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Venture Capitalists Find Haven in China
Not everyone wants to be a venture capitalist these days, faced as they are with the battered NASDAQ and the US economic slowdown.
But it seems that China is escaping damage and a combination of factors - the pending World Trade Organization (WTO) entry, robust economic growth and, most important of all, the insatiable demand for high-tech products - make the country a fine place for venture capitalists.
"Considering China's situation as a whole, we believe that it is good time to enter the market," said Joe Zhou, chief representative of Softbank China Venture Capital.
The Chinese branch of the Japan-based venture capital (VC) giant has recently been given US$1 billion by Cisco Asia Pacific Technology Fund, much of which is likely to be invested in China.
"That's just an initial fund. We may allocate more capital to China if there are really good projects," said Zhou.
In addition to Cisco's capital, the company also manages US$200 million from Softbank headquarters.
Zhou said he believed China would be one of the world's few economies showing steady economic growth in coming years. Its pending entry into the WTO will just channel in more profit-wooing venture capitalists.
"I believe that more companies and funds will join the venture capital market," he said.
Zhou was not alone in his expectations. During a VC summit organized by Tsinghua University last week, hundreds of venture capitalists, including big names such as IDG (International Data Group), Price Waterhouse Cooper and H&Q, exchanged words of optimism on their business dealings in China.
IDG, though not a top international VC firm, is an unexpected hit on the emerging VC market in China. Its investment arm Pacific Technology Venture Fund initially invested 37.5 million yuan (US$4.5 million) in the mid-1990s on several IT companies in Shenzhen. Some of these companies have grown at 200 per cent annually.
"China's high-tech companies are now eager to know what venture capital is exactly and how venture capitalists can help their technology ventures to expand quickly," said Yu Xiangdong, president of the Shenzhen-based 21st Century VC Investment Co Ltd. "We need such companies just the way they need us."
In Shenzhen, the local government has spared no effort in promoting VC business to support its high-tech industry. A special team has been formed to conduct research on VC and to offer consultation on investment policy to high-tech industry.
Such governmental incentives for VC investors in the high-tech industry have now become common practice. The Chinese Government has made it clear that it will map out related laws and regulations, including exit schemes for VC investors, to encourage them to pump more money into China's tens of thousands of start-up high-tech companies.
Beijing's Zhongguancun, the country's so-called Silicon Valley, is probably the most attractive high-tech hub for VC investors. With 8,000 registered high-tech companies, the area has become a major battlefield for VC investors eagerly searching for promising new technologies and talented teams with management and marketing expertise.
More and more local institutional investors, non-bank financial companies, securities companies (investment banks) and even insurance companies are realizing the potential of VC in China.
Legend, the largest computer maker in China, launched on April 27 its VC business - the Legend Capital Co - which will manage about US$100 million.
Although there is no hard data on how many VC investors there are in China, analysts say the number could be in the tens of thousands.
However, bitten by the popping of the dotcom bubble, VC investors are now shifting their focus from Internet portals and other purely Internet-based businesses to infrastructure and technology, which are integrated with traditional industries.
Telecommunications infrastructure, Internet-based enabling technologies and solutions, top-brand B2B e-business providers and outlets of traditional industries are of main interests to VC investors, said Zhou.
While there are many opportunities for VC investors in China, it is also a challenge as emerging markets always present a double-edge sword for any business.
One of the most serious challenges is that it is still hard for VC investors to withdraw. The establishment of the long-awaited second-board market, the main path of exit for VC, may be postponed till early next year because of the NASDAQ depression, insiders said.
"China needs venture capital policies or laws about how to handle incoming VC. Above all, China needs experienced venture capitalists and consultants who really understand both the China market and the international VC industry," said Dai Yanling, managing director of Shanghai-based Zhangjiang Venture.
Bringing VC investors and start-up companies together is another challenge that should be carefully handled, she said.
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