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China’s tech economy won’t bust soon, say veteran Chinese VCs and entrepreneurs. Leading venture capitalists and entrepreneurs weighed in Tuesday on the state of China’s technology economy in keynote addresses on the first day of the Red Herring Asia conference in Shanghai, as they downplayed the danger of a bubble bursting anytime soon. Gary Rieschel, founder of Mobius Venture Capital, relocated to Shanghai earlier this year to be close to the action. He is a survivor of Japan’s bubble in the early 1990s and the Silicon Valley bubble a decade later. Back in the early nineties, according to Mr. Rieschel, “five square miles of downtown Tokyo were worth more than the entire state of California.” He noted that Japan is still struggling to recover from that bubble. Mr. Rieschel predicted that investors’ faith in a continuing Internet boom is not misplaced. Time will vindicate them, he contended, as it has vindicated the Silicon Valley VCs who foresaw the impact of the Internet in the United States. “We were right,” said Mr. Rieschel. “The Internet has changed everything.” The valuations at which foreign VCs are now buying into mid- to late-stage companies are not, as many in the investment community have alleged, overly high, according to David Chao, managing director of Doll Capital Management, based in Menlo Park, California. Doll has made 10 investments in China to date, including Semiconductor Manufacturing International Corporation, software outsourcing firm Worksoft, social networking web site UUME, online payment provider 99Bill, and employment web site 51job. “Look at all the listed Chinese companies, with the exception of Baidu,” said Mr. Chao. “Sina, Ctrip, 51Job—if you compare them to their U.S. counterparts like Travelocity for Ctrip, Monster for 51Job, Yahoo for Sina—and you look at their P/E multiples, the Chinese companies are trading much lower.” Courting China Chinese CEOs have been courted aggressively both by both foreign and domestic VCs as well as strategic investors, according to Mr. Rieschel, and they can now afford to be more selective in putting together their boards of directors. “Chinese entrepreneurs, this is your time,” said Mr. Rieschel. “Now starts the era of the entrepreneur in China. CEOs should demand more from their boards.” But Chinese tech companies continue to face hurdles. Regulatory changes imposed by China’s State Administration of Foreign Exchange have caused VC investments to fall off precipitously in the first half of 2005. The regulatory changes were originally intended to close loopholes used by Chinese nationals to set up offshore companies and take advantage of tax breaks extended to foreign-invested enterprises. While China’s technology sector has outgrown the initial constraints in infrastructure and lack of capital, the Chinese tech ecosystem still suffers from a lack of accountants, lawyers, and other professionals in the financial and legal service sectors. “There are plenty of people to put money out, and plenty of entrepreneurs,” said Mr. Rieschel. “But China is woefully lacking in these kinds of support.” Speaker Victor Koo, who served as COO of Beijing-based Internet portal Sohu.com until early this year, made his first conference appearance since embarking on a six-month sabbatical. The Chinese media has been rife with speculation on his next venture. Mr. Koo told conference attendees that he was currently eyeing startup-phase companies, indicating that he has “narrowed it down to two.” He indicated his decision would be made “some time in October.” New Business Model Mr. Chao was asked whether Chinese companies will eventually get over their fixation with the American business model. “I believe we passed that inflection point already,” he responded. He pointed to the radically different revenue models, such as wireless value-added services like SMS ring tones and news alerts, which distinguish Chinese portals from their Western counterparts. “SMS is just starting in the U.S., and then only because American Idol is forcing people to vote,” joked Mr. Chao. “The success of these Chinese companies has given Chinese entrepreneurs a lot of confidence. We have a unique model and it works.” With Chinese search engine Baidu’s recent Nasdaq listing and its 354 percent one-day leap, the three keynote speakers were each asked to frankly assess whether the company has been overvalued. “In reality it’s being valued on what it will do 10 or 15 years from now,” said Mr. Chao. “It’s potentially overvalued. ... If I were a board member or shareholder, I would be nervous.” Source: www.redherring.com Sep 06, 05 |
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