Part one of my series focused on the challenges and opportunities that foreign Founders face within the Chinese ecosystem. In part two I will conclude by observing how foreign Founders can pursue to raise funding and build a talented team around themselves.
To successfully fundraise in China, intelligent targeting of VC’s and exceptional storytelling to sell one’s unique advantage is crucial
Raising an investment round in China with a team that is either fully or partly foreign makes fundraising additionally difficult as founders not only have to convince investors of their unique market perspective and direction, the value of their product, and exceptional team but also that one is capable to adapt and adjust to the Chinese culture without leaving the country after a successful investment. Many investors are highly skeptical of the ability of foreign founders to get used to the speed and market dynamics within the ecosystem. In time of hardship and struggle they weigh the risk of the foreign founder taking the easy-way-out to leave China and return home to leave all their problems behind. They see culture as an impassable obstacle that includes significant differences in work ethics and sacrifice.
Since there have only been very few success cases (also simply due to the proportionally small number of foreign entrepreneurs in China), Chinese investors are reasonable to be skeptical, however, one must be ready to face biases and possibly perceived unfair treatment. In particular in our case, as we solely served and focused on Chinese customers, convincing investors of our ability to not only perform at the same level, but also outperform our Chinese competitors was crucial. We had the pleasure to meet around 20 funds, of which the majority were purely Chinese funds but also included global VC’s or various 土豪 (tǔháo – generally uneducated individuals with new-found wealth)individuals, all across China. After several meetings, providing company-related information, more than a few investors proceeded to conduct due diligence with varying degree of intensity. Some VCs put more focus on the team and emphasized that by inviting the entire founding team to dinner with a lot of alcohol involved to truly understand the characters and motivations behind the team they are considering betting their money on. Others mainly targeted our CEO and Founder, due to the hierarchal nature of the Chinese culture and conducted lengthy meetings to understand in depth, how the CEO manages and leads the company. As a foreign co-founder, one was initially ignored and disregarded and thus truly had to earn the respect and attention by proving a deep market, culture and customer understanding while communicating in Chinese. While this is obviously the case for any founder intending to ask for investors’ money, I tried my hardest to not be perceived inferior to my Chinese counterparts.
To truly succeed in fundraising as a foreign entrepreneur in China, however, one has to avoid being directly compared to one’s Chinese counterpart but utilize the unique advantages being a foreigner in China, if applicable, as a unique strength and key to outmaneuver company competitors. For that, smart targeting and exceptional storytelling is required. Targeting VC’s with a track record of investments in international teams provides greater potential to not simply be reduced to an inferior version of a Chinese competitor. Not all globally managed VC’s fall into that category, thus talking to peers within the industry helps to spot the right Funds. In our case, 2 major Chinese funds with a history of investing into foreign founded startupsCherubic Ventures and ZhenFund were two interesting partners. As a good training it helps to utilize smaller funds to go through the process of fundraising with your team once before shooting for the high potential VC’s.
Aside, from an effective targeting, exceptional storytelling, to double down on one’s foreign identity is very important. How does your background as a foreigner in China further benefit your company to hit the goals one has set for themselves? I have found that this is even more crucial for foreign founders that are visibly foreign and not for foreigners that are ethically Chinese, because these types of founders can blend in more easily and can simultaneously also utilize their background in a foreign country to their advantage. Having said that, blending in, even for ethically Chinese founders is extremely challenging and requires a delicate mastery of the Chinese language.
