Turning matchmaking into moneymaking
Updated: 2014-11-21 08:44
By Cecily Liu(China Daily Europe)
88 Initiative pairs Chinese students - and their capital - in the UK with high growth companies
Richard Heygate and Rob Wylie, two famous figures in Britain's venture capital industry, are spearheading an innovative project to unlock investment opportunities from China.
Their initiative relies on the power of trust, or guanxi as the Chinese call it, and connects investment opportunities through the accelerating number of Chinese students educated in the United Kingdom.
Richard Heygate (left) and Rob Wylie feel they can select many investment opportunities for Chinese graduates from British universities. Cecily Liu / China Daily
Central to the initiative is the fact that many Chinese students in the UK hope to stay and work after graduating but are unable to do so because of Britain's strict immigration laws.
Those with capital would be able to remain in the country with the UK's entrepreneur visa, which requires an investment of up to 200,000 pounds ($318,000; 255,000 euros).
The idea would match the Chinese graduates with existing growth companies and help the students funnel their capital into these firms, where they then become employees and further their careers.
The new matchmaking company is called 88 Initiative and was established three months ago. About five potential investment opportunities have already been identified, with investments expected soon.
Heygate, a former partner at McKinsey and inventor of the online ATM, and Wylie, co-founder and chairman of the investment firm WHEB, have good connections in the UK venture capital world and feel they can select many investment choices for Chinese graduates.
The big picture is to use these Chinese graduates' presence to attract further investment into British growth firms since a majority of the graduates willing to take this path tend to have wealthy parents and are incredibly well-connected in China's investment community, Heygate says.
Both say that if this wider Chinese investment channel opens up, it can become a game changer for UK companies that want to access the Chinese market and for the UK venture capital industry, which is starved of capital.
One of the main reasons why VC firms have had difficulties raising funds is because of investor perception that there is a lot of risk in VC investment and that returns from VC ventures have, on average, been low, Wylie says. That makes such investments much less attractive to investors compared with later-stage private equity investment, he says.
There are many risks involved in VC investments, especially in the early stages. Research may not deliver the desired outcomes, costs could escalate, the product may not receive the required regulatory approvals, or the product may prove unpopular with the market, he says.
To reduce these risks, 88 Initiative has a strategy of selecting companies in a relatively stable growth stage, with products or technologies that have at least local market acceptance and that are ready to be promoted internationally.
Heygate says these firms will have a greater chance of succeeding if they establish connections in China, potentially commercialize their products in the country and target its large market.
"A lot of British companies have given up looking for investment from China because they can't find someone who would do the deal," Heygate says.
"The first step is to have some Chinese staff, who can maintain relationships with Chinese investors for the long term, rather than relying on external advisers. Secondly, their presence adds a degree of security for the Chinese investors," he says.
He admits that managing expectations for Chinese investors could be difficult because China's rapid growth has most investors itching to make their money quickly. This, he says, is not always possible for the VC sector because innovation and technology development take time.
Heygate says Chinese graduates can play a role in helping investors trust their investment and understand that the projects can bring in long-term stable revenue. Graduates can also inform investors that these technologies or products are what China needs to grow.
Heygate's team believes the matchmaking process should also focus on companies in specific sectors that the Chinese government is strategically focused on. These key sectors are clean technology; healthcare; advanced manufacturing; the technology, media and telecom industry; and new materials.
Before 88 Initiative was established, it existed as a loose network, using networking opportunities to connect Chinese investors and VC opportunities in the UK.
Heygate says he came up with the idea when he met a bright young Chinese woman, who then introduced him to other bright young Chinese people.
For Heygate, it was an epiphany.
"It was amazing meeting these bright young Chinese people, and in the UK, there are so many such networks initiated by like-minded young Chinese people," he says. "But this community is almost inaccessible to the British business community."
In his determination to be more deeply connected to this community, Heygate attended a meeting of young Chinese in London.
"There were about 30 young Chinese people, all sitting around a table, speaking Mandarin," he recalls.
Looking back, he says it was a challenging but rewarding experience, as half of the young Chinese at the meeting stayed in touch with him afterward.
Currently, 88 Initiative has around 10 equity partners, half of whom are Chinese. It also has Chinese interns and a loose network of around 40 students or graduates who help out part time.
The company takes a commission from the money invested in UK firms as a result of the matchmaking process.
Lu Yingni, a director at 88 Initiative, says the program provides a growth platform for Chinese graduates to further their careers in the UK.
"We have selected companies with huge potential in China as well as experienced management teams. Graduates will get a well-rounded experience by being a part of these teams and leading the Chinese expansion, instead of starting their careers in an entry-level position in big corporations," Lu says.
She says the students will accumulate management and operational experience, as well as an understanding of the UK business environment.
"Our service does not stop at the matchmaking level. We provide management skills training and coaching so graduates can improve and learn from their experience with 88 Initiatives' management team," Lu says.
The program has been well received by Chinese students, although doubts remain.
Wang Dingqian, a master's student at the Imperial College London, says the program poses risks because most graduate students are very young and lack experience in operating a business.
Zhang Boyan, a master's student at the University of Nottingham, says he would rather go through the normal graduate entrepreneurial route and learn the process of establishing a business step by step.
The 88 Initiative is also working with established partners in China to reach a larger population of Chinese students. One of them is Career Frog, a career advisory company headquartered in Shanghai and founded in 2010.
Career Frog helps students in China and overseas find a career path through training and advice. Founder and CEO Kelly Lu says the company comes into contact with thousands of students each year.
She says 88 Initiative's business model is professional because its founding partners have great experience and contacts in the VC field.
Zhang Kexin and Laura Davis contributed to this story.
(China Daily European Weekly 11/21/2014 page20)