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MAI Capital launches $20 million Dragon Egg Fund for start-ups to crack China

April 12, 2016

This is an article featured in the Australian Financial Review, written by Yolanda Redrup | Tuesday, 11 April 2016

Australian start-ups wanting to expand into China will get a $20 million helping hand, thanks to a new fund being launched called the Dragon Egg Fund.

The fund has been founded by ICD Property's Michael Mai, and will be run through Mai Capital. It will focus on tech businesses across five sectors – logistics, health, cleantech, education and agriculture – which the venture capital firm believes will have the most success in Asia.

Mr Mai believes there is a significant gap in the market to support emerging firms wanting to do business in China.

"We will look to invest in emerging companies that are positioned to tap into the enormous Chinese market. This offers investors the chance to invest in high growth innovative companies and provides these companies with a fast track to the world's most populous country," he said.

"We want to do a lot more business between Australia and China to further the two countries' economic benefits. We see them as the perfect joint venture. In Australia there are too little people and a lot of resources, China has too many people, too few resources and too much competition."

CHINESE START-UP SCENE

Mr Mai, whose other property development firm aims to ­grow its development pipeline to $2 billion by 2017, said there was a strong start-up scene in China, which has grown significantly in the past two years.

"Investment increased five times in 2014 thanks to the success of Alibaba," he said.

"Australian companies should think about Asian markets a lot more.There's a language barrier and political differences, but it's a short flight, a three hour time difference and there are political strengths between the governments."

The fund is also a chance to diversify the Mai families own investment portfolio and is made up predominantly of the family's money, and topped up by with funds from other high net worth individuals.

The Dragon Egg Fund comes on the back of Signal Ventures announcing that it is fundraising for a $10 million fund targeting start-ups seeking seed capital.

The venture capital firm, which is founded by Melbourne-based start-up industry backer Atlanta Daniel and US-based tech investor Niel Robertson, is expected to have finalised fundraising by the end of April.Like Signal Ventures, the Dragon Egg Fund will invest in early stage companies, up to a so-called series B or second funding round, with each investment likely to be between $150,000 and $500,000.

SOLVING PROBLEM

Mr Mai said Chinese start-ups and Australian startups often had the opposite problems.

"Chinese start-ups are too narrow, they're solving a problem that's only domestic and they don't have a global strategy," he said.

"But in Australia, they're too broad and they want to do everything. They have a global focus, but we want them to think about the Asian market as well."

Dragon Egg's investment manager Tom Ellis was formerly in banking working for Commonwealth Bank and Bank of Melbourne and has also founded his own firm Pebble Ventures. 

He said Mai Capital also intended to set up larger funds for the companies it invests in to help support them through later stage funding rounds.

"The key for this specific fund is to deploy capital intelligently. We're looking to raise capital beyond that though to help take those companies to another level, at which point the risk profile of the investments will be different," he said.

"We're working through final due diligence on a few deals now. There is some phenomenal stuff in cleantech and agriculture where we can see a really broad application."

There are not many Australian start-ups currently focusing on China, but there is a demand for quality Australian products, as shown by the success of companies such as Blackmores and A2 Milk.

"The Chinese market understands and loves Australian products ... That's why we see our strategy as unique and we've had strong support from other funds in the ecosystem," Mr Ellis said.

Read more: http://www.afr.com/technology/mai-capital-launches-20-million-dragon-egg-fund-for-startups-to-crack-china-20160406-gnzk57#ixzz469aGsFgq 

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