The Rising Tidal Waves of EU-China VC/PE Investment

Up until recently, one of the most frequently discussed topics among European entrepreneurs was how to get U.S venture money for scaling their European start-ups in the U.S. Starting from this spring, however, an increasing number of entrepreneurs were considering whether they should, and how they could, get funding from Chinese investors to set foot on the Chinese market instead of the U.S.

It is not coincidence that Chinese investors started watching European start-ups too. Silicon Valley has been a hot spot of Chinese venture-capital and private equity firms until recently. However, the Trump Administration’s increasing China-sceptic attitude made deal making far more arduous, even for passive stake investment of less than 10% of the equity.

These developments, in my opinion, represent a significant change of paradigm from awakened European entrepreneurs and industrial leaders, as well as a rapid change of Chinese investors’ attention.

2018: A Time of Change

Just a few years ago, Chinese VC / PE firms were under the radar in Europe , but their presence and influence have swelled rapidly in European technology clusters in the past year. Here are a few of the deals in 2018:

In March 2018, German fintech unicorn N26 raised a $160m series C round led by Tencent and Allianz. The same month, LetsGetChecked, an Irish start-up that offers a medical health test kit service has raised $12m Series A funding led by Optum Ventures and Qiming Venture Partners, a leading China venture capital firm.

In November 2018, a British AR optics start-up WaveOptics raised £20m led by Octopus Ventures and with participation of an early stage Chinese VC, Gobi Partners.

In the same month, Wind Mobility, a Berlin-based mobility start-up that offers “dockless” e-scooter (and electric bicycle) rentals, has raised $22m seed funding, throwing its hat into the ring as a European competitor to Bird and Lime. This investment is led by Europe’s HV Holtzbrinck Ventures and Chinese Source Code Capital.

Straight after it, one of China’s biggest financial conglomerates Ping An Insurance Group Co. announced its first venture into continental Europe, leading a latest funding round worth €41.5m for Finleap, a Berlin-based fintech company that provides technology to build digital solutions in Europe’s banking, insurance and asset management sectors.

2019 Q1: more capital pouring into European start-up landscape

In the tech world, things evolve quickly, so does capital. Another US-listed tech company Alibaba, who has easy access to USD, started foraying into the European start-up scene alongside its core business global expansion strategy. In January, Alibaba has paid €90 million to acquire Data Artisans, a Berlin-based start-up that provides distributed systems and large-scale streaming services for enterprises. Later February, Alibaba joins $13m investment of Series B round raised by the Munich-based Internet of Things (IoT) start-up KONUX. Again, in March, it acquired Israeli augmented reality start-up Infinity AR for an estimated $10m, which has made a system for app developers to provide AR applications in wearables and mobile devices.

Hongkong’s richest man Li Ka-Shing is also no stranger to investing in Europe. The tycoon, famous for his $50bn investments in the UK, also participated in the early stage funding of Berlin-based fintech companies such as N26 and Wefox. This March, Ka-Shing’s VC investment arm Horizons Ventures announced another investment in Berlin-based software start-up Teraki for a $2.3 million second fundraising.

Speaking of Wefox group, the Berlin-based insurtech start-up behind the consumer-facing insurance app and carrier One, has raised $125m in Series B funding this March. Another big Chinese player, CreditEase FinTech Investment Fund, also partook in this round. What is worth noting is that this investment is the largest Series B round for a European insurtech company, and Goldman Sachs acted the private placement adviser to Wefox group for this transaction.

How can Europe gain from it?

The time for Europe is now. The window of opportunity is now.

And here is WHY.

Let’s first have a closer look at how European investors reacted upon the rapid change:

In August 2018, the European Investment Fund (EIF) supported Cathay Capital’s new fund Cathay Midcap II with a first close at €600m. It has become the first EU-China Investment platform backed by the Juncker Plan. The leading cross-border EU-China co-investment fund aims to finance European and Chinese high potential mid-cap business in strategically important sectors.

Just a few days ago, private equity firm Eurazeo announced that it has been selected by the China Investment Corporation(CIC) and BNP Paribas to manage a €1bn to € 1.5bn fund supporting French and European companies seeking to expand rapidly in China and to capitalize on opportunities in the Chinese market.

Despite these developments, I realize that there are still many critics and much hesitation regarding China, and one can fear moving all the way up there . However, contemplations are clearly on the minds of founders across Europe who have achieved initial product-market fit in their home market and are now thinking of expanding. But brave Western entrepreneurs, if you go today, you will have a once-in-a-lifetime opportunity to participate in the biggest economic Internet boom in history. You will meet and interact with an unprecedented generation hungry for innovation and driven by immediate execution.

Let’s take a step back and think about the rationales. How about considering the accesses to funding, to a large population of digitally-connected customers, to a market where customers are more risk seeking in their financial decisions both in attitudes and behaviours. The benefits seem to be a no brainer. Moreover, understanding a different culture and society doesn’t come along by observing it from far away, but by experiencing it on the front-line. Only a two-way street of cultural openness and business cooperation could promote vital mutual-understanding.

And in closing, as for myself, I am feeling so lucky to live and strive in such a dynamic Europe today. What about you?