Flagship fashion - Hong Kong Institute of Certified Public Accountants

Like their ethereal namesakes,
angel investors
can appear when all
other hope is lost. While
they have saved numerous
start-ups in developed
economies, China has been off their
regular migratory paths – until relatively
recently.
A lack of access to regular capital, burdensome
regulations and a shortage of
funds for research and development can
stifle innovation, but such an environment
can sometimes create the right conditions to
summon angel investment.
The proportion of angel investors – who
tend to invest smaller sums and use their
own money – is unknown, and international
benchmarks such as the Pricewaterhouse-
Coopers’ annual MoneyTree report, which
measures cash-for-equity investments by
venture capitalists, exclude angel funders.
In comparison, private equity deals were
valued at US$217.6 billion globally in 2011, a
7 percent decline over the previous year.
In China, private equity deals totalled
US$20 billion in 2011, a 48 percent increase
WHERE
ANGELS
TREAD
Angel investors are emerging from China
to invest domestically and internationally.
George W. Russell reports on how accounting
firms help connect investors with companies
looking for seed money
Illustrations by ER Grafix
over the previous year. Again, how much of
this sum is angel investment is not easy to
measure. Mainland angel investors are usually
secretive.
Eva Ip, a managing director at Ernst &
Young in Hong Kong who tracks Chinese
venture capital and private equity trends,
says there’s little hard data about angel investment
in the mainland or Hong Kong,
but adds that anecdotal evidence suggest it
is growing fast. (The other Big Four firms
wouldn’t venture any comment.)
Technology entrepreneurs say it is the beginning
of an angel investor boom in China.
“This population is just getting started,” Cyril
Ebersweiler, a French venture capitalist
based in Shenzhen, says of Chinese angels,
who are slowly organizing themselves to invest
more efficiently.
There are possibly millions of people
on the mainland who have extra money to
invest and who are looking for the next big
thing, say experts. “This entrepreneurial
spirit is the key to the future of investment in
China,” says Ip, who is a member of the Hong
Kong Institute of CPAs.
Formal networks are emerging, such as
the Angelvest group in Shanghai, while accounting
firms have also joined the bandwagon
with initiatives such as the Baker Tilly
Hong Kong Business Angel Programme.
“While small- and medium-sized enterprises
receive little support from the government,
there are still some avenues that
start-up companies can turn to in the private
sector,” says Beatrice Fan, a corporate
affairs officer at Baker Tilly.
Furthermore, Chinese angels are investing
beyond the mainland. Eugene Zhang,
cofounder of TEEC Angel Fund, a Chinafocused
investor group in California, has
launched a new incubator called Innospring
to help Silicon Valley entrepreneurs tap into
funds from mainland China. “Innospring’s
focus is on encouraging American and Chinese
start-ups to expand beyond their home
countries,” says Zhang.
Others are investing in start-ups from
Korea to Ireland, while New Zealand’s first
angel fund set up by mainland investors
kicked off last month. Chinese angels are
also using their business and personal networks
to connect start-ups with global financial
institutions such as Citibank.
May 2012 23