Source: CCTV.com

02-13-2008 16:00

Every month, for five days, we'll take an in-depth look at a particular industry in China. We start this brand new segment focusing on a very hot sector: the Venture Capital Industry.

Those terms may be familiar. But we want to look at why the industry is so critical, for the country at this moment.

In this first installment, we give you an overview of the industry to date. For the record, China has already overtaken the United Kingdom as the world's second largest destination for venture capital investments. And that momentum, is stronger than ever.

This is it. This is what many Chinese entrepreneurs dream of. A day when that one idea they had is not just a dream, but a reality. A great, big, successful reality.

But it takes a lot to make that happen. We’re talking passion. Patience. Tenacity. And money. Lots of it.

That’s where Venture Capital comes in. Before Google, Yahoo, or Apple Computer became the envy of everyone today, they were also, once, start-ups. And they owed some of their earliest rounds of funding, to Venture Capitalists, who believed in their dreams.

Here in China, the Venture Capital Industry really began in 1991, a little over a decade after the U.S. International players dominated the scene. Government regulations prohibited fund-raising, and there was a general lack of awareness of the VC industry.

China's VC industry didn't start off focusing on innovative companies, as it did in the United States. Why? Because there simply, weren’t that many.

So instead, international VC firms had their eyes on China's State Owned Enterprises. SOE's were enjoying preferential governmental policies, and attracting record subscriptions in their overseas listings.

But that all began to change in the mid to late nineties. Success stories of people like Bill Gates and Steve Jobs began making their way, to China. Suddenly, the word "Entrepreneur" was everywhere.

Government policies also shifted towards more market-oriented reform. In 1998, Chairman of the Central Committee of the China Democratic National Construction Association, Cheng Siwei, put forward a plan on how to promote the development of China's Venture Capital Industry. The initiative was heralded both locally and internationally, and anointed him as China's father of venture capital.

The two ingredients of more awareness and favorable regulations combined, ignited China’s dormant entrepreneur spirit. And the local VC industry, took off.

Some of the earliest successes were internet companies like Sina and Sohu. Both received several rounds of VC funding before listing in the year 2000.

Today, there are over 40 Chinese companies listed on the NASDAQ, with a collective market capitalization of over 60 billion US dollars. And many of the first VC movers are grinning from ear to ear, at their success.

That's not to say there haven't been obstacles along the way. The tech bubble burst in 2001 and SARS two years later certainly dampened spirits.

And in September 2006, the Chinese government issued the "Provisions for Foreign Investors to Merge and Acquire Domestic Enterprises". The new M & A rule gives the government greater control over off shore entities, a common structure used by international VCs to invest in a Chinese company. The move essentially makes it harder today, for Chinese companies to list overseas.

But, the regulation appears to have done little, to dampen investors'enthusiasm for the market.

Gavin Ni, CEO of ZERO2IPO Group said "In the year 2007, annual investment was 3.2 billion US dollars. If we divide the top 50 VC firms, the average investment is 60 million US dollars. But if you compare to 2002, 2003, the annual investment is about 10-20 million. So that means they really have a lot of confidence in the market."

That's hearing it from the head of Zero2IPO, an integrated service provider for China's Venture Capital and Private Equity industries.

From the investor's side, Sequoia Capital is a leading U.S venture capital firm with a track record that's the envy of many of its peers. Its local arm, is also bullish.

Zhang Fan, Founding Managing Partner of Sequoia Capital China said "At this historical stage in China, we are experiencing one of the fastest growing period that the humanity has ever seen. Not only in China but also across the world. So it's one of the best time for entrepreneurial people to take on their capability, and embrace their passion."

From raising just 16 million US dollars in 1991, China’s VC industry raised over 5.48 billion US dollars in 2007. From just 10 VCs having their pick of companies in the early 90'S. Today, more than 300 firms are scrambling to find the next Baidu.

Local regulations and market conditions have shaped how the industry has developed thus far and will continue to do so in going forward. But experts agree that for now, there’s no time like the present, for China's Venture Capital Industry.

 

Editor:Xiong Qu