A clink of glasses, and the deal was done, with $6m in new investment due imminently in our bank account. Nine months of gruelling pitching, due diligence, conference calls and a trip to China has culminated in drinking Mou Tai (Chinese rice wine) in a 5-star Shanghai restaurant.
In China it seems like deals are sealed over drinks rather than across a boardroom table. This is just one of the many cultural differences Aussies should consider as the Asian Century emerges and the economic centre of gravity shifts to our region.
With countless Australian entrepreneurs making the pilgrimage to Silicon Valley, some are losing sight of the opportunities that are right on our doorstep. By 2030, Asia is expected to host 64% of the global middle class and account for over 40% of global middle-class consumption.
Our experience in working with Chinese investors tells us that they view Australia as a hub for smart, feasible tech innovation that can eventually be scaled into larger international markets. They believe Australia has a really strong pool of talent which is not being effectively tapped by the US market.
Chinese investors also see Australia as a source of great ideas because the smaller market size forces start-ups to build viable business models that are not built purely on massive “blue sky” projections. This is attractive to investors who are used to seeing entrepreneurs with a big vision but no real plans to generate a profit until many years into the future.
But perhaps the most promising bit of insight we received from Chinese investors, is that they are largely looking for companies capable of global growth. They are keen to invest in Australian start-ups — at a reasonable valuation — with a view to leveraging their Chinese — and international — connections to scale up the smarts from down under.
But while the opportunity exists, fully harnessing it will not be easy. From our experiences, there are many hurdles that founders will have to overcome before they can close the deal over rice wine.
Chinese VCs investigate a company meticulously and at length before even going near the cheque book. While many investment rounds close within weeks, our courting of Chinese investors took the best part of 9 months as the Shanghai-based VC fund, Morning Crest Capital, needed to be convinced of the quality of our team, our growth trajectory and potential global scalability.
On scaleability, keep in mind that big numbers — by Australian standards — will not impress these investors. The scale of the Chinese market means our 250,000 users and $15m annual task run rate are literally just a starting point for them.
We also found that doing research and adjusting the pitch for cultural differences definitely worked in our favour. Some things that are common in Australia are non-existent in other markets. In our case, we found that while some of our biggest service categories are rarely used in China, mobile health services like acupuncture and traditional massages are a big industry.
Also — it goes without saying — but make sure your product is truly up to scratch before you pitch, as they test it throughly and in ways you won’t expect. During one dinner in Sydney with Morning Crest Capital, at about 9pm they decided to test our platform on the spot, jumping on Airtasker to seek out two house cleaners — that needed to be able to speak Mandarin — that were available to clean their apartment by 10pm that same night. Luckily, a few of our top Airtaskers were up to the task and got the job done. All without knowing how important those tasks were to the future of Airtasker.
There is a general fear in Australia of entering Asian markets because of the cultural, financial and market differences. However, by partnering with local Chinese investors, Australian startups can create a softer landing for when they decide to launch in Asia, where relationships are key to success.
The Chinese market is massive and growing fast, so the opportunity becomes very attractive when you combine Australia’s technology resources, IP and smart, robust business models together with that huge commercial opportunity.
Australian entrepreneurs, who enjoy existing pathways to Silicon Valley thanks to trailblazers like Atlassian, BigCommerce and 99designs, are uniquely positioned to get the best of both worlds with rapidly developing opportunities to expand into Asia due to proximity and timezone compatibility.
The choice on whether the US, Asia or the rest of world comes first will come down to the market your product suits best and competition in the respective market. But either way, it’s an opportunity you don’t want to miss without analysing.
The support frameworks facilitating these expansions are also developing quickly and with this momentum, investment appetite and partnership opportunities will only increase for Aussie startups looking to get funded in Asia or launch there.
Tim Fung is the co-founder and CEO of Airtasker.
Here are Tim Fung’s top three top tips for approaching Chinese VCs:
- Have a big vision -They are use to hearing some very big numbers given the size of the Chinese market. In terms of scale, they are not going to be blown away by a vision to hit 100 million users or $100 million revenue. For them, that’s a starting point to get down to “real business” – so be prepared to share a big vision and don’t be constrained upfront by your own limitations.
- Be patient and invest the time: It took a long time to convince the investment team of our story and to negotiate a deal. We spent many many hours with them to develop a relationship, convince them of the story and the opportunity. This was further stretched by the different time zones. Further, we had to acknowledge that you have to “kiss a lot of frogs” along the way. So even though you aren’t 100% sure that you will close a deal, we needed to invest a large amount of time to even have a chance of success.
- They focus massively on the team: More than anything, I think the main aspect of the company that they look for is a team of founders that can deliver on their vision. We spent a great deal of time “getting to know each other” both in and outside of working environment.
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