Foreign startup “Popular Robotics” in the office spaces provided by Haidian Pioneer Park
The talent pool in Beijing is easily accessible but internal procedures are key to build a functioning team
Due to the sheer mass of young graduates and the intense nature of the education culture in China, the job market is highly competitive without a lack for fresh candidates. After utilizing various local hiring platforms such as Lagou, Zhaopin, or Boss Zhipin, we very quickly got bombarded with CV’s reaching around 300 CV’s on the first day for the position of a Back-End Programmer. While our quantitative hiring metrics blew out of proportions, 70% of all applicants did not satisfy the basic requirements. Initially, we made many missteps and struggled a lot to determine the level and ability of the candidates, which led to hires that were underqualified and simply not suitable, the early termination of contracts and an unstable team environment. With such conditions, hiring and recruitment strategies, internal onboarding protocols and other internal processes become very important in order to build a talented team as quickly as reasonably possible. With the assistance of local HR experts, we learned along the way and developed a deeper understanding of the Chinese job market and education system. We paid more attention to the significance of the Project 985 and Project 211, programs initiated by the Chinese government that contain and fund the best universities in China or the noteworthy difference between a bachelor degree (本科) and an associate degree (大专). Moreover, we also realized that utilizing the hiring platforms named above helped with recruiting junior talent (1-3 years) but are not an effective solution in order to find senior talent. For that, headhunters or utilizing your personal brand and network are two effective ways.
I once again started to appreciate Beijing and Zhongguancun as a prime location for our company. Due to its wealth of opportunities, home to various other top tech companies and the 101 top universities that call Beijing their home with Tsinghua and Beijing University at their helm, Beijing is the place to find, the best tech talent of the nation. On top of that, a lot of talent from 2nd and 3rd tier cities are willing to sacrifice a high salary and dedicate their entire life and time to set foot and start a career in Beijing, often renting apartments in Beijing with a 1-year lease. All that creates the environment of a dynamic and throbbing job market, that when handled with care, procedure and patience can produce a top team.
Important to mention in particular for foreign founders is that while the job market for Chinese talent is highly competitive, foreign talents are not yet receiving the attention they deserve. Even though some are extremely skilled and talented, they struggle to find job opportunities, due to language barriers, required visas and a lack of network. That provides a huge opportunity for foreign founded startups, to recruit highly qualified candidates who are dependent on the company to provide a working-visa and are willing to accept a relatively low salary. Such talents can be identified and recruited through foreign student associations at the various universities in Beijing or by attending local startup related events that have been organized by international communities such as Startup Grind.
University Startup Accelerator of Peking University
Will the days come back? Foreign entrepreneurship in China in 2020 is a shadow of its former self triggering the question if the glory days will come back. Over the last 2 years, I observed a new generation of foreign founders that - with a newfound strength and sense of innovation - take advantage of the benefits of the Beijing ecosystem. Those founders and are on the starting blocks to be the future of foreign entrepreneurship in China. They have a deep grasp of the Chinese market and understand that Chinese consumers are hungry for new innovative products and are willing to pay for it if it provides enough value. They understand how to best position themselves within the Chinese market to differentiate themselves and utilize their foreign identity as an advantage.
Additionally, I see serious efforts by local governments to streamline administration, delegate powers, improve regulation and services, and optimize the business environment. Just like the spark, initiated by party leaders, that led to mass entrepreneurship and innovation, the Politburo (top leadership body of the Communist Party) is making headway on tackling burdensome regulations, removing obstacles to entrepreneurship and cultivating a flourishing business environment. Besides China being named as one of most notable improvements in Doing Business 2020, an annual study by the World Bank, I myself can see and feel progress. Personally, I was frequently questioned by Chinese organizations on the lookout for foreign entrepreneurial talent and startups and was interviewed by a local state media about the current state of foreign entrepreneurship with the aim to promote the importance of progress even further.
However, even though regulations and local support is essential, as a foreigner starting my own company in China, I have learned that in order to be successful, it is simply not enough to approach the Chinese market with a Western mindset. One has to adapt and understand the local culture, local management practices and differences in mindset. Stubbornly persisting to Western best-practices and not keeping an open mind will ultimately result in failure. Just as I experienced, your leadership style will be questioned, others may doubt your market understanding, strategic decisions and internal practices. My advice would be to consult and listen to other local founders, make yourself a part of the Chinese society and expect yourself to be amazed and proven wrong. Only then, the first foreign founded unicorn in China will arise.
Opportunities and Key Challenges for foreign Entrepreneurs in China
All opinions expressed in this essay represent my personal views only.