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Securing Venture Capital From China

I am charged with getting venture capital for our media technology company that focuses on next-generation home entertainment. This financial crisis has got me thinking about where to look. I was thinking maybe China. Any ideas? —E.S., Irvine, Calif.

First, the good news: “China does have a VC community, and…[it's a] source of liquidity and appetite for new investment, notwithstanding the current global financial collapse,” says Janet Carmosky, CEO of the China Business Network, a business information and networking Web site.

Bradley Haneberg, a securities lawyer for Kaufman & Canoles who has worked on direct Chinese initial public offerings, agrees. “In the last several years, China has seen the birth and exponential growth of its entrepreneurial class. The Chinese government adopted several policies (including tax incentives) to encourage the development of privately owned businesses. These entrepreneurial ventures, coupled with the privatization of state-owned businesses, have driven the Chinese economy to new heights,” he says.

Despite a blistering economy and an enormous spike in the number of businesses that require access to capital, bank debt is difficult to obtain in China because loans have traditionally been given only to companies that are politically connected. The lack of bank financing has contributed to the creation of Chinese venture capital groups, Haneberg says. Chinese investors have funded telecoms, Internet ventures, health-care firms, software development, green tech, water projects, airport securities, and social networking sites, says Robert Chen, executive vice-president and general manager of the ChinaTel Group, which provides WiMAX networks in China and other countries. “Next-generation home entertainment could be big here,” he says.
Focus on Chinese Companies

Despite the good news, however, there is a deal-breaker for U.S.-based startups seeking to tap into Chinese VC money: Chinese investors focus on funding Chinese companies.

“There are many reasons for [investing inside China]: Among the top: lower labor cost, big China market, and most importantly, the VC can keep an eye on the project,” Chen wrote in an e-mail message. In addition, Chinese VCs rely heavily on what’s known as guanxi (BusinessWeek.com, 11/8/07), Chen says. “When a person has good guanxi with the Chinese government or with a VC, that means they have a good relationship and might refer the company or individual to get a license approved or refer the person to someone in the VC community that will review the company’s business plan and may or may not invest in the company.”

Carmosky confirms the importance of the personal relationship in Chinese business, in contrast to U.S. venture capital culture, which tends to focus less on relationship and proximity and more on forecast ROI and exit strategies. “Our system of capitalism is so impersonal that it’s often called ‘OPM’ or ‘Other People’s Money,’” Carmosky notes. “It calls for high degrees of transparency and accountability, and exists within a framework of mature, scalable markets.” In contrast, risk is evaluated by Chinese VCs based on proximity, local relationships, and calibrating how well-attuned a company is to government policy.

There are also stringent foreign exchange rules in China that make it difficult for firms there to engage in foreign exchange, Haneberg says, and Chinese venture capital firms have a hard time competing for quality investment opportunities in developed countries where there are already so many established investment firms.

Business Financing: A Look at Venture Capital

Raising business finance isn’t always easy, and especially so when you’ve not got enough assets to secure against your ambitious plans. In some cases, you’re going to have to part with equity. Venture capital funding can help you grow your business, and plays a vital role in fuelling growth and innovation in the world economy.

Venture capital has helped to fuel the growth of some of the world’s biggest public companies at one stage in their life-cycle. Venture capitalists are willing to run the risk of making poor returns, or losing all of their money, for a chance to hit a home run. That’s why their capital tends to follow big ideas, and is hard to get when you’re looking to do something that isn’t too innovative with huge growth potential.

The Dynamics of Venture Capital Funds

When entrepreneurs are looking to raise money from venture capitalists, they often have a poor understanding of how the market works. Venture capital firms do not raise their funds from shareholders; they usually raise their funds from private institutions. They will then charge a management fee, and take a percentage of equity for themselves. They also have a tendency to work together – often they will have other firms invest in a deal along with them. This can be to limit their exposure, and bring in expertise. Some VC firms will take an active role in managing their investments, while others prefer to watch carefully on the sidelines.

Don’t Be Too Scared Of Equity Dilution

Many a business has failed because the management have been too afraid of diluting equity. While it’s important to ensure you treat your equity with the respect it deserves, you shouldn’t be afraid to let go of some if it’s going to mean you own a smaller share of a bigger business. Using venture capital you can explore a high risk, high reward, rapid growth strategy. In many cases VC firms will be happy to fund your business to run at a loss initially, because they can see the bigger picture. This is a luxury that you will not be able to take advantage of when you have bank managers looking at your ever dwindling balance sheet.

Raising equity also gives you an opportunity to profit from your businesses success, or idea, before you manage to take dividends or experience a liquidity event. Although it will probably only be offered in later rounds, a VC firm might be prepared to buy equity from you directly as well as buying it from the company.

