Cleantech Finland event presentation June 4th 2015.

1. A project funded by the European Union
Implementing Partners
Chinese Investment Environment
Working with Chinese Industrial Partners
and Investors
, June 04 2015

2. Get Ready for China!
The EU SME Centre is an EU Commission funded project which helps EU SMEs prepare to do business in China by
providing them with a range of information, advice, training and support services.
The Centre is implemented by a consortium of six partners and was established in October 2010. It successfully
completed its first phase in July 2014 and has now entered its second phase which will run until July 2018.
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3. Speaker Biography
Mikko Puhakka:
More than 20 years global technology business experience in EU, USA and China with
main focus on the Chinese market in the last 10 years. Mikko’s experience covers
''all sides of the table'' from raising funds and investing in companies to selling and
buying companies.
Mikko lives in Beijing and is a founding partner of investment focused consulting
company Lion Partners which advices both Chinese and international technology
companies and Venture Capitalists on investment related activities. In spring 2014
Lion Partners successfully concluded an M&A for its Chinese client Glodon of a
Finnish company Progman Oy.
Among other activities Mikko also serves as a Vice-Chairman for Finnish Business
Council Beijing supporting Finnish companies efforts in China together with the other
members of Team Finland. Mikko is also Finland’s Representative at EU Chamber of
Commerce for China. Mikko can be reached at mikko@lion-partners.com

4. Agenda
• Motivations for Taking in Investments
• Model 1 China to Europe
• Model 2 Europe to China
• Model 3 China to China
• Advice to EU VCs
• Advice to EU SMEs
Case study

5. Chapter 1

6. Motivations for Taking
in Investments
• Insufficient funds
• For operations in EU/Global
• For market entry to China
• For financing growth
• In EU/Global
• In China
All investors can be described by a Chinese proverb; ’’All
the cats love fish but fear to wet their paws’’.

7. Chapter 2

8. Model 1 China to Europe
• Hot topic and considered a safe and attractive way of
working with Chinese investors by European SMEs and
VCs
• EU actors retain control and are not exposed to any new
risks
• Currently some activities in ‘’pilot mode’’ a possible
future trend
• Exposes Chinese to risks and they cannot control their
investments
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9. Chapter 3

10. Model 2 Europe to China
• The traditional model, works well for medium sized and
larger companies that have own funds or can access
finance with relative ease, but not for SMEs
• European VCs do not yet understand China
opportunities and risks well enough to be really
comfortable to investing just on the promise of big
market in China to EU SMEs
• For EU SME’s they key for success in this is if EU and
Chinese VCs establish closer cooperation and e.g.
develop some models to do syndicated deals
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11. Chapter 4
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12. Model 3 China to China 1/4
• ‘’Near to rivers, we recognize fish, near to mountains;
we recognize the songs of birds’’ (It is very important to
make on-the-spot investigations). Chinese proverb
• This is probably the best model for EU SME’s and
entrepreneurs who are serious about China and there is
also the widest range of options available for them
ranging from incubators, angel investors to corporate
investors and VCs and even government funding
• But you need to be able to take the first step with your
own resources or backing from Europe
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13. Model 3 China to China 2/4
• Incubators and Angels
• Nowadays these can be found in great variety e.g in
Beijing, Shanghai, Shenzhen and Hong Kong with
various offerings (money, space, mentoring+) and
focuses
• Competition is fierce, very similar to Silicon Valley
• European companies under-represented, the US
counterparts have found these and are getting good
results
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14. Model 3 China to China 3/4
• Corporate investors
• Two groups: SOEs and POEs
• Potentially a great value added investment as these
companies have great reach and access to the
Chinese market
• For the most part they are amateur investors rather
than professional ones which makes the deal making
more of an art than science with few established rules
but they are getting more sophisticated
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15. Model 3 China to China 4/4
• Venture Capitalists
• A young industry (currently about the same size as
that of Europe’s) that is growing fast but so far has
had many low hanging fruits that have provided them
with bigger returns than e.g. their European
counterparts
• A wide spectrum of players ranging from pure
opportunists with little understanding of the VC
industry to sophisticated investors who have modeled
their working styles from USA.
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16. Chapter 5

