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VCs in China

presented by Venture TDF Shanghai Co

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VCs in China

  1. 1. The Opportunities and Challenges of a Foreign VC Investing in China Venture TDF China Fund Managing Partner Tina Ju
  2. 2. VCs Classification in China <ul><li>Overview of Buyout Funds, Private Equity and VC </li></ul><ul><li>Local Venture Capital </li></ul><ul><ul><li>Mainly founded by Government or state-owned entity; affiliation with technology park or university </li></ul></ul><ul><li>Foreign Venture Capital </li></ul><ul><ul><li>Mainly are US/European VCs ( Intel Capital,Carlyle Venture, Fidelity, IDG, Softbank, etc ) </li></ul></ul><ul><li>Independent VCs </li></ul><ul><ul><li>Fund raising & management by a VC fund management company (Venture TDF ) </li></ul></ul>
  3. 3. VC Investments in China
  4. 4. VC Investment in 1 st Half 2004 <ul><li>Investment of US$450M for 80 projects </li></ul><ul><li>Top ranked is (28%) in Semiconductors, Internet sector is the second welcomed (27%) and telecom is the third (19%) </li></ul><ul><li>Most of the projects are in Beijing, Shanghai, Zhejiang and Shenzhen </li></ul><ul><li>Sectors focus emerge from each city/region (IC; Telecom & Wireless; Internet; Software & Services; Electronics manufacturing, etc.) </li></ul><ul><li>VCs exit from 36 projects with return of US$212M, including 9 VC-backed IPO events </li></ul>
  5. 5. Industry Distribution, 1 H2004 <ul><li>Telecom ranked the first in terms of deal number, while IC got largest amount funding </li></ul>Industry Number of Deals Percentage Number of Deals with Disclosed Investment Amount Disclosed Investment Amount (US$ million) Percentage IC 11 14% 10 124 28% Internet 10 13% 10 117 27% Telecommunications 17 21% 16 81 19% Services 5 6% 5 30 7% Software 2 3% 2 25 6% Traditional 11 14% 9 21 5% IT Service 3 4% 3 6 1% IT Others 1 1% 1 6 1% Biotech/Medicine 5 6% 4 5 1% New Materials 2 2.50% 2 5 1% Others 13 16% 11 18 4% Total 80 100% 73 438 100%
  6. 6. Comparison of 2000 & 2004 Confidential <ul><li>Challenge 2000 </li></ul><ul><li>Legal Risk </li></ul><ul><ul><li>Can’t set up a </li></ul></ul><ul><ul><li>Local entity </li></ul></ul><ul><ul><li>Some sectors </li></ul></ul><ul><ul><li>prohibition to </li></ul></ul><ul><ul><li>foreign </li></ul></ul><ul><ul><li>investment </li></ul></ul><ul><li>Exit </li></ul><ul><li>Opportunity 2004 </li></ul><ul><li>Improving legal </li></ul><ul><li>environment </li></ul><ul><li>WOFE or Joint </li></ul><ul><li>Venture </li></ul><ul><li>WTO entrance </li></ul><ul><li>IPO in US, Hong </li></ul><ul><li>Kong and Singapore </li></ul><ul><li>M&A </li></ul>
  7. 7. Special Arrangement for Projects Offshore Holding Offshore US Fund PRC Co. Invest On Shore (Licensing vehicle for ICP, …) Off Shore WOFE
  8. 8. Foreign VCs are More Aggressive in 2004 <ul><li>VC investment from Foreign VCs contributed 85% of VC investment amount in China, surpassing local VCs and dominate the market </li></ul><ul><li>Foreign VCs’ Average single deal size reached US$10 million, about 7 times that of domestic VC </li></ul><ul><li>In June 2004, Silicon Valley Bank organized a VC delegation to visit Beijing and Shanghai </li></ul><ul><li>U.S. based mainstream VCs and funds have been exploring China opportunity by top management visiting, seeking deals for direct investment, setting up China offices, or invest into China-specific VC funds </li></ul>
  9. 9. Improving Exit Environment <ul><li>Exit is viable and feasible for Foreign VC funds. They are getting realistic returns from China portfolios through IPO or being acquired </li></ul><ul><li>In past 1.5 years, nearly 50 IPO and M&A cases showed that the exit environment were improving for VCs </li></ul>
  10. 10. Some Successful Exit Cases <ul><li>Amazon – Joyo </li></ul><ul><li>Sohu – Goodfeel </li></ul><ul><li>Sina – Crillion </li></ul><ul><li>Sohu – 17173 </li></ul><ul><li>eBay – EachNet </li></ul><ul><li>Yahoo – 3721 </li></ul><ul><li>NHN – Lianzhong </li></ul><ul><li>HK.com – New Palm </li></ul><ul><li>Tom – Leiting Wuji </li></ul>IPO <ul><li>Linktone </li></ul><ul><li>SMICS </li></ul><ul><li>Sinocom Software </li></ul><ul><li>DMX </li></ul><ul><li>Shanda </li></ul><ul><li>Mengniu Dairy </li></ul><ul><li>Lining </li></ul><ul><li>Ctrip </li></ul><ul><li>51Job </li></ul><ul><li>China Finance Online </li></ul>M&A
  11. 11. Exit Analysis in 1H 2004 <ul><li>VCs exited a total of US$157 million from IPO, 74% of total exit amount </li></ul>
  12. 12. Venture TDF China Fund <ul><li>US$120M is under management by Venture TDF Group </li></ul><ul><li>Venture TDF China Fund (www.venturetdf.com) founded in Oct 2000 , US$33M under management </li></ul><ul><li>Sponsored by TIF from Singapore & Shanghai Venture Capital Corp </li></ul><ul><li>Granite Global LLC, a U.S. based VC managing US$360M has been a strategic partner </li></ul><ul><li>Focus in the area of Telecommunication, Media and Technology and other emerging and high growth sectors </li></ul><ul><li>Total of 15 projects in China,including Alibaba, Baidu, Hurray, etc. 3 exits to date </li></ul>
  13. 13. Our Differentiation <ul><li>One of the few independent China Venture Capital Fund with local presence and owner like behavior </li></ul><ul><li>Strong network of domestic, regional and US VCs, plus proven entrepreneurs where deals are sourced and syndicated </li></ul><ul><li>Identify and invest in quality companies that are “Built to Last” (management, vision, solid business model and execution capabilities) </li></ul><ul><li>Identify and invest in leaders of high growth sectors, leveraging on China’s vast and fast growing consumer market </li></ul><ul><li>Balance return focus with emphasis on cash on cash and IRR returns to our LPs </li></ul>
  14. 14. China Fund’s Investment Calendar Potomac Board Seat Active Follower Observer % Fund Invested
  15. 15. Concluding Notes <ul><li>Technology application is more promising than technology creation </li></ul><ul><li>Products and technology for import substitution, distribution channel to reach vast and diversified customer have good potential </li></ul><ul><li>Seasoned and well rounded founders is still scarce in China </li></ul><ul><li>Portfolio management needs more hand-holding & proactive involvement </li></ul><ul><li>To win the game, it is quite important to operate by professionals who are familiar with local regulations, industry rules and market admittance system </li></ul>
  16. 16. Contact Details Shanghai Office Venture TDF Shanghai Co., Ltd Unit 2102 China Merchants Tower 161 Lujiazui East Road, Pudong Shanghai 200120, China Tel. : 86-21-5888 3185 Fax : 86-21-5840 0078