Chinese medicine for US flu

Palo Alto, California: If you have a chunk of change stashed away (say, a few hundred million dollars) and are wondering how to emerge from the US economic downturn unscathed, Gavin Ni, founder and CEO of the Zero2IPO Group, and John Dean, the firm's chairman, would tell you to invest in the red-hot venture capital (VC) and private equity (PE) market in China.

At the China Venture Capital & Private Equity Forum, Silicon Valley 2008, on Tuesday, about 200 venture capital and private equity firms, entrepreneurs and aspiring MBAs gathered at Palo Alto's Crowne Plaza Hotel to review an unprecedented year in China - $3.25 billion in venture capital and $12.82 billion in private equity invested in 2007 - and looked ahead to China's investment environment in 2008 and 2009.

China's largest VC and PE service provider Zero2IPO hosted Tuesday's event by inviting 38 speakers and panelists to talk in five panel sessions and two fireside chats, covering topics ranging from hot sectors to investment best practices to the latest buzz over yuan-denominated funds.

This is the third year that Zero2IPO has brought the China VC and PE Forum to Silicon Valley - perhaps the most exciting for Ni, who delighted in sharing the latest investment data with the audience: in the first quarter of 2008 alone, VCs raised $2.26 billion in funding and deployed $940.7 million to 116 Chinese firms, more than double than in the same quarter of 2007.

Social networking company Xiaonei, known as the "Facebook of China", closed a $430 million round of financing just last week, making Q2 another likely fantastic quarter.

Jim Breyer, managing partner at Accel Partners, and Hugo Shong, founding general partner of IDG Venture Capital, echoed the excitement as they spoke with John Dean, who in addition to his role at Zero2IPO also serves as managing general partner of Startup Capital Ventures based in Palo Alto.

At the beginning of their talk, Shong promptly announced that IDG and Accel have just closed a $600 million round of growth capital funding. China right now is an entrepreneur's paradise, said Shong. Breyer, who closed the IDG-Accel fund with Shong, concurred: China is the most attractive geography for us for the next 20 years.

Breyer also pointed out that the latest China funds from several global VC firms, including his own, were larger than their US funds.

With so much money pouring into China in so short a time, many in the Valley can't help noticing similarities to the investment surge in the US in the late 1990s.

Gary Rieschel, managing director of Qiming Venture Partners, quipped: Lots of first-time entrepreneurs, lots of first-time VCs, brutal competition, support infrastructure (legal, accounting and banking) lagging, and due diligence lacking. Could this be another bubble? Speakers and audience members swapped opinions and came away with measured optimism.

Ni warned there would be short-term turbulence and consolidation, while Shong believed that China could avoid a Valley-style bubble by investing with discipline and that winners would be those who do so and are left standing after consolidation.

The Valley always has boom and bust cycles ..., said Breyer, We expect China to behave similarly, but China is a more interesting market simply because of its entrepreneurs, its intensity and the diversity of business models.

Along with Ni and Breyer, almost all speakers stressed that a long-term vision will pay off in China. In China, you must be patient. Success takes time. said Ni.

Geoff Yang, managing director of Redpoint Ventures, used air pockets to describe the potential short-term turbulence. Sure, he said, but it's hard to bet against (an economy) growing at 8-9 percent. Some huge winners will emerge.

An entrepreneurs' panel discussed emerging sectors attractive to VC and PE funding. It was clear that in China, unlike in the US, technology is not the only VC-worthy industry. Sectors ranging from technology, media and telecommunications to food and drink have experienced growth rates as high as 100 percent year-on-year.

Source:China Daily