Page 120 - How China Is Winning the Tech Race

$66.5 million in damages over the land lease in 2001, the investors got clear title
from the sellers of the high-end property, recouped some $10 million in legal
costs, and got the Chinese government to absorb the back taxes. Now Hsu and
his coinvestors are looking to sell Shanghai Links for the right price.
With such nightmares in the past, Hsu and Tan soon started ushering
Sand Hill Road Hill to China. They let three firms—NEA, DCM, and Oak
Investment Partners—in on one of their treasures: a trend-setting Chinese
chipmaker called Semiconductor International Manufacturing Corp. led by
the Taiwan semiconductor legend Richard Chang that was set to duplicate
Taiwanese expert chip production in Mainland China. In 2003, the three
American firms participated in a $600 million funding for SMIC as part of a
huge $1.5 billion financing that brought in Walden, H&Q Asia Pacific, and
Goldman Sachs.
SMIC went public on the New York Stock Exchange the next year.
Though the stock’s early prices were disappointing, SMIC shares gradually
traded higher, eventually providing the early investors respectable profits. The
word went out: China was an okay place for American venture dollars.
The herd instinct kicked in in spring 2004 when the financial service
provider Silicon Valley Bank (SVB) hosted an invitation-only China tour.
Some 25 top players from the Valley, including Valentine and Doerr, made the
one-week whirlwind tour of Beijing and Shanghai to get a China briefing with
local entrepreneurs, executives at public companies, and government officials.
They came back in awe of the market potential and the Chinese entrepre-
neurial machine. Fast-forward one year, and SVB had opened up a branch in
central Shanghai, providing with its investment banking services an important
part of the ecosystem needed to foster entrepreneurship. Several American
firms soon put their nameplates at the SVB location too.
American venture newbies to China went local fast. DFJ’s Tim Draper
swallowed a taste of snake blood as a Taoist medicinal regimen, Accel’s Jim
Breyer took lessons in Mandarin, and Len Baker of Sutter Hill took a river
tour of the Three Gorges. Some unnamed venture capitalists took a liking to
certain nightclubs in Beijing and Shanghai where the story I’m told is of
shenanigans with local hostesses.
That infatuation might have occurred even earlier if it hadn’t been for the
outbreak of severe acute respiratory syndrome (SARS) in spring 2003. Fear of

94 SILICON DRAGON