Silicon Valley’s VC China Race

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.

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12 thoughts on “Silicon Valley’s VC China Race

  1. Great article Helen!

    the good news is that Chinese entrepreneurs are maturing and they are very savvy in terms of business model innovation. In comparison, the entrepreneurs in Silicon Valley tend to more focus on technical innovation.

    This was actually a key area of discussion in one of my MBA classes…as I’ve mentioned to you before, I was the lone representative of my company from the business side of the organization. The others came from the technology side. Many of them did not immediately recognize that in order to become a high-performing company, the business must innovate by leveraging BOTH new business models – as well as improved technologies.

    Before we all became enlightened by further study, we had several debates about this. They were of the “Silicon Valley mindset”, that focused on technology as the primary key to innovation, rather than looking at the entire business process. I think we learned however, that strategic innovation must be continuously managed, measured and carried out in every aspect of a company’s products, services and business functions.

    I think the Chinese have it right in many ways. U.S. companies need to pay more attention to each other’s breakthrough business model innovations, create strategic improvements that generate excitement, and not only continuously develop existing resources and capabilities in response to rapidly changing market conditions, but create new ones as well.

  2. Bonnie – I think your sentiments are really right on target. I have been involved at various levels in several small start-ups based around technological innovation. The weakest pieces of the puzzle were on the business side. There seems to be an attitude that, since more people run businesses than create world-changing technology, that the business side will just take care of itself. I can’t tell you how many squandered opportunities I have seen.

  3. Informative. Bonnie L., great insight, thanks for opening my eyes to other perspectives!

  4. Adam and Chris – Thanks for your flattering feedback on my comments!

    …Now if you could only steer me to a job opportunity where I could put all that insight to work!

    Gisela – Fascinating question, but I have to admit I feel silly, I didn’t get the hint…..why Chinese medical technology development? I’m very curious.

  5. Fascinating article Helen! I would love to read a similar article about vc in Chinese medical technology devlopment – hint hint 😉

  6. Thanks, Bonnie and Adam, for sharing your insights! Yes, the business model innovation is very important but seems being under-emphasied. I see a lot of cases in Silicon Valley too.

    Thanks, Wil, Chris, and Gisela, for your comments!

  7. helen – i am so glad to have read this – learned a lot! thanks so much.

  8. A very interesting article. This is a subject that I’m highly interested in. My dad works for a small fabless chip company in Silicon Valley that has a growing R&D; division in Shanghai. My dad seems to feel that chip design in China is improving. Perhaps we’ll see a growing number of fabless chip companies there going IPO on the NASDAQ?

  9. Great article, Helen. I was recently researching some international stocks and noticed that there are already some Chinese companies who are suffering the “Silicon Valley Syndrome”. It’s a little too early to tell which of the VCs will have the necessary staying power to avoid it, but the issue warrants serious attention.

    Regarding China’s chip technology, that’s not the only product that is improving. We’ve all heard about the Geely, scheduled to hit American showrooms late this fall. I believe the edge right now for China is pure competition. The drive to compete – and win – on the global economic stage surpasses that of Americans, but that’s another article altogether. Thanks, Helen!

  10. Thanks for the article. I see the big isssue for Western VC’s being the difficulties they will have convincing (or forcing) Chinese companies to be transparent. The business culture there is so very different from that here and I think Westerners oftentimes neglect that fact.

  11. Interesting article. I also saw similar article about VC in India. India has developed so many strong outsourcing giants which is hard to catch up…

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