China Venture Heats up Again

If the recent National Day celebrations in Beijing weren't convincing enough evidence of China's rapid ascendancy on the world stage, then the super-charged spirit among Chinese entrepreneurs and investors in the San Francisco Bay Area had to be. Indeed, during the week-long holiday, seemingly half of China's venture capital community turned up -- if not for sunshine and fresh air, then for networking.

Now that they're back at work in Beijing, there's been a rush of news -- ending the holding pattern that China venture has been stuck in for during the first half of 2009.

There's a report going 'round that Sequoia Capital will be having its annual meeting in China this year. Now, that is real recognition of the power of Mainland investing, despite the firm's poor record of returns so far. A few new funds are even cropping up, after a particularly dry spell. The latest is Fuel Capital, a $100 million fund to invest in clean tech and health care deals in China. Expect big things from the aptly named fund. It's run by Cadol Cheung, who logged 26 years doing deals for Intel Capital, most recently as head of Asia-Pacific investments. Look too for a host of China funds in the local currency renminbi to emerge soon as regulations are sorted out over tax issues and partnership structures.

Meanwhile, the new Growth Enterprise Market in China -- a sort of NASDAQ stock exchange -- shows signs of whipping up the stagnant IPO market and giving a much-needed exit for venture investors and entrepreneurs. And, after months of hunkering down with concerned limited partners and cash-strained portfolio companies, venture capitalists are getting busy on the deal-making front again. China venture firms GSR Ventures, Qiming Ventures and Keytone Ventures are all working on new deals. The deals are so juicy that the investors are not too eager to share details for fear that rival firms will beat them to sealing a deal.

It's no wonder that China venture is picking up. Richard Lim, managing director of GSR Ventures, has been spotted frequently on the circuit, touting his firm's research that shows venture money spent in Chinese startups produces a lot more in investment returns than in U.S. startups -- a surprising 12 times more! His study is based on venture-backed deals that generated $1 billion or more from IPOs during 2004 to 2008. It should be noted that this period covers the investor frenzy for Chinese Internet IPOs such as Baidu, Focus Media and Alibaba.

All this is not to ignore Kai-Fu Lee (of ex-Google China fame). He is still managing to generate buzz -- despite the already well-publicized launch of his $100 million fund and incubator lab to work with Chinese entrepreneurs on forming local startups with leading edge technology. His book on Chinese entrepreneurship on display in every bookstore in Shanghai and Beijing no doubt has helped his cause, as has his celebrity status as a tech hero. Having run Google China for four years and dealt with Internet censorship as well as stiff -- some might say unfair -- competition from local search engine Baidu, Lee knows the challenges of the market well.

His message for young entrepreneurs is powerful. It's now or never if you're thinking of going back to China to set up shop. The window of opportunity will soon narrow as more local Chinese entrepreneurs mature and match their tech talent with managerial savvy. I know what he's saying is true. I spotted the same trend in my book, Silicon Dragon, which chronicled the rise of local startup talent, after an initial wave of western-educated and trained "returnees" −- Robin Li of Baidu for one -− cranked up successful startups in their homeland.

 

 

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