Chinese risk investments quietly seek changes

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Last updated at: (Beijing Time) Wednesday, March 10, 2004

Chinese risk investments quietly seek changes

Though the investors participating in Chinese risk investment remain basically unchanged, to suit China's special investment environment, however, risk investment companies, whether domestic or overseas, are changing their investment means and concept.

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Turn around to look for means of extrication

Domestic and foreign investment companies in adversity refuse to await their doom. Instead, they are looking for means of extrication.

First is change in the orientation of investment. Chinese and foreign investors put their money into the traditional industries without prior consultation. Recently, the world-renowned venture investment company - Warburg Pincus injected US$22 million into a privately-run leather processing company - Zhejiang Kasen Industrial Corporation Ltd. Domestic investment companies refused to lag behind. As early as 2001 China Science & Merchants Venture Capital Management Co., Ltd. Got into contact with enterprises in Zhejiang and now it is aiming at agricultural projects.

Change has taken place not only in the orientation of investment. For the sake of safety, "angel funds" which specialize in start-up investment are found decreasing in number in the market. Huang Jingsheng, managing director of China Branch of SOFTBANK Asia Infrastructure Fund (SAIF), said: "speaking in terms of an investment manager we are all "leaning back". SAIF's huge investment worth US$40 million this year, though a successful one, is obviously a later-stage investment.

The "leaning back" investment characteristics determine that adventurous spirit is being gradually replaced by practical achievement appraisal. More and more foreign-invested risk investment companies tend to put a large amount of investment into one project, unlike the practice popular during the Internet upsurge when a sum of money was put into many minor projects.

The interrelationship between venture investment companies is also changing. A famous overseas venture investor, who used to look down on his Chinese peers, said to one of his Chinese fellows that he has now identified Chinese venture investors because in many projects domestic companies are doing very well.

Accommodation: change from emotion to coolness

In the birthplace of risk investment - 3000 Sandhill Menlo Park to the northwest campus of Stanford University in the Silicon Valley, a rule for investment is circulating there, that is, among all investment projects, 50 percent of them are bound to be completely fail, 40 percent just play even and only 10 percent make profits. Such an investment is still a success because a 10 percent profit is an amazing return!

However, the rule does not function in China for the simple reason that China has a totally different environment, differing vastly from the United States in such aspects as capital, law and credit.

For this reason, another set of rules must be established for making venture investments in China. Investors abroad normally do not interfere in the work of the start-up team, this is absolutely impracticable in China.

The concept of venture investment is imported from abroad. Once imported into the Chinese market, the business should be done in an indigenous way. Due to the particular risk involved in the Chinese market, venture investment companies have to prudently conduct meticulous surveys on the industry where the target enterprise is located, the quality of the start-up team and the core competitiveness of the target company.

Venture investment has turned from emotion to coolness. The change of investment concept began in 2001. Instead of seeking after 10-fold returns it looks for a success ratio of 70 percent. The utter difference between domestic and overseas markets is determined by the special characteristics of the Chinese market.

By People's Daily Online

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