Ties That Bind - Bay Area Council Economic Institute

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Ties That Bind
IPO—particularly in cases involving acquisitions of well-known Chinese trademarks or brands.
To some degree these actions appear to have been stimulated by the recent surge in foreign
merger and acquisition activity. The new moves suggest growing nationalism on the government’s
part, and a readiness to intervene to protect local companies, support the development of
national brands, and limit the market power and influence of foreign companies.
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The above factors taken together suggest a continued advantage for Bay Area investors already
established in the China market. While venture capital and private equity account for only a small
part of the $50–70 billion in foreign investment being poured into China each year (the greater
part being investment in new facilities), they are playing a particularly important role in China’s
growing entrepreneurial community and in technology and internet plays in particular.
In newer service and tech sectors, particularly wireless communications and the internet, Chinese
companies—and Bay Area startups formed by Chinese science, engineering and business school
graduates—bring to the table distinct technology solutions geared to the Chinese market.
Converting Entrepreneurs to Managers
The challenge up to now, fund managers agree, has been developing the management capability
to run a hybrid global enterprise that blends Silicon Valley freedom and innovation, Chinese cost
savings and discipline, and global business sophistication.
Min Zhu, a Stanford doctoral graduate and founder of web conferencing, presentations and
training firm WebEx, is now a manager of the New Enterprise Associates (NEA) $100 million
Northern Light incubator fund and an officer of the Hua Yuan Science and Technology
Association’s Beijing Chapter. Northern Light plans to spend an average of $10 million each on
10 startups in China and California—in sectors ranging from internet-based insurance to radiology/oncology
scanning devices to solar panels. But the focus will be as much on building management
capability as with bringing new technology to market. Zhu says China affords entrepreneurs
and investors an opportunity to re-create successful Western enterprise and industry models
from the ground up , at a fraction of the cost, leaving room for experimentation and error.
Acorn Campus Ventures, a startup incubator launched by mainland and Taiwanese engineers,
provides venture funding and mentorship plus office space and shared research facilities in
Cupertino and Shanghai. Acorn looks for proposals involving “paradigm shift and disruptive
technologies” with strong growth potential, high entry barriers and viable intellectual property,
but also a strong team and solid core competencies. Its focus is in communications, wireless,
semiconductor, photonics, internet and life sciences.
Management in China can be a balancing act. Investment banker Ken Tsang, co-founder and
managing director at Hina Group, says culture is the biggest issue in an M&A transaction, or in
restructuring a company for a stock exchange listing. Chinese managers and workers are often