up its prototype product.
If you already have your product in place, Helsinki-based Pivot5 and Beijing-based COMB+ have their Nordics-China Innovation and Startup Acceleration program. Plus, the FinChi Softlanding platform by Team Finland in Shanghai has plenty of services to help your business growth at each step of your plan in China.
Based on Handbook for Finnish Start-ups for Entering Chinese Market by Tekes – the Finnish Funding Agency for Innovation