Chinese investors are on the hunt for the UK’s next unicorns — start-ups that reach a $1bn valuation — with the launch of a £500m, London-based venture capital fund to invest in European technology companies.
Launched by Cocoon Networks, a Chinese investment firm backed by private equity companies China Equity Group and Hanxin Capital, the UK and China High Tech Fund will seek out businesses that could be successfully imported back home.
It will concentrate on start-ups in the fintech and biotech sectors, as well as those focusing on the UK’s creative industries.
Start-ups that are keen to move into China will be given additional help in navigating the country’s legislation and business laws.
“This is a great opportunity to work together,” said John Zai, founder and chief executive of Cocoon Networks. “The reason why UK and European companies cannot grow to become huge is down to the size of the market. No matter how successful, how good these companies are, they have always had a limit. But imagine if we spread this product, this service, this company to China? It could be 10 — maybe 50 — times bigger.”
The move comes at a time when London’s tech start-ups stand accused of soaking up most of the venture capital funds available in the UK. A report last year noted that during the third quarter of 2015, four ecommerce companies, Deliveroo, the food home delivery company, online furniture retailer MADE.com, Secret Escapes, the holiday deals website, and Prodigy Finance, which provides loans for MBAs, attracted 50 per cent of all London venture capital funds.
The potential impact of the fund, which plans to invest £500m over three to seven years, could be substantial. Europe still lags behind the US in terms of available venture capital. According to Invest Europe, which tracks private equity and venture capital investment, in 2014 — the last year for which figures are available — European VC investments rose 6 per cent to €3.6bn. In the UK, the BVCA reported VC funds raised £288m in 2014 — up from £259m the year before.
“Investment from China and other countries is crucial to improving the access to funding and infrastructure that will help these start-ups to scale quickly,” said Gavin Poole, chief executive of Here East, the digital quarter in London’s Olympic Park.
Chinese investors have been increasingly active in the UK in recent years. Last year, Beijing Kunlun Tech Co invested £22m into LendInvest, a P2P mortgage platform. And just last week, Huanxi Media, listed in Hong Kong, announced it was joining forces with Mubi, a UK film streaming company, to launch a similar service into China.
“The Chinese economy is vastly in need of innovation which comes from either competition in the domestic market or from international inspiration,” said Cha Li, founder and managing partner of iStart Ventures, a tech incubator and angel fund.
“Chinese investors have started exploring opportunities outside of China, in order to grab hold of global cutting-edge technology as well as to diversify their portfolios. In light of this, London serves as the best hub in Europe.”