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17. Advice to EU VCs
• Increase the size of their funds by having Chinese investors join in as LPs
but as noted in the China VC/PE Survey a Chinese LP might be
challenging to work with, so money should not be the only consideration of
having a Chinese LP.
• Exits of portfolio companies, Chinese are comfortable with the idea of M&A
and getting more skillful in that so exit to China should be a must option to
look at.
• Doing syndicated deals with Chinese VCs or having them take an active
role in growth rounds especially if the portfolio company’s main target is in
China is an option, as a number of successful cases between US and
China have shown. European VCs might look into ways US VCs have
succeeded in that. China’s ties to Silicon Valley and key players over there
have obviously played a big role, but Europe has its own strong points that
it should emphasize e.g. a more friendly attitude towards Chinese
investments.
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18. Chapter 6
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19. Advice to EU SMEs 1/2
• Define your China strategy, you must show real understanding of
the business environment in China and preferably proof of that
through pilot customers.
• Protect your IPR in anyway you can locally according to local laws.
• Define where is your best access point to China (the right
customers), and how you scale up to meet the investors
expectations.
• Define what type of investors can best help you reach your
business goals (e.g. POE’s for access to customers or VC’s for
something else).
• Send a key executive to China for 3-6months to validate your plans
and to establish connections and justification for an investment into
China (most likely accessing Chinese investor will mean that initially
you have to finance the first steps with company’s existing funds).
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20. Advice to EU SMEs 2/2
• Prepare a ‘’long list’’ of potential investors, preferably investors that
you can access through some trusted party’s introduction.
• Start negotiations, use outside help in the form of consultants or
lawyers, or both, that have done this in China before and have
references to back that up.
• Nothing is a ‘’done deal’’ until you have money in the bank. This is
true everywhere, but even more so in China.
• Depending on how ‘’ready’’ you are the process takes 6-18 months
and quite a bit of investment to cover investment from management
and fees from outside help such as lawyers and consultants.
• But remember the ‘’Golden Rule’’
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21. www.eusmecentre.org.cn
Get Ready for China

22. Case Study
 Glodon –Progman 2011-2015
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23. Glodon
 Glodon is China’s leading construction
software company headquartered in Beijing.
Glodon has over 4000 employees, with more
than 40 branches covering the whole of
China’s 32 provinces and regions.
 Glodon also has subsidiaries in Singapore,
Hong Kong and the US. Glodon is listed on
the Shenzhen Stock Exchange SME Board.
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24. Progman Oy
 Progman Oy, founded in 1983, is a profitable
company headquartered in Rauma, Finland.
Progman’s product MagiCAD has over 15 000
licenses in use by building services designers
in over 45 countries worldwide.
 Progman employs a staff of 80 and has offices
in Finland and China as well as a subsidiary in
Sweden.
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25. Timeline of the deal 1/2
 June 2011 initial meeting in Finland
 December 2012 2nd meeting Finland, Lion
Partners gets involved
 January 2013 negotiations begin
 January-June 2013, many meetings and
negoatiations in Beijing and Finland
 July 2013 signing of LOI in Beijing, deal done?
 August 2013 everything is reworked, seller not
happy with the deal (only about 20% of LOIs
result in deals)
 September 2013, Due Diligence begins with 3 law
firms and international accountant and auditor firm
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26. Timeline of the deal 2/2
 During July-December 2013 deal is almost done
and fails half a dozen times
 January 2014, 24hrs before signing seller refuses
to accept the deal
 February 2014 Lion Partners identifies ways to
restart negotiations with new deadline at the end
of March
 March 2014, deal almost fails 3 times before
signing during the last days
 March 27th Deal finally signed
http://en.glodon.com/news_items/15856
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27. Main Challenges & Result
From first meeting in 2011 the business and technology match was clear, with self-
evident win-win for both, however in order to reach a deal many challenges had to be
overcome:
 Different business approaches/goals
 Different legal structures/approaches
 Different cultures resulting in challenges to communications and real understanding
-> Lion Partners needed to actively guide both Chinese and Finnish parties in order to
reach the goal (get the deal done) in a manner that would work for both parties.
To overcome these it required a top team of more than 20 professionals working on
various aspects of the deal, requiring time and investment without certainty whether the
investment would be reached at the end.
2015 both parties are happy about how the joint efforts are working; Progman’s sales
and profits have increased thanks to growth in sales in China and outlook for 2015 is
looking very good, both in existing markets as well as in new markets that Progman and
Glodon are now jointly addressing.
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28. Key Lessons
 Finding the right investment target is only the
beginning
 You need to be 100% committed to trying your
best to make the deal
 You need top professionals for the job, you get
what you pay for
 Be prepared to a process that takes 6-18months
to complete and expect heavy costs along the
way
 Legal and financial advice is not enough, you also
need a deal-maker on your side that looks after
your interests and understands the culture of the
investment target
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