In 2005, China-based domestic and foreign venture capital firms raised new funds of $4 billion, setting a new record for VC fundraising in China. In the past couple of years, Silicon Valley’s top-tier VCs are rushing into China like never before.
Realizing the importance of being close to the market, many VC firms are setting up China offices with impressive local partners. Doll Capital, joined by former Sina CEO Hurst Lin as a general partner, held a grand opening banquet early this year in Beijing to formally announce its entrance in China. Sequoia Capital has also set up a China office with a fund of $168 million, led by Fan Zhang, the former head of DFJ’s China team. Other firms including Bessemer and BlueRun have all officially set up China offices either in Beijing or Shanghai.
Some firms are adopting different strategies in entering the China market. For example, instead of having China offices, Accel and DFJ are partnering with seasoned China-focused VC firms such as IDG and TGF. Mayfield is supporting the new China-based fund GSR Ventures (???), and NEA has collaborated with Northern Light (???), a fund started by Valley-bred successful Chinese entrepreneurs Feng Deng et al.
Even Kleiner Perkins, which has been cautious and conservative in investing in China, has added three partners with China business backgrounds (see my previous post), including a new partner Ying Lee who is the former Deputy General Manager of UTStarcom’s IPTV’s business unit. At his recent trip to China, John Doerr expressed serious investment interest in some deals.
It seems very crowded with VCs pouring into China. The opportunities, however, are growing even more rapidly than that, according to Zero2IPO, a Beijing-based venture research and consulting firm. The successful IPOs of Baidu and Focus Media have certainly set the expectation. Although there are still many pitfalls, the good news is that Chinese entrepreneurs are maturing and they are very savvy in terms of business model innovation. In comparison, the Silicon Valley entrepreneurs tend to more focus on technical innovation.