Chinese investments in U.S. unicorns are surging. According to data provided by the Wall Street Journal, the number of startup deals with Chinese funding swelled from 1.7 % to 4.1% between 2011 and the third quarter of 2016. China funders put money in nearly 600 U.S. start-ups during that period. That's a high figure, one that clearly illustrates how bullish Chinese investors have become toward American unicorns, many of which have valuations the Chinese consider a bargain in comparison to their own startups. (See also, Chinese Investors Pour Money into AR Startups.

Chinese internet giants Alibaba Group Holding Ltd (BABA) and Tencent have opened U.S. investment arms, and firms such as Gopher Asset Management, a unit of Chinese wealth manager Noah Holdings Ltd, is allocating over 10% of its $16 billion in assets to invest in the U.S. and other overseas markets, the Journal says. 

Lost in Translation

But Chinese investors face a problem that is making some American startups less amenable to their overtures. The issue here is the politesse of deal-making. Where American venture capitalists tend to conduct a thorough due diligence on transactions before offering startups their term sheets, their less sophisticated Chinese counterparts employ hardball tactics, which include trying to renegotiating the terms later. 

“Behavior like this could lead to a bad reputation with founders and with others in the venture community,” George Zachary, a partner at Cambridge, Massachusetts-based Charles River Ventures, an early-stage venture capital firm, told the Journal.

On the Outside

Another reason why Chinese investors are frequently left out when it comes to leading a funding round, for instance, is that they don't have the long-term relationships with Silicon Valley startups like the American VCs, many of whom are former entrepreneurs and already familiar with these players as past colleagues.

Yet even with these obstacles, Chinese funders have continued to widen their foothold in the American market. As the U.S. funding climate cools, there are still many startups and entrepreneurs eager for Chinese investments. (See also, Venture Capital: Tech’s Slow Motion Meltdown). 

Speaking to the Journal, Jay Zhao, a partner at San Francisco-based Walden Venture Capital, said his firm currently has no Chinese limited partners; however, they are contemplating “accepting a small percentage of Chinese investors in its new fund next year as a strategic move, so that they can invest in companies with similar technologies in China and the U.S. simultaneously and let them learn from each other.”

Biggest China Funders

These challenges aren't deterring China funders. According to data from CB Insights and Crunchbase, the most active Chinese investors of American startups from 2010 to 2016 include Cherubic Ventures, which participated in a $20 million Series A funding round for Luxe, an on-demand valet parking and car services app in March 2015; IDG Capital Partners, which led a $1 million round for App Annie, a provider of apps data in July 2011; ZhenFund, which participated in a $25 million Series C funding round for online art platform Artsy in March 2015 and WestSummit Capital, which participated in a $30 million Series F round for database developer Couchbase in March 2015.

 

 

 

 

 

 

 

 

 

 

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