My Learnings from China: Vol 1: The Power of the Business Sherpa

Venture capital is about creating returns in an alternative asset class. More ‘romantically’ it’s about fueling innovation (and making money through the process). Innovation is one of those words that mandates one’s constant exploration for how people, entities, and concepts can be combined. In July, I embarked on a week-long excursion to China, to speak at a conference set up by the Foreign and Overseas Chinese Affairs Office of the People's Government of Wuzhong District, Suzhou and Chicago ArchAngels Capital Group, and seek out this elusive innovation.

My goal was to explore the Chinese market and connect with entrepreneurs and investors. I wanted to find new innovative funding channels for US entrepreneurs, as well as understand what concepts, needs, and new ideas were being generated and how they were all being monetized. It was thrilling.

My time was divided between the cities of Shanghai (24 million population) and Suzhou (17 million population). The sheer size of these cities must be experienced to be understood…. Forests of skyscrapers, most over 50 stories tall, stretched over the landscape making Chicago feel small and empty in comparison. Old and new were mixed together, and the magnitude of both was amazing. When I wrapped my mind around the possibilities, I was drooling at the opportunities the country, market, and entrepreneurial environment presented. Leveraging China in support of innovation and driving growth became the summit I wanted to understand how to scale!

It became crystal clear that my entrepreneurial chops, on their own, would be insufficient for a solo ascent of the mountain that is China’s absolutely massive market. The truth is, no matter how much experience you have in building companies, raising capital and winning new clients, breaking into the Chinese market, like climbing Mount Everest, requires a sherpa. Or a team of them.

As I began my “hike” up the Chinese entrepreneurial ecosystem at the conference, I relied heavily on my in-country partners. I quickly realized legal, business, and equally important, cultural expertise, were necessary to have a chance at harnessing the opportunity China presented. At a high level, four areas in which local prowess was absolutely necessary, became apparent:

  • Untangling the Legal Ropes. Similar to the US (arguably one of the most developed legal systems in the world), there are nuances to China’s legal system that must be understood. While intellectual property and employment law and foreign ownership, all have their equivalencies, as with US law, they absolutely require an expert to mitigate risk and ensure that the opportunity you’re pursuing can be captured. Understanding the ins and outs of the Chinese legal system is not something you want to take on on your own. Partnering with a local, who is already familiar with the system is your best bet to navigating the process successfully and with minimal roadblocks.

  • Navigating the Business Trail. Negotiating joint ventures as well as distribution and licensing agreements, requires a level of detail and understanding that only a good partner can provide. Term/volume agreements, pricing, transferring money in and out of the country, and many, many, other critical details that are more basecamp than summit level-knowledge, require skill and insight. Don’t be afraid to ask for guidance, even on simple matters, from multiple people. It may slow the process down, but it’s better to be safe than sorry when working in an unfamiliar market.

  • Adjusting to the Cultural Altitude. Everyone I met in China was incredibly warm, welcoming, and eager to make the connection. What became clear was that relationship building, there, is a multiple step process. For instance, the concept of gaining and losing “face”, is foundational and subtly interwoven into each conversation. The word cloud involves “honor”, “character”, “reputation” and “standing”. It is a culturally ingrained reputation management that can make or break relationships. Working with a local ally helps ensures that you’re giving and getting face, versus losing it.

  • A good interpreter (A must!). My good intentions, and the potential business partner’s good intentions, will never turn into a deal without someone who has mastery of the subtlety of what each side is saying, and can communicate that accurately.

Bottom line --- The right partner in China will be familiar working in a massive, directed economy. They will understand what projects receive government support and which don’t. They will know how to angle your pitches to garner funding and they will have a comprehensive understanding of their nation’s legal system. Their expertise is key to learning the Chinese market’s ropes. While working with a partner does not guarantee not getting screwed over (because let’s be honest, business is business EVERYWHERE and no country has a monopoly on risk), having an expert is a must.

The journey of monetizing your idea, or building a business in China, is not one that I, or any foreign entrepreneur for that matter, can go alone. China is a vast and inspiring ecosystem. The necessity of establishing strong, local business connections in the market you are looking to break into is imperative, because going to China is essentially starting a whole new business.

Is managing the complexity, the nuances and the effort worth it?

Yes, but only if you do it right. China needs to be experienced to really be understood. Its size and scale certainly recalibrated my definitions of “opportunity” and “large”. If you can map your path to the top and build your in-country team of partners and allies that can help you, then the peak is certainly within reach. My trip yielded both, and K8 Ventures is exploring a US incubator tied to some of the capabilities that exist in China.

We haven’t yet reached our ‘basecamp’, but we’ve taken the first steps.

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