Page 122 - How China Is Winning the Tech Race

Venture trail

The American venture capital hunters in Beijing and Shanghai have been
quick studies in duplicating their Valley formulas in China. First, they
commuted to Beijing and Shanghai from San Francisco for a short week of
meetings and hurried home for clean air and sunshine. Then they partnered
with a strong domestic venture firm in recognition of the need for an on-the-
ground presence to find hidden treasures and mitigate the many regulatory
and financial risks. The next step was to set up a local office and, in quick suc-
cession, raise a China fund.
The final move was to hire Mandarin-speaking locals to do their work
and help them pick more than just the low-hanging fruit. The trend became
fresh start-ups founded by homegrown Chinese entrepreneurs, many without
English-language skills, Western training, or management prowess. Often,
equity stakes in those firms could be bought at reduced valuations from what
westernized entrepreneurs demanded. That meant higher returns for the
venture capitalists when they sold shares.
Breyer of Accel teamed up with IDGVC, an offshoot of the technology
publishing and research International Data Group, to raise a $500 million
fund in 2007; that was its second China effort after investing at the pace of
one deal per month from an initial $310 million joint fund in 2005 with the
venture group. David Chao partnered DCM with Legend Capital, an arm of
the Chinese conglomerate that owns the Lenovo personal computer business.
In early 2006, Chao expanded a Beijing office by recruiting Hurst Lin, former
CEO of the large Chinese portal and Nasdaq-listed SINA Corp., as a general
partner. Today, DCM has 13 investments in emerging Chinese companies out
of a total portfolio of 83 deals in Asia and the United States and has taken
several China finds to Nasdaq.
Similarly, the Mayfield Fund started off by partnering with a local player—
GSR Ventures in Beijing—before plunging ahead by raising a China fund of
$200 million in 2007 with the Chinese firm, whose high-profile partners
include James Ding, a cofounder of Nasdaq-listed AsiaInfo in Beijing, and
Kevin Fong, an ethnic Chinese venture capitalist with a track record of tech
successes in the Valley. Mayfield now has 10 new investments in China. “At
some point, we had to stop touring and start investing,” Fong says.

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