Doll Capital Management (DCM), a leading US-based venture capital firm, is trying to expand its footprint to traditional industries with its new US$500 million DCM V fund.
"We are looking for opportunities in education, energy and medical institutions in China this year, continuing the investment emphasis on early stage technology companies," Hurst Lin, general partner of DCM, told China Daily in an exclusive interview. He was previously co-founder and chief operating officer of SINA Corporation and joined DCM early this year.
VC firms typically pour their money into the information technology sector, Internet firms and telecom companies. But many are now turning to Web 2.0 technologies such as Blog, Instant Messenger (IM) and Social Network Software (SNS).
"We are also interested in Web 2.0 technology, but the current entry cost is too high, raising more uncertainties for profits," Lin said. "Some traditional sectors, which are neglected by most VC firms, have more potential opportunities for us."
According to him, there are two types of opportunities in traditional sectors: industries facing bottle-necks such as the energy sector where technologies for new and clean energy are badly needed; and sectors where efficiency could be boosted with applications, such as databases in educational institutions.
"But the decisive factor is still the price," Lin added. "What we most care about is the premium between the buying and selling price."
DCM recently announced the closing of DCM V, a US$500 million venture fund, bringing its total capital under management to more than US$1.5 billion. Following four previous DCM venture funds, DCM V is expected to begin funding new portfolio companies in late 2006 or early 2007.
"Quite a number of them will go to China, given the surge in opportunities here," Lin said.
After entering the Chinese market in 1999, DCM has invested in over 10 companies, including 51job, Semiconductor Manufacturing International Corp (SMIC) and Vimicro. They have already completed successful initial public offerings (IPOs) in the United States.
In July, DCM and two other VC firms Walden International and Alto Global injected US$27 million into Dang Dang, the country's largest online retailer.
Of DCM's three key markets the US, Japan and China it has invested 20 percent of its overall total in China and continues to invest more in the country.
Since 1999, the firm has poured some US$100 million into its Chinese investments. "And we will invest more than 4 billion yuan (US$494 million) in the Chinese market in the next 10 years," Lin added.
While injecting more money into China, DCM has also enhanced its co-operation with local partners.
Last April, DCM formed a strategic partnership with Legend Capital, a firm that manages more than US$100 million and has about 30 investments across two funds. DCM has taken on four investment projects with Legend Capital two in China and two in the US.
Legend Capital's parent, Legend Holdings, also owns Lenovo Group Ltd, which in late 2004 agreed to purchase the personal computer operations of IBM.
The overall policy environment for VC firms is also improving.
According to Liu Jianjun, an official with the National Development and Reform Commission (NDRC), the government will unveil a package of policies this month to encourage more rapid development of venture capital firms.
VC firms will be granted preferential tax policies, and insurance institutions and security firms will be encouraged to invest in VC firms.
Meanwhile, the NDRC, together with the China Banking Regulatory Commission, is working on rules to let VC firms improve their investment capabilities through equity financing.
"We are very encouraged by these measures," said Lin, adding he is quite optimistic about the potential of China's VC sector.
"There are three criteria for a booming VC sector: a rosy macro economy, a big talent pool and enough money. And China has all of them," said Lin.
VC firms' investment on the Chinese mainland will hit a record US$1.5 billion this year, fuelled by capital being poured into the Internet, telecommunications and semiconductor industries, according to a recent report by Beijing-based Zero2ipo Inc.
In the first half of 2006, VC investment on the Chinese mainland reached US$772 million, up 128 percent year-on-year. And there will be a bigger increase in the second half, the report said.
VC investment in the information technology sector was US$562 million in the first half, 73 percent of the total volume. Of this, Internet firms got US$276 million and telecom companies raised US$152 million, while US$49.86 million went to the integrated circuit industry, according to Zero2ipo.
(China Daily August 15, 2006)