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Naheed Kurji of Cyclica speaks on the CAMP tour at the Techcode incubator in Zhongguancun, Beijing, on Thursday, Oct. 20, 2016.

Canada China Angels Alliance

Some of Beijing's wealthiest investors are dining inside Beijing's Bird's Nest Stadium, but it's the mostly blue-jeans-clad Canadian entrepreneurs who are being treated like the VIPs. Naheed Kurji, president of Toronto-based Cyclica, has just finished his main course of blowfish when Chinese-American investor Shixiong Shang pulls him aside. He was intrigued by the brief pitch Mr. Kurji gave before dinner about the company's pharmaceutical-side-effect mapping software and wants to explore an investment.

Mr. Kurji came to China looking to learn more about this huge market through a two-week crash course for entrepreneurs known as the China Angels Mentorship Program (CAMP), which took place in October. He's also hoping to find his first big client in Shanghai's pharmaceutical cluster.

But what he wasn't expecting were potential investors willing to talk millions. Mr. Kurji says his first hint about how much money is out there was when a Chinese investor he spoke with just before the trip asked if he'd be willing to take $80-million. Cyclica's not ready for that kind of cash, but it was a real eye-opener.

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"It takes too long and it's a headache to raise money in Canada," he says, pointing to the two years it took for the company to raise its first $4.2-million in Canada, much of it wasted trying to get limited government funds. "If I can raise my next round of capital here," he adds, "I can focus on the business."

From the lineups at the Louis Vuitton stores to the Teslas whizzing by, it's obvious that China's big coastal cities are flush with cash. Chinese investors have long been trying to get their new wealth to stable Western markets, where the Chinese government can't take it away. Traditionally, they looked to Silicon Valley.

But more and more of them see Canada's tech sector as an overlooked opportunity. After all, places such as Toronto and Waterloo, Ont., have many of the things Silicon Valley has going for it – high-quality universities, top-ranked accelerators, IP protection – but far fewer other investors to compete with.

Mr. Kurji's not the only member of Canada's startup scene now realizing that when it's time to scale up, China could provide the funding.

Gordon Houlden, chair of the China Institute at the University of Alberta, has noticed the growing investment in Canada's tech scene. The institute's China-Canada Investment Tracker recorded only a handful of investments in Canada's IT sector between 1999 and the end of 2011, but noted 35 deals worth a total of $583-million (U.S.) in the nearly five years since.

Recent Chinese investments include $10-million in Calgary's GINSMS, $13-million in Toronto-based 500px, $50-million in Waterloo's Kik Interactive, $39-million in Montreal's Blockstream Corp. and $3-million in Montreal's Peak Positioning Technologies. The Toronto-based China Canada Angels Alliance (CCAA) that runs CAMP has also made a few dozen smaller investments since it launched in 2014. Its biggest bet so far is $2.5-million on the Toronto-based audience-development platform Viafoura.

Alan Yang, the Toronto-based vice-president of CCAA, says the group was started by his boss Peter Liu after Mr. Liu's wife was transferred by her company from China to Toronto in 2010. Mr. Liu began spending time there and noticed a buzzing startup scene crying out for cash.

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Mr. Liu, a co-founder of Beijing-based River Capital, is a really big deal in China. An early employee of the huge Web portal Sohu.com, he is a member of the "100-times club," a group of 50 or so investors revered in Chinese media for having realized 100-fold returns. He's also a member of the Chinese Economists 50 Forum, a group of top business leaders who advise the central government.

There are several other 100-times club members among the 30 or so angels invested in the CCAA, including Tony Wang, another of River Capital's co-founders. Over a quick lunch in between showing CAMP attendees around Beijing's Techcode incubator and a tour of China's biggest dot-com, Tencent, Mr. Wang confirms the CCAA's basic strategy: Canada has a tiny population, many well-educated entrepreneurs, and very few venture capitalists.

But on top of that, Mr. Wang says Canada is also a safer political bet. "Sometimes we Chinese like the U.S.," he says. "But sometimes, for political reasons, we don't."

And Mr. Wang says CCAA's small investments now offer them experience in the North American market that will allow them to make bigger bets should Beijing ease up on capital controls – something he thinks could happen as early as next year.

Steve McCartney, vice-president of Kitchener, Ont.-based Communitech, says that although there are risks in taking Chinese investment – such as a legal system that doesn't meet Western standards – it's a good way for Canadian startups to enter the Chinese market, which he says they must do from day one because the market is just too big to ignore.

In fact, Mr. McCartney argues that making a deal with a Chinese investor could be the key to unlocking more North American capital.

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"If you're a North American VC, you say 'I can invest a company who's in a market the size of Canada or I can invest in someone who has a pretty similar offering in a market of 1.3 billion people,' " he says. "Which one do you think they're going to choose?"

Travel for this story was provided by the Asia Pacific Foundation of Canada and Cathay Pacific Airways.

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