China’s First FinTech Angel Fund

China’s First FinTech Angel Fund

China’s First FinTech Angel Fund

China today witnesses the founding of FinPlus(www.FinPlus.vc), the country’s first angel fund and accelerator that focuses on investing in startups that feature financial technology (FinTech). Fugel Holding, the company that is backing FinPlus, decided to make the move at this time as its management team sees now as the right moment to develop FinTech in China.

Although the Chinese government has recently rolled out a comprehensive set of policies regulating the operations of Internet Finance, Fugel Holding holds the opinion that now is still the most propitious time for the development of FinTech in China. (What western countries call “FinTech” is usually referred to as “Internet Finance” in China. The concept behind the two terms are essentially the same, however “FinTech” values more on the role of technology in improving and complementing traditional financial services. When interviewees mention “FinTech” in this article, they are referring to the meaning in the Western context. The Chinese market believes that the development of Internet Finance has laid the foundation for FinTech.)

Should its move be considered as a forward-thinking action or a bad decision made at the wrong time?

Xiongjie Yang, Fugel Holding’s CEO, firmly believes his judgment is correct. The Company has successfully incubated several FinTech startups.

Mosso Lau, head of FinPlus, said, “Ant Financial’s success says it all. The company has recently acquired US$4.5 billion through its series B round of financing in Chinese market and is estimated to be worth US$60 billion in the evaluation that followed. According to market forecasting, the Company could be worth as much as the world’s largest bank, Industrial and Commercial Bank of China, if it goes public someday. Ant Finance is also a leading FinTech company in China.”

Why choose FinTech Now?

China has recently rolled out regulations for FinTech, which can be interpreted as the meaning that the country is positive about the development of this sector and expects to provide a better environment for its development while attracting more FinTech startups through a series of actions.

As one of the founders of FinPlus, Lau has adequate reasons for moving into FinTech now. He said, “People in China have some misunderstandings over FinTech. FinTech, is to leverage the power of technology to improve and complement traditional finance services, which helps to promote the real economy more effectively. However, given the environment in China, FinTech is more about taking advantage of the innovation in modeling and theoretical approaches to quickly fill in the blanks in the financial market. One of the outcomes of this is the rapid development of online lending in China, which is a new way of financing stresses that one must be innovative in terms of business model. However, as the market environment does not provide enough protection, the innovation behind the business model can be easily duplicated and problems may arise, therefore, may solicit a series of negative reactions from the larger community. The mission of FinPlus FinTech Angel Fund is to provide investment and accelerative services for innovative FinTech startups around the world through the construction of a FinTech Eco-System.”

Lau claims that the Chinese market has some misunderstandings over FinTech, which explains why many companies that exhibit great potential failed to receive sufficient attention and support, and this is where FinPlus can help.

“To some extent, China’s FinTech is taking the lead around the world. 7 Chinese companies were among the top 100 FinTech companies in last year’s ranking, of which only two were involved with online lending. Both of these companies have recently started investigating what they could do in terms of innovation in the technology, rather than limiting themselves to simply facilitating peer-to-peer lending. Moreover, Zhong An Online P&C Insurance, a collaboration of two leading Internet companies and China’s largest finance group, Ping An Group, came to the fore on the list. Their key technology, collecting and analyzing big data, is what receives the highest attention worldwide now.”

Lau listed several Chinese FinTech companies that are less well known, including Ping++, WeCash and Micai. They fit the genuine meaning of a FinTech company as Mr. Lau described, as they own core technologies in their respective fields, but are less well known by the larger community.

The fact that China is regulating Internet finance while taking action to encourage it at the same time seems to support Lau’s judgment.

Recently, Chen Yulu, the vice governor of China’s Central Bank, mentioned in an important conference that China would soon inaugurate the 13th Five-Year Special Plan In Finance, a plan focusing strongly on eight key topics, with the most important ones being the construction of a financial market and the building of a finance system that is multi-tiered, diversified, fully-functional and flexible, with its many parts complementary to each other.

Obviously, the best way to build a finance system that is “multi-tiered, diversified with its many parts complementary to each other” is to encourage the development of Internet Finance, just as what Western countries have been doing.

Lau said, “Chinese Internet Finance companies have achieved some success in the world. KPMG has recently released a report saying that Chinese Internet Finance platforms witnessed the arranging of financing to the tune of US$101.69 billion in 2015, while the rest of the Asia Pacific market created a mere US$1.12 billion. In other words, the total amount of financing generated by the Chinese market was over 90 times that of the rest of the Asia Pacific region. China’s per capita Internet financing reached US$75, whereas that of India, a country that has about the same population, was only US$0.03.”

Accompanying the development of China’s Internet Finance is not only the prospect of the development of FinTech in China but also the excitement that FinTech is generating worldwide.

According to CB Insights, a venture capital database, the scale of financing for FinTech has been rapidly growing globally. While US$4.05 billion was raised in 2013, US$12.21 billion was raised in 2014, tripling in one year with 11% being A round investment. The number exceeded US$20 billion in 2015, a growth rate of 66%.