Choosing The Right Venture Capital Firm For You

Working with a company that’s worked in your space before can be of tremendous benefit. They will have domain knowledge to share, and will often have the right contacts in their phone book for closing partnerships and recruiting expertise. The relationship that you have with your VC could make or break your success, so make sure you pick the right one and the best fit for your business.

Speakers: Jay Hoag, Co-founder, Technology Crossover Ventures Reid Hoffman, Chairman and CEO, LinkedIn Matt Murphy, Partner, Kleiner Perkins Caufield & Byers Moderator: Geoffrey Yang, Founding Partner, Redpoint Ventures Navigating the venture landscape today has become quite tricky with changing company valuations, and threats such as corporate bankruptcies and limited partners reneging on their investment commitments. Given the potential landmines, as well as the new economic order, whats the outlook for the year ahead? What are the most creative and effective strategies for venture capitalists, investors and entrepreneurs? Which sectors will be profitable and which will not? Will there be a shake-out among VCs and if so, who will go and who will be left standing? Get inside the heads of some of the Valleys most respected venture capitalists and learn how they are making decisions and managing for success. Sponsored by Cisco, Fenwick & West LLP, Silicon Valley Bank

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Are Bloggers Entrepreneurs?

Across many other indian blogs, I am observing that entrepreneurism is being associated with (or related) to the personal risk and/or risk of invested money. There is a fundamental flaw in the chain of thinking. And this fundamental flaw comes from our misunderstanding of the true meaning. We take the literal meaning of the definition and fail to put entrepreneurship in proper context.

The central premise of entrepreneurism is about “risk of the idea”. The risk is associated with whether the idea solves any problem, how that idea can be executed, whether a business model can be derived out of it, or whether it can be sustained profitably. The basis of entrepreneurship does not stand on pillar of personal risk and risk of capital. These two aspects are just the enablers or facilitators. They do not, cannot, and will not drive entrepreneurship. If that were the case, then all angel investors and venture capitals would be called entrepreneurs. Buffett takes personal risk and capital risk by putting money into companies (many times distress and depressed companies), he should be called entrepreneurs! Do we call them entrepreneurs?

Just because one takes personal risk or invests money does not make him/her entrepreneur. Otherwise we should call stock market traders, owners of street corner shop, and vegetable vendors as entrepreneurs. Even a college student can be called an entrepreneur. He spends money, time, and takes personal risk by spending 3 to 4 years in college not knowing what kind of job he will get after graduating.

History shows us that entrepreneurs are successful when they focus on core problem, when they focus on a unique solution, and solve that problem in better way. Here unique solution does not necessarily mean innovation, and better could be cheaper, faster, simpler, ease, etc.

Anybody who starts a blog is not an entrepreneur. However, a blogger can be considered as an entrepreneur provided an individual is using blog as a medium to promote a unique idea. That idea could be addressing a problem. It could be providing solutions to that problem. If there is a need for it, than the blog will become popular, and end up being a profitable venture. The individual is addressing the core premise, i.e. risk of the idea, focused on problem, and solution to it. I would call them blogopreneur.

Let us take an example. There is a lack Indian blogs that provide opinions and viewpoints, based on individual thoughts, facts, data-driven analysis, and well researched posts. If an individual decides to focus on that topic and makes a profitable business venture out of it, then that blogger can be called as an entrepreneur. However, starting a blog to rewrite the news, or republishing the information is not entrepreneurial. They are just bloggers and not blogopreneurs.

Therefore, I believe entrepreneurship is not limited to taking personal risk or capital. It is about providing a unique solution to a problem. If that solution is unique, and there is need for it, and benefits its end users, it will automatically turn out to be a profitable venture.

We fail to identify the difference between business venture and entrepreneurial venture. It has been ingrained in our lexicon that any business venture is entrepreneurial. Among all of the tech startups that have mushroomed in last two years, ninety percent of them are attempting a business venture. The gist is there is no entrepreneurism associated with these ninety percent of tech startups. This is a topic in itself which I will discuss sometime in future.

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The Structure of a Venture Capital Investment By Abdul Razaq

When a venture firm decides it is interested in investing in your company, it will offer you with a term sheet, which is essentially an offer letter. If you are a business owner than you conscious that one of your business challenges is getting your company funding. To put it simply, an investment firm will give money to a promoting company.

While this investment can be a tremendous boon to a tiny division of the companies pursuing it, in the vast majority of cases it presents the entrepreneur with a “Faustian Bargain”. I have come to understand that raising even a small amount of angel funding is a challenge. Venture capital investments normally are high risk investments but offer the potential for above average returns.

If you have gotten to this point without a good lawyer, now is the time to hire a qualified one with a background in venture capital finance. This investment firms will require a fair estimation of your business shares and then will acquire a set amount of shares at an agreed up price. Venture capital firms usually comprise small teams with technology backgrounds (scientists, researchers) or those with business training or deep industry experience.

