Report summarizes the start-up and growth company finance market in China. The report consists of analysis and views of the present state of the start-up/growth company finance market in China as well as views of the future trends and implications of those. Then, advise to the Finnish public sector, companies and VCs is provided.

1. China Investment Environment
Start-up/Growth Company
Finance Market in China
Lion Partners Limited for
Team Finland Future Watch January 2015
“Potential for great match between Chinese investments and Finnish
Innovation exists and will likely to remain or even increase with many
new investment models emerging in the coming decade but we in
Finland have not yet found a good way to succeed in that.”

2. Main Findings
 China has become a net OFDI investor very rapidly in the last couple of years
after having been on the receiving side for a long time. Unfortunately Finland is
going against this trend still being a net investor to China. Chinese cumulative
investments to Finland are around 100 million euros vs. over 10 billion euros of
investments from Finland to China.
 Chinese investors regard Finland very highly as a source for innovation and a
safe place to invest so this does not explain the imbalance. It is partially
explained by big investments by large Finnish industrial companies into China,
but China could easily in theory do the same into Finland.
 President Xi Jinping announced late 2014 that China would invest abroad 1,25
trillion USD in the next 10 years. Also, in order to strengthen the domestic
innovation ecosystem the Chinese Government has just announced that they will
set up a state venture capital fund worth 6,5 billion USD to invest in the country’s
start-ups in further effort to follow the goal of changing the mode in China from
‘’made in China’’ to ‘’innovated in China’’.
Read whole report here

3. Main Findings
 The OFDI from China was started by SOEs (State Owned Enterprises) and
followed by POEs (Privately Owned Enterprises) and wealthy individuals. Venture
Capital investments from China as well as FOF type investments into foreign VCs
are in ‘’pilot stage’’ but likely to grow rapidly once enough successful cases take
place and sound working practices with international counterparts are found. One
should note that the Chinese Venture Capital industry measured by total
investments made is slightly smaller than the EU’s and has been around 5-10%
of US Venture Capital industry’s size in the recent years as a lot of Chinese
investing capital is held by SOEs and POEs that are also actively making
investments both domestically and internationally.
 Chinese SOE’s and POE’s main investment model has been M&A taking control
of the investment targets, so at least partially this is likely to continue to VC type
investments where the Chinese counterpart is likely to take control at least in the
efforts into China. This has been seen in even very high profile cases such as
Amazon and LinkedIn entering China with the support of a local VC (note: these
companies hardly need Chinese investment, but they need the access to market
and after having failed to do so on their own they have turned to local investors
for that).
Read whole report here

4. Main Findings
 Finnish VCs are slowly becoming active in China trying to establish contacts to
the local ecosystem, but as Chinese Venture Capitalists as well as Fund of Funds
are still relatively inexperienced in international or cross-border deals as are the
Finnish counterparts in dealings with the Chinese the mode is still very
experimental and learning by doing.
 In the past year Chinese investors participated in M&A in Finland and also
minority investments were made both by Chinese Venture Capitalists as well as
corporate investors. So Finland has good reference cases in place, now the
challenge is to make those successful and encourage even more activity.
 Despite attempts to coordinate and get various actors to cooperate under the
Team Finland strategy reality is still that there is competition even among fully
government-funded agencies about work.
 In the last couple of years a number of public and private incubators and
accelerators has emerged in China, at least in all the main cities with heavy start-
up activity such as Beijing, Shanghai, Shenzhen and Hong Kong, targeting
foreign teams and companies looking to enter the Chinese market. So far we
have not found a single Finnish team or company in these!
Read whole report here

5. Interested to know more?
Contact us
Future Watch contact in China & East-Asia
 Sari Arho Havrén (sari.arhohavren at tekes.fi)
Future Watch Team in Helsinki
 Heli Karjalainen (heli.karjalainen at tekes.fi)
 Laura Nurmi (laura.nurmi at tekes.fi)
Read whole China Investment Environment report in
Slideshare or our webpage www.tekes.fi/futurewatch