Chinese fund Cocoon Networks in turmoil after firing CEO John Zai

Cocoon Networks made big
promises it is yet to deliver.
BI
Graphics/Business Insider

• A Chinese company promising up to £600 million ($767
  million) in funding to UK tech firms has fired its chief
  executive and is yet to announce any investments after almost
  three years.
• Cocoon Networks launched in the UK promising a £500
  million fund of its own, a partnership with UCL, and a further
  £100 million joint fund for medical tech.
• Business Insider has found no evidence of any deals,
  and two of its proclaimed partnerships have not
  materialised.
• Sources also said the company delayed payments to one
  of its suppliers and attempted to pay for press
  coverage.
• A UK-based director for Cocoon’s parent company
  admitted to difficulties in bringing capital over from China,
  and said the firm has appointed a new CEO.

A Chinese company promising up to £600 million ($767 million) to
invest in British tech startups has fired its CEO, failed to make
a meaningful investment, and delayed payments to one of its
suppliers.

Cocoon Networks, a subsidiary of Cocoon Global that is backed by
China’s Hanxin Capital and China Equity Group, fired its
English-speaking chief executive John Zai and the rest of its
management team earlier this month, multiple sources said.

There is no sign of a promised £500 million ($646 million)
startup fund or a further £100 million ($123 million) joint fund
earmarked for medtech investments.

Two sources with knowledge of the matter said the company had
also delayed paying at least one of its suppliers: PR firm Seven
Hills. It also attempted to pay for press coverage, the sources
said.

Cocoon was unable to respond in detail in time for publication.

John Zai, formerly CEO of
Cocoon Networks.
Facebook/Cocoon
Networks

A UK-based director at Cocoon Global, Professor Yu Xiong,
confirmed Zai’s departure to Business Insider and said the
company would bring in a new chief executive, Jia Liu, from China
to run the UK operation.

Xiong, an academic at Northumbria University, said 35-year-old
Liu was a seasoned financial executive, having held previous
positions at Dinding Capital Management, Yixin Capital, and a
family office. Companies House filings confirm that he has been
appointed as a Cocoon Global director. Business Insider was
unable to confirm Liu’s employment history in China or contact
him for comment.

Cocoon updated its Facebook page with news of Liu’s appointment
on October 23, a day after Business Insider first went to the
company for comment.

Jia Liu, the newly
appointed chief executive of Cocoon.
Facebook/Cocoon Networks

Asked about Cocoon’s fund, Xiong acknowledged there had been
difficulties bringing capital into the UK and suggested that
Liu’s appointment was intended to speed up that process.

“There [was] some funding that didn’t happen. That’s because the
management team at the time perhaps didn’t have the relevant
experience and… [it was] difficult to move money from China to
the UK,” he said, blaming Zai specifically. “We wanted a new CEO
who was more experienced about international investment.”.

Previous CEO John Zai declined to answer questions, but said in
an email that he was in discussions with lawyers over the
circumstances of the dismissal. He gave no further detail.

Cocoon has promised an awful lot of money to UK startups but
there’s no sign of it

Cocoon Networks
launched in the UK to much fanfare in January 2016 with its
promise of a huge tranche of capital for British startups.

Later that year, Seven Hills, a London PR agency and consultancy
with connections to British technology and politics, helped
Cocoon manage the launch of a massive co-working space in east
London, and an annual tech festival designed to foster ties
between the UK and China.

The office was leased from the London Stock Exchange in east
London and Cocoon conducted a full refurbishment, kitting it out
with a gym and rooftop bar. It invited entrepreneurs, industry
luminaries, and journalists to hang out at its offices to soak up
the atmosphere.

But according to the sources, Cocoon delayed payments to Seven
Hills and even tried to pay for media coverage — not uncommon in
China, but a major faux pas in the UK. Cocoon is mentioned once
on Seven Hills’ website as a client, but there’s no further
mention after 2016. Seven Hills declined to comment.

