Booms and Busts in China

The VC numbers that get reported tend to be US-centric. So, we were keen to see what the trends look like from China. Here are the headline numbers (all rounds, all sectors):

• Q1 2008: $1.1 billion in 100 deals,
• Q1 2009: $320 million in 32 deals.

So, investors in China need strong stomachs! That volatility looks worse than it does in the US. But to put it in perspective, only $1 billion was invested in 2005, so 2009 is likely to be better than 2005, just not as good as the boom in 2008.

Here is the other side of the story: IPOs are alive and well for Chinese companies. Between 2004 and 2008, the number of VC-backed ventures that exited via an IPO with a market cap of over $1 billion were:

• 14 from China,
• 11 from America.

So, let's hope Fred Wilson is right that the IPO drought in America is nearly over. (I think he is right.)

Background on GSR Ventures

GSR Ventures invests primarily in early- and growth-stage technology companies that have substantial operations in China.

GSR currently has about $700 million under management. It has a partnership with Mayfield Fund and has offices in Beijing and Silicon Valley.

First rounds range from $500,000 to $3 million.

In Which Markets Is GSR Investing?

GSR Ventures looks for investment opportunities in the following sectors:

1. Consumer Internet. This is fundamentally a bet on demographics and GDP growth: that students who are currently online will get jobs and spend money online, that more older people will go online, and that the high GDP growth relative to developed economies will create big opportunities.

American consumer Internet companies have so far not been strong in China. Google has less than 25% of the search market there. eBay, Yahoo, and Amazon have not had major success in China. This is also true in some other large markets, such as Korea, Japan, and Russia. This leaves a lot of room for local companies to emerge.

2. Enterprise IT in China. Richard stressed that this was in the early stages, but he sees opportunity to leap-frog to cloud-based systems.

3. Clean tech. Unlike the first two, this is a global play. Some Chinese companies have already done well in the electronics systems and components marketplace. Chinese clean-tech ventures can take advantage of lower R&D costs.

The poster child for Chinese clean tech is the electric car company BYD, the one that Warren Buffet invested in.

Other Sources

Richard mentioned two other sources for people wanting to dig a bit deeper into the venture scene in China:

• Zero2IPO,
• Asian Venture Capital Journal.