The power of capital unleashed
- By Hou Ruili
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E-mail China Today, June 1, 2016
The IDG Capital Partners headquarters in Beijing houses a dozen conference rooms where new projects that stream in all year round are negotiated. Founded in 1993, the company was one of the first foreign venture capital firms to enter China, and has funded a string of well-known Chinese brands. It is a prime example of win-win business. IDG Capital Partners now commands US $7.7 billion in assets, and around 100 of the 450 companies it has invested in have either gone public or been purchased.
Hugo Shong, founding general partner of IDG Capital Partners, is the mainspring of the company's success. When reflecting on the bullish rise of China's capital market, of which his company is a constituent element, Shong speaks with American candor tinged with Chinese charisma.
Answering the call of reform and opening-up
Shong feels fortunate to have been in his salad days when China's reform and opening-up came into effect. He had, since turning 15, been working as an electrician when, in 1977, the national college entrance exam was reinstated after the "cultural revolution." Shong sat the exam and was enrolled in the foreign languages department of Hunan University. He went on his master's program in journalism from the Chinese Academy of Social Sciences before going to Boston University to study journalism and communications.
While working in the States as a journalist Shong reported on many legendary capital investors in Silicon Valley. After joining IDG in November 1991, and upon perceiving the abundant business opportunities in China, he proposed to his boss, Patrick J. McGovern, founder and chairman of IDG, exploring the Asia-Pacific market. In December 1991 he was assigned toChina, to launch more than 40 joint-venture magazines and newspapers.
When, in early 1992, the late Chinese leader Deng Xiaoping made his famous inspection tour of South China he made several speeches underlining the country's resolve to speed up reforms. To Shong this signified a prospective venture investment gold mine, an observation that won McGovern's support. Market conditions in China, however, were immature, and the first investments, including one in the development of laptop computer batteries, failed. It was not until 1996 that IDG Capital Partners made its first IPO, and in the year 2000 executed its first "exit" by acquisition. Long experience in technology, media and telecommunications helped IDG Capital Partners spot and seed the group of companies – Tencent, Baidu, Sohu and Ctrip – that now dominate China's Internet industry. IDG's reputation consequently soared, and Shong was heralded as China's No.1 venture capitalist.
Tencent, founded in 1998, set out to develop the wireless paging system, and the next year received US $1.1 million from IDG. But, in common with others among the first crop of China's Internet businesses, it experienced serious teething problems. Having fallen prey to the so-called Internet winter of 2000, IDG opted out. But at the time of this hasty exit IDG had achieved a 60-fold return on its investment. The decision, Shong admitted, remains a source of regret to this day. Now a leading provider of Internet services that generates an annual revenue of RMB102.86 billion, Tencent shapes and influences the communication and lifestyle mode of hundreds of millions of Chinese people. It also constantly opens up new fronts for China's Internet industry.
Embracing a new era
Government support for entrepreneurship and innovation has prompted a proliferation of more innovative companies, so stoking the need for venture capital. Meanwhile, venture investors are feverishly putting out feelers for outfits that can potentially propagate greater returns on their investment. This symbiosis has created a flood of funding for small and medium-sized tech companies. Shong, however, believes that technology innovation takes precedence over that of business modes, as the former constitutes a more tangible company asset. "There are plenty of funds in this field, but few good projects," Shong observed.
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