A core component of Alacrity’s mandate is to attract foreign capital to Western Canadian companies. We could not fulfill our mission without input the investment community elsewhere, and from an extensive network of advisors globally.
One such advisors, Henry Wu hails from Shanghai, China. Henry recently became involved with Alacrity to help bridge the gap between the two unique investment markets. His perspective on the difference between the regions, and their investment climates, and his extensive experience in both markets provide Alacrity with relevant, real-time insights from the Shanghai marketplace.
China is Changing
A lot of changes are happening in China right now as the Chinese government prepares the country for a shift in its economy. Transitioning from industry and manufacturing to an entrepreneurship focus in cities like Shanghai, new policies are being put in place as part of the country’s 13th Five Year Plan. A significant change is happening in the investment sector as massive amounts of capital are being pooled to provide real estate, mining, technology, telecom, cleantech, and life sciences companies with the resources they need to grow.
China’s current mentality towards investing is heavily focused on finances. More than the traditional North American investor, Chinese investors expend more due diligence effort looking at a potential company’s finances before committing to investment, regardless of the venture’s potential. The result is typically a risk-averse diversification in investment strategies, and in the types of assets being acquired. In the West, we see this reflected in the diversification of investment activity that Chinese investors are driving in real estate and companies in North America. Most obviously, we see this phenomenon in cities like Vancouver, San Francisco, and Los Angeles. As China’s government encourages more people down the path of entrepreneurship, and as the millennial self-motivated generation enters the workforce, investment opportunities in China are set to increase.
Shaping the Foundation for Investment
To support an increase in diversification, and the associated risks to entrepreneurs and investors, the Chinese government is implementing a combination of measures to actively boost investment opportunities. By creating large capital pools throughout the different levels of government, local entrepreneurs gain direct access to “Founder Funds.” Policies are also being implemented to offer tax credits to angel investors in case of a loss, stimulating investors to take more calculated risks. Focusing on small and medium enterprises (SMEs), a new stock market entity, the National Equities Exchange and Quotations (NEEQ), has been established to fund the small companies that previously had difficulty finding funding.
Chinese Capital Market Boards
The Chinese capital market consists of a number of investment boards that accept companies based on different requirements. The Main Board and the Enterprise Board have similar and fairly strict requirements that smaller companies are not able to meet. The new NEEQ Board, has a lower entry barrier, allowing startups to list their company here much more easily.
Launched in late 2012, the NEEQ hosts the trading of thousands of companies, with tech companies comprising 30% of the companies listed as of early 2015. A lower entry barrier to entry gives young, innovative companies the possibility to enter the market and successfully seek investment while providing investors with the financial inventive policies that encourage them to invest in startups. As companies rise through the NEEQ and become able to meet the stricter requirements of the Enterprise and Main Boards, they can be promoted to make room for more young companies. In this way, a dynamic system that encourages and supports growth has been established.
Since China’s banking sector is highly regulated and heavily license-based, borrowing money from the banks as an entrepreneur is difficult, unless success is already proven. As an SME, it’s often impossible to get the capital required to grow, even if the potential and the innovation is there. This is the problem the NEEQ was created to address. As one part of the solution, The NEEQ and the supporting changes in China’s policies are designed to make it easier for companies that have the potential to become China’s Google or Facebook aren’t overlooked.
While many describe China’s economy as in the middle of a highly tumultuous period, Henry sees tremendous value in the changes as part of a long-term strategy. Shaping the foundation for investment and creating an ecosystem that encourages investment and growth at all levels will rapidly transition the country’s economy into a high-tech haven. Already a global leader in FinTech, Henry sees environmental concerns propelling CleanTech to be the next big area of growth in China.
Strengthening Ties Between East and West
China and the West are continuing to forge stronger economic ties, despite their fundamental differences. As globalization continues, both East and West are learning each other’s languages and cultures in order to conduct business.
BC’s proximity to China is a big draw for Chinese investors. While Canada has always been known for its resources, the economic growth of a highly diversified IT industry in Canada provides many more opportunities, especially now that China’s economy is also shifting.
As a result of his investment experiences in Silicon Valley and in BC, as well as his understanding of the Chinese marketspace, Henry is able to compare and contrast the ecosystems and can pick and choose the best practices of both worlds to establish a successful connection.
Reconciling Different Approaches
Traditionally, the Chinese market is not accustomed to the type of mentorship and support for SMEs that an organization like Alacrity provides to our portfolio. While various forms of support for entrepreneurs does exist, historically the type of support normally comes in the form of financial advisors which tend to claim fees for the guidance they give entrepreneurs. This is quite different from the North American model of advisors who provide various forms of mentorship free, or in exchange for equity or options.
Insights such as these involving how people approach the same businesses are differently based on market is part of what helps shape Alacrity’s strategy.
In building global successes; global success requires local insights.