Chinese VC investment no big loss to Aussie startups, says Daniel Petre

Treasurer Josh Frydenberg’s blocking of Chinese investment into Australia could slow investment from the country into the Australian startup scene, but prominent venture capitalist Daniel Petre says it wouldn’t necessarily be a big loss to the ecosystem.

The comments from Airtree Ventures co-founder and principal come after the Treasurer rejected a $300 million acquisition bid from China State Construction Engineering Organisation for Aussie-based building contractor Probuild.

On Tuesday, the Australian Financial Review reported Frydenberg was acting on national security concerns, and the belief that the deal would be contrary to Australia’s interests.

It’s reportedly led the Chinese embassy in Canberra to accuse the Morrison government of “weaponising the concept of national security”.

This is just the latest rift in the China-Australia trade relationship, following Chinese blocks on Australian imports of wine, barley and seafood last year.

This time around the effects could feasibly spread to the tech ecosystem, and lead to less cash being up for grabs for growing Australian startups.

A block on state-backed investments into Australia could arguably lead to a reluctance for any Chinese actor to invest in Aussie businesses — including China’s cash-rich VC firms.

Speaking to SmartCompany, Petre says this might not be such a bad thing.

“China has shown itself to be a bad actor,” he notes.

“And, the fact that any and all Chinese companies have to, if asked, share their data with the Chinese government should give any country reason to pause on taking Chinese investment.”

In the past, Chinese VCs have contributed to the later-stage fundraising rounds of Australian scale-ups. Sequoia Capital China, for example, invested in Canva’s latest $87 million raise.

But Petre suggests that — in terms of VC funding — China is not necessarily a major player here and we’ll do just fine without them.

There are plenty of large-scale US and European funds around, he notes, as well as Australian funds “that have capacity to help Australian startups scale”.

Indeed, although the Aussie VC ecosystem is still relatively young, in global terms, it is growing fast.

During 2020, Australian venture capital firms raised more than $1.6 billion in combined capital, destined for investment in Australian and global startups.

Paul Bassat’s Square Peg raised $750 million alone, and Blackbird raised $500 million.

Rachael Neumann, lead instructor at the Wade Institute of Entrepreneurship and founder of Working Theory Angels, tells SmartCompany she doesn’t anticipate any reduction of Chinese VC capital affecting early-stage startups, which are usually her focus.

“Typically, Chinese investors have written larger checks in later stage Australian companies,” she explains.

“But the major Australian VCs have all just closed large funds and have more capital ready to deploy than ever.”

Still, VC funding is about more than money. It’s fairly common practice for startups and scale-ups to seek funding from VC firms based in regions they see as potential routes to global expansion.

And there are local startups for which China would be considered an essential market, Petre admits, although he says “that is a very small group”.

For his part, he would advise startups to consider expansion into the US, Europe, South America and other parts of Asia.

“There is enough of a market in these places to allow for expansion,” Petre explains.

“I would avoid China as a market to expand into at the moment.”