The Five Models of Angel Investment in China

Angel Investment is still a new concept for most people in China and has only really taken hold in the past two decades.According to a report released by Zero2IPO Group, a PE/VC research company in China, there are five major models of angel investment in the PRC--Individual Angel Investor, Angel Investor Team, Angel Investment Fund, Incubator and Angel Investment As a Platform.

Model 1: Individual Angel Investor

There are two major groups of individual angel investors in China. The first group is made up of successful entrepreneurs and venture capitalists, while the other group is made up of professionals such as attorneys, accountants, executives in large corporations and other industry experts.

Some well-known individual angel investors currently active in China are ZHU Min, XUE Manzi(Charles Xue), LI Kaifu(Kaifu Lee), LEI Jun, ZHOU Hongyi. Additionally, some successful entrepreneurs such as XU Xiaoping and ZENG Liqing can even be considered as part of a new wave that is driving China's current angel investment industry. The report emphasizes that the country's affluent second generation, especially in China's South, is turning out to be a new generation of angel investors.

Model 2: Angel Investor Team

For individual angel investors, they cannot invest in too many start-up companies because of limited energy and time. As a result, some individuals group together to work with other angel investors in much the same way as angel groups in the United States.

Some well-known angel groups in China include Shanghai Angel Investment Club, Shenzhen Angel Investment Club, AAMA Angel Group, K4 Forum Beijing Branch and Zhongguancun Entrepreneurs Alliance.

Model 3: Angel Investment Fund

In many cases, these angel investors combine to set up investment funds together, so that each individual investor can complement each other to benefit the fund overall. For instance, one investor may be specialized in company operations, while another investor may be specialized in human relations.

Some well-known angel investment funds in China include Zhen Ge Fund, which is set up by Xu Xiaoping, a former director of New Oriental Education Group; Today Investment, which is set up by He Boquan, the former chairman of the board of Le Baishi; Dexun Investment, which is set up by Zeng Liqing, co-founder of Tencent.

Model 4: Angel Investors as Incubators

The concept of incubator can be defined in both a broad sense and narrow sense.In the broad sense, an incubator includes science parks comprising many high-tech enterprises, such as the Shenzhen Gaoshan Enterprise Park of High Technology, the Shanxi Yangling Agriculture Park of High Technology and the Shenzhen Yantian Biology Park of High Technology.The narrow sense refers to institutions that help with the commercialization of one or more projects from the start-up company being invested in.

The incubators in China can be divided into several groups, which are usually in the form of high-tech zones, science-technology systems, university technology parks, private enterprise-owned incubators, and innovation (venture) parks for students returning from studies abroad. By the end of 2010, there were nearly 800 business incubators in China, 346 of which were state-level technology incubators. According to a report by Zero2IPO,there are currently more than 51 thousand companies being incubated in China, with the total number of employees working at these companies numbering more than 1.05 billion. According to a report by Zero2IPO, there are currently more than 51 thousand companies being incubated in China, with the total number of employees working at these companies numbering more than 1.05 billion.

Model 5: Angel Investment as Investment Platforms

Along with the development of the Internet, including mobile phone access to the Internet, in China, more and more application terminals and platforms have begun to support compatibility to external systems, which gives start-up companies the opportunity to establish businesses based in the growing application development industry. Take Apple's App Store as an example--there are many applications and games released by different kinds of start-up companies there.

Some platforms have also been setting up investment funds in order to encourage innovation and new products. These funds help start-up companies to develop quickly and also bring in more resources to the platform being invested in.