The decision to chase venture capital is often a tempting distraction from the much more complex and important entrepreneurial tasks of producing something to sell and persuading someone to buy it. I still do not fully understand why my company, Oases, has not been able to raise capital, but I think it is just a substance of finding the right investor.

The People Involved in the World of Venture Capital

While the term venture capitalist has been applied to any individual that engages in providing or assisting with providing investments into small and startup businesses, there are a number of classifications of individuals that you will work with when looking for venture capital.

While we discussed the structure of the venture capital firm itself in a previous article, we will now focus on the personnel. We will start on the lowest part of the totem poll – and move up!

The first level of venture capitalist is the associate. This individual typically has graduated from college and has spent at least one to two years in an industry such as technology, finance, or investment banking. This individual may or may not have an MBA, but this degree is becoming more common among associates at venture capital firms. These people often run analyses on potential investments and infrequently deal with clients or businesses in which the VC firm has an investment.

The second level of VC is the principal. This person is often on track to become a partner at a venture capital firm. They assist with overseeing the investments made by the venture capital firm. They often have extensive experience in the private equity or investment banking industries.

The third level of VC is the entrepreneur-in-residence. This individual is usually a highly skilled entrepreneur that has had years of senior level business experience. They may or may not have years of experience directly in the venture capital or private equity industries. However, they bring a wealth of experience, guidance, and mentoring for senior level executives of companies that have been invested into by the venture capital firm. They often sit on the board of directors of companies that are owned by VC firms.

The final and highest level of venture capitalist is the partner at the VC firm. These individuals have the final say as to the investments to people looking for venture capital. They also work extensively with the investors of the venture capital firm. They are instrumental in the capital raising process and for large investments they (much like their second tier counterparts) often directly provide advice to senior level executives.

Venture capitalists, among all of the discussed classifications, are typically well educated and ambitious people. The allure of multimillion dollar salaries, payouts, and prestige leads the best minds in finance to the venture capital industry. As such, you may find it a little difficult to work with these people as they can often have large egos. Although this is a stereotype, it is not uncommon. The nature of the work itself demands that a venture capitalist be confident, intelligent, and diligent.

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Starting a new life and Job in Australia

Relocating to Australia can be a fun and exciting venture, especially if you plan to pursue your dream career abroad. The climate, great culture and friendly locals have made this a top destination for people looking to relocate to a new place and start a new life. The country has also consistently ranked high for its quality of life, health care, public education, human development and economic and political freedom. If you find yourself considering a big move down under, here are a few tips to help you get started.

Researching Locations

Australia is an incredibly large country with many different cities to choose from for your new home. Spend a little time researching different areas to see what suits you best. The obvious choice is Sydney, one of the largest cities in the country. However, not to be overlooked is Melbourne. Melbourne is a lovely, hip city that has a more youthful, playful and artistic vibe than Sydney. Other state capitals to consider are Brisbane, Perth and Adelaide.

Finding Work

If you are not too fussed about where in Australia you end up, another option is to secure a job before moving out there. There are many ways to go about this. The first and best option is to just search the web. There are many great online directories that list current openings for businesses across the country. You might also try looking at the websites of corporations that interest you to see if they have listings on their human resources page. Finally, check out employment agencies that have branches in both your country and in Australia. These agencies will have insider knowledge about upcoming job openings and will be able to help you provide the necessary paperwork for applying for both the job and any visas.

Settling In

Whether you decide to secure your job before your big move, or plan to start looking once you’re there, you will need to find an apartment or house to move into. It is possible to find rentals online so that you have a place to settle into as soon as your plane lands, but this is not recommended. Instead, book yourself into a hotel for a couple weeks in order to give yourself plenty of time to look at places to live. This way you’ll be able to physically inspect the residence while also checking out the neighborhood.

Family

If you are planning to relocate your family to Australia, you will have many additional considerations. Before you make the move, you will need to enroll your children in a school. You will also need to ensure you have medical cover for Australia and the proper medical files in order to register your family with a GP. If you have any pets, make sure they are up to date on their shots and inoculations and have proper travel arrangements. Finally, when you arrive, the first things you and your family will need are a mobile phone and a car for getting around. After that you can focus on settling in and getting to know the local area.

Angel Investors are high net worth individuals who invest individually or in syndicates in early stage entrepreneurial ventures. This book is designed to help an angel investor develop an investing strategy. It covers sourcing and evaluating investments, negotiation and valuation of the investment and then the process of managing the venture through to an exit. The book has been used as the basis of Angel education in Australia and New Zealand but is applicable to any environment. The book is available free from www.tommckaskill.com

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