China Epiphany -- Have you had yours?
If you've had difficulty "getting" the significance of China for the high technology industry, look closely at the recent actions of established Silicon Valley venture capital firm, New Enterprise Associates.
Despite about 30 years of investing history in Silicon Valley, NEA invested more money in a single Chinese semiconductor comany, SMIC, over the past two years than it has in any other company. And after two years, that investment of $120 million has already returned a paper profit.
The reason: SMIC was the fastest growing company in history, reaching $1 billion in sales within four years -- faster than the previous record holder, Google.
And SMIC was (is?) the fastest growing company mainly because its based in China, which is seeing 9 percent economic growth per year -- and no end in sight of similar growth in the future.
Dow Jones ran a story today about how NEA is "not afraid to think big," which was good as far as it went. It cited facts like how in February, NEA raised its tenth fund, a $1.1 billion mega fund that it is the largest U.S. venture fund raised since the Internet bubble.
But the article didn't mention the biggest example of NEA's bravado: Its move in China.
The real source of NEA's chutzpah is Dick Kramlich, the firm's founding partner, wealthy and accomplished enough to have retired long ago, but who has an inexplicable itch to keep discovering the next new thing.
Despite having no full-time partners on the ground in China, Kramlich became convinced of the SMIC opportunity. He went to his partners and suggested a $100 million investment. "They said I was crazy,'' Kramlich recalls. They told him to consider all the "geopolitical risks" in China, he says, but he responded that the U.S. had just as many risks.
So then a partner proposed that six NEA partners fly to China to do the due diligence on SMIC. They did, and after a week's visit, they signed a deal for $90 million. That was 2002. NEA pumped in another $30 million last year. And this year, after SMIC went public, NEA is already in the black.
With massive, quick money like that, all the signs all suggest the next era of opportunity will unfold in China -- excepting substantial political unheaval.