Invest Only In FinTech Startups that Own Core Technologies

“Core technology” is a term Lau often mentions a lot. On FinPlus website (www.FinPlus.vc), the definition of FinTech is given FinTech is described as the following: As a sector newly upgraded from traditional finance, FinTech takes advantage of technology to increase the level of efficiency and decrease the cost in . The application of information technology greatly increases the size of the audience for financial services and raises the frequency for the need and use of the finance services being provided.

Such an understanding of FinTech leads to the emphasis on the core technology in making investment decisions.

“Another reason is that the Chinese market and society have some misunderstandings about FinTech. There are some special reasons for this, with the most notably being online lending has been interpreted in public opinion as a key feature of Chinese Internet finance. This has also contributed to the deviation during the development of FinTech in China. Some companies have emerged in the online lending segment are indeed successful, but they have also created some problems that led to people’s misunderstandings of FinTech, resulting in two negative outcomes: first, some FinTech companies that are genuinely offering needed services are not receiving adequate attention and are having a hard time growing; second, the market tends to be too conservative when it perceives radical innovations from FinTech.” For this reason, Lau added, FinPlus shifts the focus on the startups that have taken a radical approach to innovation and hopes to encourage talented individuals in the traditional finance sector to work in FinTech and bring about necessary changes.

Lau continued, “FinPlus is building a FinTech incubating and accelerating system, which will provide support for FinTech projects with full services including angel investment, Operating fund supporting, operation model counseling, business resources, human resources, and guidance in user resources. Moreover, FinPlus’s activities are not limited to China. We invest wordlwide. FinPlus is now in discussion with Imperial College London on potential collaboration.”

In light of how Lau perceived the opportunity, he gave the investment plan a name with a definite cosmic feel: The Wormhole Programme. (16S3 batch FinPlus Wormhole Programme is receiving application, will be closed on 31 July.)

According to the FinPlus website(www.FinPlus.vc), at each stage of the six-month Wormhole Programme, FinPlus plans to introduce innovative FinTech startups around the world to the Chinese market and identify local entrepreneurship projects in China, creating a space where FinPlus can provide angel investment and follow-up financing services for the startups in the FinTech while opening up opportunities for industry leaders and top executives of companies in the field to engage in in-depth discussions about the startups.

As for the investment plan, Lau not only outlined the Wormhole curriculum, but also laid out the details of the post-investment services that are an integral part of the program — free co-working offices, 1 to 5 million RMB in angel investment funding for each startup, resources of 1 million quality clients who are users and businesses with connections to financing organizations across the industry, assistance in forming resource alliances (areas include product design, Internet big data processing, user experience design and analysis, market analysis, marketing promotion, legal and accounting as well as human resources), featured reporting by Chinese and international media, opportunities to receive ongoing investment, forward-thinking FinTech MBA classes and the latest industry news, among other resources.

“We have invested in and incubated a company called Touchouwang. In terms of the scope of their business, the company focuses on the securitization of housing leases. It is an innovative concept and has huge market potential. Following the investment, FinPlus provided a whole range of services from public relations planning and team building to identifying business resources. After this initial stage of assistance, we will look at several key directions for how we can plan their further development: the possibilities are smart investment counseling, finance big data analytics, innovation in credit verification, innovative projects in the workflow chain for Internet insurance, innovation in asset bundling and company financing. Interested startups can look up us through our official website (www.finplus.vc).”

Lau said that FinPlus’ ultimate goal is to build a FinTech Eco-System in China that integrates all the relevant resources across the industry.

“We welcome FinTech companies that are growing, new finance services organizations, financing data platforms, credit verification platforms, financing system developers, solution suppliers, investment organizations, media and traditional finance organizations to join the FinPlus Eco-System. I firmly believe that what we are doing can push China’s Internet Finance sector into the real FinTech area, which is the essence of innovation in finance as we understand it.”

The reason that China’s first FinTech angel fund was founded in Shenzhen, according to Lau, is that Shenzhen has always been China’s Capital of Innovation. As shown in the City Innovation Index of China, Shenzhen is ahead of China’s other major cities in terms of innovation and development.

“Shenzhen is a city that does not laugh at failures. Here in Shenzhen we encourage innovation. Courage is specifically needed when devising innovation in the finance sector, as all the participants know exactly whom they are fighting against. This means we need brave participants, and Shenzhen is a city with no lack of warriors.”

In conclusion, Lau explained, “Undeniably, there are some roadblocks in the development of China’s FinTech at the moment. However, considering that the environment and the policies being put in place are looking good, we have sufficient reason to believe that FinTech can achieve a lot in China. The roadblocks provide exactly the directions that we need to work on. This is also why we found FinPlus. We hope to build an all-inclusive FinTech Eco-System similar to what Ant Finance did. In this Eco-System, China’s FinTech companies will be valued and will have more resources and an optimal environment for their development.”

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Shayne Heffernan Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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