Cocoon also boasted of local university partnerships and was
heralded as part of a wider boom in Chinese investment into
Europe.

Cocoon’s
70,000-square foot office space boasted a rooftop bar and a
gym.
Cocoon
Networks

But the story has started to unravel. There is no sign of the
£500 million fund. If Cocoon has made any investments into
startups, it isn’t disclosing them. Xiong said Cocoon had
acquired two UK companies, but didn’t name them or disclose the
terms of the deals.

And there is no sign of other funds publicised by Cocoon.

On its website, Cocoon boasted of a partnership with a company
called “Oxford Innovation” and a joint medical technology fund of
£100 million. A hyperlink in the statement points to a website
belonging to UK innovation consultancy Oxford Innovation.

Cocoon Networks/Business
Insider

When Business Insider rang Oxford Innovation, the company said it
was not aware of any partnership with Cocoon.

Oxford Innovation said it may have been a case of mistaken
identity, and pointed us to Oxford University Innovation (OUI),
which manages Oxford University’s intellectual property
portfolio.

When Business Insider rang OUI, a spokesman likewise said it was
not aware of a fund partnership with Cocoon, and pointed us to a
third possible company, Oxford Sciences Innovation (OSI).

A spokeswoman for OSI said it did not have a partnership with
Cocoon.

Cocoon claimed in 2016 that it had a partnership with University
College London (UCL) to build the city’s biggest incubator. When
Business Insider asked UCL last year about the partnership, a
spokeswoman denied there was any
agreement in place and said Cocoon had used the college’s
logo without permission.

And Cocoon boasted of a joint clean technology fund with the
University of East Anglia, named Adapt Cocoon. Last year, the
then-chief executive of Adapt Cocoon, James Griffiths, told
Business Insider Cocoon had not put any money into the fund but
had facilitated useful introductions to China.

Griffiths has now left the fund, and a spokeswoman for Adapt told
Business Insider: “The fund is not currently capitalised.”

The phenomenon of the “random Chinese bidder”

Scotland’s first minister, Nicola Sturgeon, endorsed a
Chinese investor who promised billions in funding that never
materialised.
Getty Images
News

Cocoon managed to establish itself in the UK tech scene with
apparent ease, with no one publicly asking questions about the
company’s origins or where its money comes from.

When the company first launched in London at the beginning of
2016, it was given a leg-up by London & Partners, the London
mayor’s promotional agency. It was
also given a glowing endorsement by London’s deputy mayor
Rajesh Agrawal.

A spokesman for London & Partners said: “Our role in
promoting London to international markets involves celebrating
successes across business, education and tourism sectors. We have
worked with a number of international businesses including Cocoon
Networks to amplify the importance of doing business with and
investing in London.”

One source involved in bolstering trade between the UK and China
said British startups and investors should be wary of Chinese
backers with unlikely amounts of money.

“When somebody from China comes along and says ‘I’ve got nearly a
billion quid,’ we take it with some degree of caution,” the
person said. “There’s a jokey term for it, RCB, or ‘random
Chinese bidder.’ There’s a fair bit of this going around.”

The person
pointed to the scandal of SinoFortone, which committed more
than £12 billion in spend on infrastructure projects and won
approval from Scotland First Minister Nicola Sturgeon, but which
didn’t appear to have any money. The SinoFortone deals collapsed,
and the episode was a cautionary tale for British politicians and
businesses eager for easy cash.

As for paying for press coverage, the person said, Chinese
businesses would expect to hand domestic journalists a bung to
cover their announcements. “It’s not a million miles off tipping
a waiter,” the person explained.

And when it comes to announcing fictional partnerships with
prestigious organisations such as UCL, the person added, that
attitude is “aspirational.” “They aim very high in the hope it
will work out in the end,” they added.

These businesses can go unquestioned for years, they said,
because Chinese firms can be too opaque for UK businesses to
conduct proper due diligence, and they are wowed by the promise
of easy money. “People want to believe what’s happening, everyone
wants to believe it,” the source said.