How to Raise Money from China

Holly Liu
Holly Liu
Sep 13, 2016 · 6 min read

Remember “easier” is relative.

It’s always good to start with a warm intro.

China is a highly relational society, meaning things can get done easier, faster, efficiently and more effectively if you know the right people. I know this is true of raising money in the Silicon Valley, but it is even more so in China. I hear a lot of conflicting stories about the current fundraising climate, and it is because you hear that the few that are able to raise money easily is mainly through a personal connection.

Take a haircut from the numbers, and everything else.

When someone says they can get you into a deal or they can get you XX amount in funding take about a 30% haircut and you may only slightly be disappointed.

Choose one: valuation or terms.

You set the price, I’ll set the terms.

In most deals that I see from China, the fund/company sets the price and China sets the terms. This means they are willing to pay extra money to set terms that enable them to have more control in the deal or operation. To the Westerner, it will seem strange what they care about or even ludicrous what they ask for. But, you will have to try to educate the Chinese investor around how things are done in Silicon Valley and find some way to meet in the middle.

It’s good to be king.

Most of the time the Chinese investor will be optimizing around control. If they had a choice between rich (and very little control, but a lot bigger pie) or king (not as much money but a lot of control), the king scenario appeals to many Chinese investors — especially if the source of money is from an individual or family entity.

Cash is king, so it is not over until the money is in the bank.

It is still a cash-based society. Even though China has gone over to mobile payments it is still connected to a debit card. This means that their thinking of returns tends to be around cash. As a company or fund, you should think about how their money can be locked up for the shorter period of time. And as protection, some parties will hold money in escrow until a milestone is reached or they will call down a larger percentage of the commitment earlier on — being sensitive to the cash based society. This also means for the company or fund — it isn’t over until money is in the bank.

Bonus: Communication is faster over Wechat than email, and fastest face to face.

Silicon Valley sometimes treats email like an instant messenger; however, China actually has an instant messenger that is used like an instant messenger — it’s called WeChat. One thing to note is that business and personal communication (and social networking/media) is done over Wechat.

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Holly Liu

Written by

Holly Liu

Co-founder @Kabam

Startup Grind

The life, work, and tactics of entrepreneurs around the world. Welcoming submissions on technology trends, product design, growth strategies, and venture investing. Learn more about how you can get involved at startupgrind.com.