Starving firms compete for China's scanty venture capital
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Anyone who can win the trust of a Shanxi coal boss can try his hand at growth capital. Thus, in the late stage, everyone is fighting over a handful of attractive deals.
Silicon Valley is spared this unbalanced capital market, in part because of it maturity. Silicon Valley has fostered several generations of entrepreneurs.
When they retire, they return as angel investors who invest in and guide the next generation. Sun Microsystems founder Andy Bechtolsheim famously wrote a $100,000 check to Google before it even had a checking account in which to deposit it.
China has discovered that to get rich is glorious. China's entrepreneurs are largely too young to retire, so China lacks investment angels. Lee Kai-Fu's Innovation Works seeks to combine the best ideas, entrepreneurs, and teams to create tech companies. Jack Ma's recently announced Yunfeng Fund, which will invest in Internet, media, and culture, is also a step in the right direction.
In an only-in-China twist, government-run venture capital offers another outlet.? In 1992, the city of Wuxi invested $5 million in SunTech, which became wildly successful. Wuxi realized the role it could play in fostering new companies, and in 2006 launched its innovative "530" program.
The program aims to invest seed capital over the next five years to create another 30 Suntechs. Other regional governments are close behind with their own local venture capital firms.
As China's financial talent deepens, we'll see more investors with the confidence to leave the overcrowded growth capital and delve into early stage investment. Once entrepreneurs become more sophisticated and risk hungry, we'll see even more attractive business models worth investing in, and even some entrepreneurs brave enough to forego venture capital altogether.
For now, late stage investors bemoan the dearth of pre-IPO, while neglecting the plucky companies with the potential to be the pre-IPO deals of tomorrow. As China's entrepreneurs, venture capitalists, and governments mature, the wine and meat of capital will be shared more evenly, and promising new firms will no longer be left out in the cold.
The author is director of international business, CSM Investment. viewpoint@globaltimes.com.cn
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