The Negotiation

In this episode of The Negotiation, we speak with Benjamin Qiu, Partner at Loeb & Loeb LLP, who has recently relocated to HK from Beijing. After studying both computer engineering and law in the US, Benjamin moved back to Beijing and joined Google, later leaving in 2009 with then Head of China for Google, Kai-Fu Lee, to act as legal counsel for his raise of $115m USD in a venture capital fund called Innovation Works across the table from Cooley LLP, whom he joined shortly after the deal was done, before joining Loeb&Loeb later on. We start out talking about the early days of law in China, and then how he came to be involved in Innovation Works, and how in 2009 they knew that the future of internet in China had arrived via mobile. I ask Ben what the terms and investment sizes were 10 years ago when Innovation Works started investing in early-stage startups in China and how it differed from YCombinator and why. I ask Benjamin about the legal frameworks of today in tech in China, do they protect Chinese entrepreneurs and their IP, and how closely it is mirroring what one would find in Silicon Valley. We also talk about what Chinese investors look for in early-stage startups and whether it is completely safe now for foreign-led early-stage startups to take investment from Chinese investors. We discuss the stress that exists, even on local success stories like ByteDance and not just the Facebook’s and Google’s of the world, in order to play ball with China’s Big Brother and toe the information line properly to be allowed to thrive. Lastly, as we begin to wind down this fascinating conversation, we talk about what a liquidity event might look like for a technology company based in China, and what some of the most interesting sectors of innovation are right now in China that bold foreign investors may want to look at putting their money into. Enjoy!

Show Notes

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.

What is The Negotiation?

Despite being the world’s most potent economic area, Asia can be one of the most challenging regions to navigate and manage well for foreign brands. However, plenty of positive stories exist and more are emerging every day as brands start to see success in engaging and deploying appropriate market growth strategies – with the help of specialists.

The Negotiation is an interview show that showcases those hard-to-find success stories and chats with the incredible leaders behind them, teasing out the nuances and digging into the details that can make market growth in APAC a winning proposition.