Source: CCTV.com

02-13-2008 16:15

For the past two days, we've reported on how the industry enjoyed a bullish year in 2007, with the highest amount of funds ever raised. We've also taken a look at how VC funding trend is beginning to shift. From TMT, or technology, media and telecommunication sector, investors are now eyeing more traditional industries such as restaurants or education. That's because they believe any industry targeting Chinese consumers is the way to go.

Today, in our third of five installments, we're going to take a look at the VC players themselves. Let's take a walk down memory lane with the founder of China's first international VC fund, and find out how the competition is heating up between international and domestic players.

Catching up with old friends and family after a long stint abroad is normal for anyone.

But for Hugo Shong, coming back to China in 1991 after five years in the U.S., proved to be a watershed moment.

Hugo Shong, Founding Partner of IDGVC said "Particularly in Shenzhen, I found that there were so many people…my friends they try to launch a company. Everybody has great ideas. Since I just came back from overseas I wanted to help them launch their own business. The common problem was they couldn't get finance. They have a big dream. And then I said-huh-it seems to me-this is a heaven for venture capital."

As a former reporter covering Silicon Valley, Shong was very familiar with the venture capital beat. He shared his views with his boss Patrick McGovern. The founder and chairman of International Data Group was also an old hand of China, having visited the country numerous times for his joint venture publications. He agreed with Shong, and the two of them, got busy.

Hugo Shong said "Initially we talk to some venture firms with good reputation etc. And also tried looking for experienced people who would be able to help us manage the fund, but couldn’t find anybody interested. Therefore, Pat and I decided to start it by ourselves. I was joking...people say, how did I get this job. I said, there’s a Chinese saying, "no tiger in the forest, so you choose the monkey to be the king!" So I happen to be that monkey at the time for the forest!"

The "king" position was founding partner. And the forest? IDG Technology Venture Investment, now known as IDGVC, considered the first international venture capital firm to enter China. Past portfolio companies include major success stories such as Ctrip and Baidu.

From just a handful in the early 90’s, there are today, over 300 international and domestic venture capital funds operating in China. They include top tier Silicon Valley funds such as Sequoia Capital, a VC firm whose portfolio includes Google, Apple and Yahoo.

But Sequoia Capital only recently took the plunge in 2005. Lack of IPR protection and corporate governance had made it and other Silicon Valley VC firms cautious about entering China. But the firm believes things are headed in the right direction, both due to government efforts, and examples set, by other trailblazing entrepreneurs.

Zhang Fan, Founding Managing Partner of Sequoia Capital China said "Through the success of those role models, young entrepreneurs, young companies also took note that by practicing very high standard corporate governance, accounting procedure, IPR protection by following well established international rule of corporate practice, you will be able to achieve much bigger success."

International VC players continue to dominate the market today. They have better talent to help identify and guide promising entrepreneurs towards their end goal. And, they have a lot more money. We’re talking an average of 100 million US dollars, compared to about 30 million US dollars, for a local fund.

Bao Fan founded China Renaissance three years ago to help Chinese entrepreneurs successfully tap that money. The veteran investment banker firmly believes the competition between domestic and international VC funds, is heating up.

Bao Fan, Founder and CEO of China Renaissance said "Right now, China has so much surplus capital, that the Chinese government is actually encouraging the development of the local PE or VC market. Those capital will eventually compete with foreign capital… And they have a lot of advantages that foreign capital do not have. They obviously are not subject to foreign capital restrictions. They can move really fast. And they can bring other resources to that foreign capital usually can not bring."

With so many players in the market, it’s only natural to ask the following question -- is there too much money?

Zhang Fan said "Overall, if you look at a very high macro level, VC is not in surplus in this country. The opportunities are not bigger than what is currently available capital to invest.

At least that’s cleared up. And as the competition heats up between foreign and domestic VCs, the early birds know, they need to step up their game.

Hugo Shong said "For us in the past we can take a little more time to study the market and product team. Now we need to make decision more quickly. And also difficult to negotiate for the right price. I don’t mean we have to give people the low price, but the right price."

How the competition between domestic and international players in China’s venture capital industry plays out remains to be seen. But perhaps at the end of the day, that‘s not what’s really important. What’s important is that all the competition is boosting opportunities for Chinese entrepreneurs. And in the bigger picture, that’s helping China’s goal of becoming an innovative country . And that's what’s important.

 

Editor:Xiong Qu