Best practices for capital ventures in China

How to sell to Chinese companies?

Chinese companies will value the following aspects of your company:

• The ability to secure a resource for the very demanding and growing Chinese market
• The ability of trading up brand, technology or quality of the products and services the investor is already producing
• The ability to cut costs of intermediaries
• The ability to invest in a more secure and mature market
• The ability to target Chinese travelers and diaspora in the targeted country
• The ability to bring more value to current shareholders. As multiples are higher in Asia and valuations lower overseas, especially Europe, the acquisition of a European company is a good “bargain”.
• Currency depreciation vs the Chinese currency RMB
• Synergies with the current activity for technology, distribution, marketing reasons

How to get investment from Chinese investors?

As the Chinese investment scene is not yet mature, it requires time, dedication and communication to reach a valuable agreement and positive cooperation.

Through our methodologies, processes and knowledge, we are able to level up the offer in terms of synergies, valuation and shared interests.

How to position your company for Chinese funding?

In terms of accounting, you will have to consider an adaptation to the Chinese accounting and how a funding from a Chinese company will impact the acquirer valuation especially with revenues recognition, amortization, depreciation, accounts receivables and payable. The transfer costs are other topics to consider to make sure the accounting integration goes smoothly. We work with accounting and law firms to make sure all the lights are green and we leverage all those aspects for the valuation. It is crucial to change your presentation based on the situation of the investor to ease the valuation and unleash all the potential of the acquisition for valuation purposes.

In terms of communication, language and interpretation are real concerns. Misconceptualization and misunderstandings can lead to deal breakers. A presentation in Chinese and English is a necessity as well as preventing those misunderstandings with a section in your pitchbook. Being present and found on the Chinese internet and in Chinese publications can be key in attracting investors. It is essential to understand the investor as much as your own firm to adapt your communication to make sense for him.

In terms of valuation, all aspects should be considered including the ability of the management to work with overseas investors, the development and growth plan (always hypothetical), economic perspectives in the sector at a worldwide level, etc. Valuations are not only driven by past numbers but also by predictions and contexts DXC ventures has developed its own tools and strategies to justify and align the plan with a Chinese perspective thanks to our in-depth knowledge of Chinese players and the Chinese economy.

In terms of business environment, it is crucial for you to make clear on how labor law is affecting your business as well as the banking system. Even though labor laws and regulations in marture markets are clear slowers in the decision making process of a funding, the solid banking system or stability and quality of workforce are assets that are balancing the concerns of previously mentioned rigidities.

Legally and from an administrative point of view, it can be valuable to align your corporate structure to a funding from an Asian and especially a Chinese investor. That includes legal entity status and certifications which can value your company at a higher multiple.

Why to favor Chinese investors over others?

China has emerged as the second economy in the world and is generating an excess of capital that is forcing companies to invest overseas. Thanks to comparables arbitrage, currency rate fluctuations, accounting system differences, government incentives, global strategy moves Chinese investors can value and harness a remarkable investment opportunity at buying a company overseas

Why to raise money from overseas?

What are the KPIs to follow when positioning your company for a Chinese investment? We have developed our own KPIs which include:

• Cash metrics
• Growth perspective metrics
• Asset valuation metrics
• Lean capacity metrics
• Strategic positioning metrics
• Integration metrics

Those metrics help our clients to align and position for getting understood and valued by the acquirer or investor.

We answer similar questions for Japanese investors and Indian investors.

How to value your company toward a Chinese acquirer?

Shall you sell entirely your company or get a minority investor from China? What are the various modalities to get a Chinese investor?

• Equity investment
• Debt raising
• Convertible equity
• Convertible bonds
• Crowd funding
• Contribution to the cash account

What vehicules and structures to use to receive a Chinese investment?

 

How to use Chinese crowd-funding as an investment tool?

Crowd-funding has been used mainly to finance the protyping of overseas companies but it is still at its infancy for equity funding in China. This tool is a creative tool to:

• Get noticed by investors
• Raise money for financing R&D or commercial expansion
• Test the water in the Chinese market and establish a first presence in the market

How to leverage a business model to get financing from your Chinese clients and expand overseas?

• Subscription
• Group buying
• Flash Sales
• Cross-border e-commerce
• Overseas or travelling Chinese

Dxc ventures is focusing on cross-border M&A / funding between Asia and the West providing:

• Training on raising, getting financing, merging or getting acquired by overseas buyers especially from China and generally speaking from Asia
• Setting-up KPIs and implementing the recommendations by dxc ventures to be on track for acquisition
• Finding potential acquirers or acquisitions overseas, especially from China and in Europe
• Valuation
• Getting through the acquisition, merger or financing process until completion