Investing in innovative companies SMEs and start-ups is a must to foster innovation. Unfortunately, SMEs have little or limited access to capital markets in China. It shows as the share of SME loans in the chinese banking financial institutions is less than 20% and favors State Owned Companies because SMEs are deemed too risky, too small, too…. Other factors are high NPL ratios vs corporate lending (different risk profile) and high reliance on internal financing channels. Currently China banks lack a credit risk assessment system, poor corporate governance and has information asymmetry between what the banks need and what the SME can provide.
It is necessary to find solutions to unlock financings for SMEs, because without funds needed for growth, SMEs will stop investment plans, stop transforming ideas into reality, stop innovation, … Moreover, with the credit crunch and crisis, banks are reluctant to play their normal role of providing liquidity and supporting investments in the real economy. In Europe, SMEs rely more on bank loans than their American counterpart (Silicon Valley) and in China this role is taken by investors.
Setting up a business is never easy, but entrepreneurs in China have greater access to funding than those in more developed markets like Canada, Australia and Japan, while the cost of starting up a mainland enterprise falls way below the average seen across other Group-20 economies. China has taken third place, just behind the U.S. and U.K., among G-20 countries for access to funding. Funding is partly coming from government-backed funds, as well as private equity and venture funds.
- Entrepreneurship – We assist start-up teams with senior management expertise in operational roles, according to the company’s needs, in its crucial early stages.
- Incubation – We provide start-up teams on a need basis with incubation services such as office space, legal and tax advice, incorporation and financial services, access to industry and government networks as well as to funding resources.
- Angel Investments – We make seed investments in selected start-up teams with products in information technology, lifestyle and services targeting the Asian markets. Typical seed investments range from $xx K to $xxx K.
What are the different equity options offered to finance an SME or Start-up in China? How can a Start-up finance the assessment of an initial concept or a new product development if the Start-up does not have enough cash or has no access to loans because of the risk profile? The solution is risk capital which finances innovative and fast growing SMEs/Start-ups. There are different equity financing options depending on your development stage. For each development stage, there are specific investors for certain amounts of funding with specific requirements.
SEC accompanies SMEs/Start-ups in the fund raising process, but it first starts with a feasibility study of the fund raising (sector, size, …) to see whether the company is qualified. SEC prepares the material with the company, contacts suitable investors and answers their questions, sets up conference calls, prepares site visits, participates in the negotiation and closes the deal.