Wilson Sonsini: VCs going to China & India at unprecedented rate
Jonathan Axelrad is a lawyer at Silicon Valley's elite law firm, Wilson Sonsini
. He helps some of the area's best venture capital firms put their funds together.
What he told us the other day stuck with us -- perhaps because of the mix of both excitement and alarm we detected in his voice. His desk is piled with papers he is preparing for new venture capital firms focused on investing into China and India, he said. "In the 1990s, money was coming from all over the world to be invested here," he said. "Now investors are using us to raise funds to spend abroad. It's the exporting of U.S capital to those countries." Over the past several weeks, he's wrapped up four venture firms focused on India, and two focused on China.
"Whether it's a bubble or not, that's another question," he says.
In related news, here's the recent NYT story quoting executives at Silicon Valley Bank, which is based in Santa Clara, and which provides consulting services to venture capital firms. They said they are they are seeing twice as many Indian start-ups looking for capital investment than even a few months ago. "Our technology and private equity clients are leveraging India at an unprecedented rate," said Kenneth P. Wilcox, chief executive of SVB.
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June 26, 2006 6:33 AM
My sense is that China is a bigger bubble than India. There has been a lot of interest and enthusiasm around China, but not a greater degree of transparency. India is somewhat more of a free market system (particularly in the IT industry) and therefore it seems to me that whatever is built there is built on stronger economic principles.
At a recent gathering at Stanford, Fan Zhang, the head of Sequoia Capital China, said there are opportunities to build empires in China now. Chinese domestic entrepreneurs are maturing, and they have seen 2nd time entrepreneurs. They are very creative in terms of business model innovation. I believe it must be a long term commitment for VCs to succeed in China. Anybody wants to flip money quickly will be disappointed.
The promise in China, especially in regards to the Internet, are just too attractive to ignore, especially considering all of the various internet businesses that have the opportuinty to be successful in China (whether they be models that have already proved successful in the U.S., or new China-generated concepts).
Consider these facts:
> With only about 8% of their population online, China already has over 110M net users (and is well on its way to surpassing the U.S. in overall web users within a few years).
> Total revenue from internet users in China is expected to increase 52.5% year on year to 286 billion yuan (USD $35.5B) in 2006.
> Online ad spending surpassed that of magazines last year in China, reaching over $400M in sales.
> Within approximately 2 years, China will have the largest online gaming market.
> China is already the second largest worldwide market for automobile sales (with total vehicle sales projected to reach about 6.2 million in '06)
The numbers are simply staggering, as are the opportunities.
As Jerry Yang at Yahoo! put it: "China is the fastest-growing Internet market in the world, and it will be the largest Internet market in the world in a couple of years. The economic upside in China is too tempting for any company to ignore."
Given all of this, China is also too tempting for most VCs to ignore.
Interesting point raised above about the Chinese entrepreneur maturing, this group is perhaps the key unknown in this whole scenario. If indeed the Chinese bubble is build on a house of cards as I„śve mentioned above (what a terrible mixing of metaphors!!), then the resiliency of the Chinese entrepreneur will be a key factor in determining how bad (or not) the fallout is if the bubble bursts„Ļor„Ļum„Ļ if the house of cars collapse„Ļor whatever.
China is truly booming on the internet shopping side. Many people now understands online shopping and with it's mix of COD and Wireless Payments, there're a lot of opportunies.
We're now helping 2 funds to raise monies for the China market.
Even in the PE side, Suntech Power, with a USD $80 MM Investment is now worth USD $6.3 Billions.
India needs VCs and firms which can help galvanize investments in early stage startups. The Indian investors are shying away from tech startups, and focussing on infrastructure and services companies which are returning 30% plus on the investments every year. This has made it difficult for entrepreneurs to get funded.
This is a positive development.