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The China Wars -- DFJ's campaign foundering?


Jiixun Foo
With so much opportunity in China, there's a lot at stake for U.S. venture capital firms wanting their piece of the action.

So it is no surprise that skirmishes are breaking out.

While in Shanghai last week, I dropped by the offices of Granite Global Ventures near the Portman Hotel.

Granite is a VC firm on a roll over there, having backed several winners, including online trading company Alibaba.

But I was taken aback when venture capitalist Jixun Foo greeted me at the office. After all, Foo is supposed to be a partner at DFJ ePlanet, or at least according to that firm's Web site (there at the time of this writing). DFJ ePlanet is affiliated with the well-known Silicon Valley firm, DFJ. Foo is the guy who led DFJ's investment into Baidu, the big-hit Chinese search engine...

, so he carries some clout.

Turns out, DFJ ePlanet has just been slow to remove him from their site. He has officially moved to Granite, and becomes the second defection from DFJ ePlanet over the past few months. It comes on the heels of a move by Fan Zhang to Sequoia Capital's operations (scroll down). Note that Zhang also still has an entry at DFJ's site.

(Word is, btw, that Sequoia Capital wanted to move so quickly in forming its China fund that it gave its own LPs only three weeks to decide to invest in the separate China fund. "I know most of their LPs are distressed," whispered one source. I haven't confirmed any of this, though.)

Foo told me he moved to GGV because he has known the founding partners at Granite, Thomas Ng and Joel Kellman for years, and that he jelled with them and the other partners. He has known Scott Bonham, who heads GGV's SF office, for two years. "Venture capital is about people," he said. "I think it's a great team."

Uh, so what about DFJ? What's wrong with them?

Nothing, Foo said."It was the structure of the partnership," he explained. DFJ ePlanet is a joint venture with DFJ, and that means two different firms working together. Just not as simple. He didn't go into details, but we assume the compensation was different too, with DFJ ePlanet partners not getting the same cut of profits as DFJ itself.

Jenny Lee
Anyway, he and his colleague at GGV, Jenny Lee, told me they're focused on investing in Web "content" companies, as both younger and older Chinese generations seek to participate and otherwise express themselves more online. Lee is responsible for investments like Bokee (formerly Blog China), China Cars and HiSoft. Besides Baidu, Foo made investments for DFJ into companies like Longcheer, GMedia and FocusMedia.

We're wondering what DFJ will do to stem this loss (they did not respond to an email I sent them before heading out to China). Maybe this was on the mind of DFJ's leader, Tim Draper, when he came out to visit China last month with governor Arnold Schwarzenegger? China is not a place where you want to lose momentum. It's where you need a terminator.

DFJ created ePlanet ventures back in 1999, and became one of the early Silicon Valley firms to enter China on this most recent wave. We talked with ePlanet co-founder Jamal Asad
about a year ago, and he was upbeat.

It was a $650 million fund, and aimed to export cutting-edge business ideas from Silicon Valley to other parts of the world. Asia quickly became a focus. It opened an office Beijing, and then last year opened in Shanghai. The firm had already made nine investments in to China by last year. China was the biggest focus. Asad said he was spending half his time there.

Baidu, the Chinese search engine, is of course their biggest hit -- and a perfect example of how to transplant a U.S. technology back to China. The two Baidu founders were originally based in the U.S.

And DFJ was early to invest in the hot Chinese mobile space. They pumped money into KongZhong.com when it was valued at less than $10 million. It went public in June of last year at a valuation of $350 million on Nasdaq.

As mentioned, Foo helped them invest into Focus Media, the company which plastered video screens in what seems (based on our short visit, and limited sample) just about every Chinese elevator lobby, elevator, major department store and office building.

With a dozen other U.S. firms showing up in Shanghai or Beijing over the last year, we expect more poaching. Silicon Valley is starting to look pretty tame by comparison.

Update: There are times when I post something hastily, and by focusing on my main subject, fail to provide broader, fair context. In this case, I woke up realizing credit for the Baidu backing should also have been given to DFJ's Silicon Valley office, including Asad Jamal. Note that Jamal is on the board of directors. While Foo was on the board earlier, according to his bio, the Baidu site now only shows Jamal. Moreover, the FocusMedia success has many fathers, including Fan Zhang. I should also note that Foo didn't even mention Baidu or FocusMedia during our interview, and certainly didn't make any claim for responsibility of them. Finally, I'm not an expert on either of these non-Silicon Valley cases, and will shut up before I stick my foot deeper in the mouth.

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This will make things a bit more challenging for ePlanet, as having people on the ground to work with their portfolio companies is key, especially given the relative lack of experience of the Chinese Internet entrepreneurs.

Granite has a big team already set up in China, and Foo just makes their team stronger.

ePlanet has made some good moves over there to date, and they have a capable team. I'm sure they will continue to build on their success there, despite this setback.

Brad Bowers on December 7, 2005 11:27 AM
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As an LP in Granite's first fund, it's great to see them get their due after being well ahead of the curve in terms of China VC focus. Hany Nada is a dear friend and Joel, Scott and Thomas have made us proud to be among the early investors every step of the way.

Jason Wood on December 7, 2005 3:01 PM
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Granite Global definitely has a great team. I met another Helen of Granite in Shanghai and was impressed!

Helen Wang on December 7, 2005 5:16 PM
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I thought he had left a few months ago. It's interesting to see how things are playing out in China, but I also believe ePlanet will do just fine. There will be no shortage of talent willing to relocate there after the homeruns this year.

Rui Ma on December 7, 2005 5:19 PM
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zhang fan left because the folks at dfj decided he was not good enough to be a partner and china head. he found out they had hired a headhunter to find a boss for him. they were dumb.
he was good enough for sequoia, and he is probably a top 3 china vc

shangjing on December 28, 2005 5:03 PM
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I was on a business trip to China couple of months ago for the first time in my life. I was shocked how far they have gone with the technology. And they are great at doing business though have their own cultural peculiarities.

Stewart on January 4, 2006 12:35 PM
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