Perhaps you are planning on raising money in China (raising investment). Your business has done well in a country like Canada, England, or Australia. You now want to expand into the second larger economy in the world. But for you to do that, you are going to need funds.
This article will explain how to raise investment in China, and what you need to know about investment contracts. If you want to speak to an English-speaking lawyer or paralegal in China to get legal advice, you can contact us. You can fill out the form on the side of this page or call us at 1-844-466-6529.
We are also raising money right now (fall 2020) in China. We are able to quickly explain what it is that ClearWay Law does.
We connect people that are looking for a lawyer with a law firm. The lawyer pays us as a marketing fee. The potential client gets to use our lawyer connection service for free. We help the client find the lawyer in the right city, the correct area of law, and for the client’s budget.
Fairly simple right? Our goal is to raise $250-500K and to spend the money on marketing and building out automation. We have proof of concept with the Chinese community in Canada. Now we want to expand to Beijing, Shanghai, and Tianjin.
Getting Investment In China
If you are reading this article, I am assuming you are looking for angel investors or wealthy individuals for your seed funding round. It is unlikely that you are looking to raise $20 million dollars from a venture fund in China.
If you are just starting your business, don’t waste time speaking to investment funds. Many investment funds will invest a minimum of $2 million. That might sound great, but it is unlikely that you will be able to raise the money from a fund.
Most Chinese investment funds will want to own no more than 25% of your company. If they are going to give you $2m, that means that you must be worth $8m.
Instead, you might be looking for $500,000 for 30% of your company. You want two investors that will each give you $250K for 15%.
Challenges With Doing Business In China | Raising Money In China
Raising capital in your home countries like New Zealand or Australia is difficult enough. However, adding the challenge of language differences and culture makes it even harder. If you tried to raise money back at home but couldn’t, don’t assume it’s going to be easy in China. However, investors in China are more comfortable with the risk than where I’m from (Canada.)
Canadians are terrified of risk, so investing in start-up companies is not attractive to them. Instead, they invest in things like stocks and real estate.
The other challenge will be that you will have to convince a Chinese investor to put their money into a foreign company.
Lastly, you need to be prepared in case you need to go to court in China. The court in China is very different than in the west. See the picture below, and imagine yourself being there trying to defend your trademark. It’s obvious that you need to hire a Chinese lawyer or a consultant to help you.
Building Relationships In Asia | Raising Money In China
If you have raised money in the United States before, you will know how fast things go. You can start a conversation with an investor, and discuss the terms of the investment the next day.
This does not happen in China.
You must slowly build your relationships with the Chinese. You will rarely be evaluated on the terms of your pitch deck. Instead, the investors will be looking at your patience, the words you use, your body language, and who you know. If you are not connected, no one will trust you. There is no way to get around this.
Chinese people will also rarely say no. So be careful of this. However, they will ignore you or direct you to other people. Instead of trying to raise money in China, try to build your network. Let people know that you are growing your company and that you will be looking for investment in the future. Let people follow your company’s growth. If they reach out to you to get involved, it’s much easier.
Raising Money From Chinese Investors
Chinese people do not like to be pushed. If you raise money, you will have to attend events and take part in Chinese culture. You might have to give money at events and provide gifts. It’s weird, but if you attend their daughter’s wedding, and give $2000, you might end up getting investment in the millions.
Because of the massive population of China, there are over 1.5 million wealthy people in the country. Many wealthy people are used to do business overseas. If you have a good business, they might want to get involved.
The types of investors you should reach out to Chinese business people. Politicians and real estate developers will likely not understand your business. If you have an online marketplace for computers, they won’t understand it.
Real estate developers might have very close connections. They might not invest, but they might know some people that will. Don’t try to sell something to them that you won’t understand. You are wasting your time.
Read more articles about living in China:
Investment Legal Advice And Agreements
If you are looking at raising money in China, make sure that you have strong legal contracts with the investors. You should get legal advice from a lawyer or paralegal in China. Do not get advice from a lawyer back in England, who knows nothing of Chinese laws and cultures. If you provide a Chinese investor with a 40-page contract, forget it. You just wasted your money. Many Chinese people don’t use contracts, which is a big mistake.
The best you might be able to do is get them to sign a two-page contract that outlines the major points of the deal. This is not a waste of time.
If you are researching raising money in China, contact us. We can have a legal expert tell you what to do.
How To Make Money In China As A Foreigner
This article will not cover getting a job in China as a foreigner. However, there are ways to turn your job into a business. For example, many people in China teach English. You might want to create a company and hire other English tutors. For this, our legal experts would create contractor agreements for you. We would also trademark your logo, and properly set up your company for taxes and legal structure.
Chinese companies can get 30 times revenue valuation. Whereas in the west, you are lucky if you can get valued at 5X.
Many western gaming companies are setting up in China. The gaming industry in China is doing extremely well.
Angel Investors In China | Raising Money
Forget crowdfunding and raising money from your family. Don’t go into debt. Get as far as you can with your business idea before seeking money. Try and make as many sales as possible. It’s likely that you don’t need to raise $500,000 on your first day of business.
If you are in an industry where you need to build something to make your first sale, it’s going to be tough. It’s likely best that you work for another company in that industry first. You will need to show investors that you have a lot of experience.
You won’t be able to show any progress with your company. It will also likely impress the investors if you are properly set up. They will ask to see your trademarks, company structure, and employment agreements. They will ask you about your litigation history.
If you have defended your trademark with a lawsuit before, it might impress the angel investors. They will want to see that you are not a pushover.