A few years ago, Chinese Web/browser game was booming. A businessman, let's call him Mr. Sunting Wong, took 5 million RMB and started his own development studio.
He spent 2m on development. But the game was bad, no publishers would like to sign it.
Mr. Wong decided to publish the game on open distribution channels himself.
But the game was so bad that he's operation cost far exceeded his revenue.
Mr. Wong decided to do what he does best.
He took the remaining 3mil, spend all of them on his own game. Boosting monthly revenue to 5m.
Using the new metrics, and with a bit of sugar coated future planning, Mr. Wong successfully obtained 20m venture capital fund.
He is in a much better position now. He started mobile game development, before the game even finished, he already dump a few millions in advertising. Mr. Wong got 20m further investment before the game even launched because of the overwhelming advertisement campaign.
After a few games like that, and a bit of story telling, Mr. Wong's company was sold at a valuation of 300m.
Sounds like fairy tale? Ask anyone in the Chinese gaming business if this is true or not.
So, back to topic, how do you attract Chinese investors attention?
The goal of capital operation, is through a series of "complicated" operation and management, thus scaling up the fund and its value. The readers of this article, you bourgeoisie from the west should understand this much better than I do.
The Chinese scale up their capital via 2 ways:
- Build up brand awareness and reputation, so that more will join. (for fame)
- Increase capital value and cash out as quickly as possible. (for profit)
So why should the Chinese invest in your gaming studio?
- We have a hot topic, and doing something there is cool right now (VR, AR, MOBA, Pokemon)
- We did games that had a monthly revenue of over 100m (Guaranteed success, low risk)
- Our current metric is as such but in a few weeks (with your investment for marketing) we could reach XXX amount. (fortunetelling)
- We just so happened to fit your investment planning ( some dude just sold his coal mine and looking for new growth)
- Because we are backed by someone important (political)
Why aren't the Chinese investor give you money?
- Your crazy burn rate, and your cash is running out. (I cannot resell you to the next one, and I don’t want you to rot in my hands)
- You are not hot or in our plan (its 2016 and you are still developing a match 3 game?)
- You are in the red sea, lack of innovation, no profitability (I don’t understand your business plan)
- Your metric is really bad. (No hidden message here, you are just bad)
- You are too creative. (Its 2016, and you are selling me cybernetic implants?)
- …….*silence* (Not replying your message means they cant decide but they don’t want to be the one that say no in case in the future you become a cash cow and someone use this against him.)
- You don’t speak Chinese (Chinese investors use their instincts on people, but when it comes to hairy blue eyes Laowai, their magic stopped working)
So to sum up, in order to get the money from China, you need to have a project that's a heated topic, lead by industry veterans, being talked by media, had amazing metric during soft launch and you are able to explain things in Chinese. Making sure that they know they will get both "Face" and "Profit" in a very short time.
Never show that you are running out of cash, if the metric is bad, "make" it look good, try to get a good number on the licensing fee, at least being able to show the number on surface, pretend that you are chased by several guys, even better if someone is their competitor. Always have a lead guy, even if he does not pay at all.
Be really careful:
Don’t sign any ratchet clause, Chinese love doing it, only when you are very desperate, that's a last resort.
Who's money is it from? Does it come from a coal mine boss? Will he stop investing after something else is more exciting? Does it come from Tencent, Baidu, or Alibaba or one of their bannerman companies? Because if you get money from Baidu, you are saying goodbye to Tencent or Alibaba in the future, they hate each others' guts.