Over the past decade, U.S. entrepreneurs have been increasingly looking to China, India, and parts of Europe for capital. But because of the current crisis, the process of securing international funding has become daunting. In response, OnePiece Connect gathered together experts from around the world to share their insights on international venture capitals and the impact of the COVID-19 pandemic at their virtual event, How to Raise Money from International VCs During the Crisis.
As part of OnePiece Connect’s panel discussion, Jonathan Hua, an investor with venture capital firm Scrum Ventures, was invited to share his thoughts on the topic. Because of Hua’s extensive experience with VCs in Japan and the U.S., he was able to provide insights into the difference between raising capital from a local VC and raising funds from an international VC.
While pointing out some of the more distinct differences, Hua notes that in the U.S., capital mostly comes from institutional investors where the rounds are larger and more fragmented. He says expectations are broader, with more of an emphasis on unicorn valuations than anywhere else in the world. For U.S. investors, M&A, IPO and private equity are all viable exit pathways.
Fundraising: U.S. vs. Asia
However, in Japan, Hua observes that the rounds are smaller and most capital comes from corporations. Entrepreneurs are expected to pursue the IPO route rather than M&A, and to go public sooner rather than later. There is more of a concern with stable growth and exiting early. Hua says the differences between Japan and the U.S. 10 years ago were stark, but the gap has narrowed in recent years.
“If you look at Japan … they care a lot less about unicorn valuations. They just want some stable growth.” -- Jonathan Hua
While the gap has narrowed, it’s still important to understand what remains fundamentally different when attempting to raise funds internationally. This way, entrepreneurs can shift their strategy to align with their target investors. Hua reiterates the fact that Asian countries tend to prefer early IPOs as opposed to M&A. There aren’t as many international companies that are able to pursue M&A deals like in the U.S., where it’s much more mature. But, he contends, some countries, like China, are making the shift toward M&A deals.
“A lot of international VCs, individually, are now being just as widely recognized as many of their U.S. peers.” -- Jonathan Hua
First Steps for Startups Entrepreneurs Targeting International VCs
Hua suggests leveraging social media and internet sourcing, as well as research and data resources, like PitchBook, to understand the landscape and trends in different countries. But he believes the easiest way to get a foot in the door in another country is through incubators and accelerators. There, startups can drill down to who they really want to pursue.
When determining whether to raise funds exclusively from international VCs when targeting specific industries, Hua advises startups to first understand which startup markets are strong in each country. For example, cybersecurity is strong in Israel, while in Latin America fintech and the gig economy are the top sectors. But ultimately, Hua says it depends on the startup’s fundraising strategy.
“If you limit yourself to only looking for specific startups in specific countries to raise money from, you might take yourself out of other opportunities from industry-agnostic investors that could be a good fit for you.” -- Jonathan Hua
Regarding how the current crisis has impacted startup sectors, Hua sees positives and negatives. On the negative side, consumer discretionary spending sectors -- including travel, retail, fitness, real estate, and transportation, among others -- have been negatively impacted by the coronavirus crisis. However, on the positive side, Hua sees industries that might not have gotten attention in the past emerging, including health care, education, food delivery and production, and supply chain. He also sees positives in the future of work, with remote work tools, AR/VR workspaces, and cloud technology to handle the bandwidth all being at the forefront.
Fundraising Tips During a Pandemic
As far as how to fundraise during the current pandemic, Hua believes there are investors still making investments, but the pace has slowed and the bar is higher. He advises starting the fundraising process by reaching out to existing connections to yield better outcomes and closing out as soon as possible.
Hua acknowledges this is a tough time, so he recommends optimizing the business by lowering the burn rate and maintaining relationships with current customers. Use this time to evaluate the business's products and services, while reflecting on how to make the business more resilient.
In closing, Hua left the audience with this advice: Remain optimistic. Look up. There is light at the end of the tunnel.
OnePiece Connect, a business line of OnePiece Work, provides global expansion services for companies with the goal of unlocking international markets. We offer strategic consultation services for global business expansion, along with access to our extensive overseas platform and international network.
OnePiece Connect hosts a series of events throughout the year designed to foster discussion on cross-border trends. Each event brings together entrepreneurs, investors, and product leaders from various industries to share and discuss their insights. The event program is made to encourage collaboration between talented professionals from around the world, spurring growth and an understanding of the opportunities created by the cross-border industry.