TEDA: Enabling Funding for China’s Next Generation of Tech Firms [Business Wire]

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Published by Business Wire, featuring Olaf Groth, Professor for Global Strategy, Economics, Management and Innovation at Hult International Business School.

TIANJIN, China–()–Cities, governments, and industrial parks the world over are rushing to create tech industry hubs. The theory goes that by creating an infrastructure that nurtures talent, a critical mass of innovative companies can be attracted that support and stimulate each other.

But the potential pitfalls are many. How will firms in these hubs finance their ventures? And how do you go about creating an environment that lend agility and robustness to an economy without stifling the entrepreneurial spirit?

One enlightening place to look for answers to these challenges is the Tianjin Economic-Technological Development Area (TEDA). Tech firms are flocking to this top-ranked industrial park. According to the data disclosed from the park’s Annual Work Meeting on January 13, in 2013 alone, TEDA attracted 155 new high-tech firms, up 16.5% on the previous year, with a total registered capital of 1.33 billion yuan, 45.5% up on 2012. The average registered capital of each of the firms was 8.59 million yuan, a 24.8% increase year-on-year.

Li Hongliang, Deputy General Manager at TEDA’s Science & Technology Development Group, and his team had recognized that for banks in China, high-tech SMEs pose too much risk, especially against the backdrop of an economy in which there are larger, more-established players who are backed by the government and are effectively a sure thing in terms of return on investment. Small tech firms also lack the credit rating, collateral and proven track record that attracts the traditionally conservative banks. In addition, the size of loans that small tech firms are after are usually too small for banks to justify the costs involved.

TEDA’s system, however, allows small and medium tech firms to sidestep these problems and access bank loans. TEDA can serve as both underwriter and broker to the firms, asking them to put up their IPR, future cash flows or equity as collateral. TEDA also groups together small firms looking for funding and brings them to banks as a group, giving banks a better return on their loans.

“Entrepreneurs do not function in a vacuum. An entire innovation ecosystem is required, with a flexible and fluid network of other actors, which nurtures, provides, guides and governs, and which can eventually integrate new ventures into the larger innovation value chains,” notes Dr. Olaf J. Groth, Managing Director of advisory firm Emergent Frontiers Group, based in Bay Area, and Professor of Global Innovation at HULT International Business School. He also works with the World Economic Forum on the project of “Europe’s Innovation-Driven Competitiveness 2.0.”

Read the article in full here.

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