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Venture capitalists step up presence in China

Posted: 13 Apr 2007 ?? ?Print Version ?Bookmark and Share

Keywords:China venture investments? China venture capitalists? China investment?

With business thriving in China, most venture capitalists are gearing up efforts and are employing different strategies to increase their presence in the country.

Many of China's 20 most active investors such as Walden International, Sequoia Capital and Granite Global Ventures now have local branches in the country. This is according to the Associated Press (AP), citing information from the research conducted both by VentureOne and The Private Equity Analyst.

The pace has picked up over the last few years when venture investments in China started, said the report. Last year, venture capitalists, drawn to China's population and stock of well-trained engineers and technologists, pumped $1.8 billion into China deals, up 55 percent from 2005, according to Ernst & Young and VentureOne.

Meanwhile, other investors have opted to tap a local partner to establish a presence in the country. For example, Mayfield Fund, a limited partner in the $75 million debut fund raised by China venture firm GSR Ventures, became a general partner in the $200 million partnership the firm closed recently.

In 2005, Accel Partners teamed up with long-time China investor International Data Group (IDG) to launch a $250 million China fund. Accel tapped into IDG's China network50 investment professionals operating from multiple officesthrough the IDG-Accel China Growth Fund.

Other firms have approached IDG about forming similar relationships, according to IDG Ventures Boston general partner Michael Greeley in the AP report.

Based on experience, firms learned that it's much more difficult to help companies recruit without a local presence. The strategy also helps address another critical issue for investors when venturing in Chinaguarding trade secrets in a country without a long-standing tradition of intellectual property (IP) law.

Another path
On the other end of the spectrum, some firms still believe they can overcome these challenges without opening an office in China or entering a formal alliance.

Take the case of U.S. firm Kodiak Venture Partners. In 2006, the company co-invested with Shanghai's Dragonvest Partners in a first round of financing for Wireless China, a Beijing provider of text-messaging infrastructure services. This allowed Kodiak to tap Dragonvest's local networks and market intelligence informally, a spokeswoman said.

Another U.S. company without an office in China, Woodside Fund, teamed up with IDG and China investor DCM to fund Analogix Semiconductor Inc., a chip design company with design centers in Beijing and headquarters in California.

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