Benjamin Qiu | China's First RMB Accelerator Fund, The Development of China's Legal Landscape, & Exit Options For Startups in China

Today on The Negotiation, we speak with Benjamin Qiu, Partner at Loeb & Loeb LLP. Benjamin is an “attorney focused on the capital market, venture financing, corporate governance, IP asset development, and technology protection & licensing.” He discusses the legal side of startup financing in China, of which he first developed expertise during his time at Innovation Works (China’s answer to Y Combinator), where he served as both fund director and a key member of its legal team.

Benjamin had the opportunity to join Innovation Works in 2009, an interesting time in the startup world. With his background in international property law, this was his first time stepping into the venture capital space. 2009-2010 saw quite a bit of liquidity due to a lot of government stimulus around the world at the time. The first iPhone came out in 2007 and mobile was on the rise exponentially. Early-stage funding was focused on mobile startups.

While Y Combinator used a more “cookie-cutter” deal structure, Innovation Works created the groundwork for new technologies before scouting the market for visionary entrepreneurs to lead innovation and form a startup based on the fresh technology.

The legal framework in China, as drawn up by the National Venture Capital Association (NVCA), essentially borrows from that of Silicon Valley. In the past, it heavily favored the investor, but with the high number of options startup entrepreneurs have today, the law has approached a “middle ground” structure that protects both investors and entrepreneurs.

Asked about similarities between the discovery process in China versus that of Silicon Valley, Benjamin says that “80%-90%” of startup investors look for the same things in a founder, the most important being a firm grasp of industry knowledge. The biggest difference is that local entrepreneurs are the preferred choice, as opposed to Silicon Valley whose many resident founders hail from different cultural backgrounds.

A foreign tech startup looking to get funding in China would “find it useful to have outside investors who, on top of the money, also provide local knowledge and guidance.” They can also potentially help the founder in finding the best staff and leadership for the company, and even facilitate deals. Benjamin notes that startups that deal with content such as Google and Facebook will have a significantly tougher time getting off the ground in China compared to an Uber or an Airbnb.

M&A and IPO opportunities in China have seen a lot of convergence with Silicon Valley’s own realities. Until several years ago, a lot of the large tech companies (i.e. Alibaba, Tencent, etc.) were not known to willingly acquire younger startups. But, as is characteristic of the Chinese market, things drastically changed. In more recent years, many acquisitions took place. Also, in spite of current tensions between the U.S. and China, the U.S. is still the number one place that publicly lists rising Chinese companies.