China’s Firms Strive to Gain a Foothold in U.S. Venture Capital

A lot of negative comments here, especially around IP theft. We have a couple of Chinese investors and they've been top quartile for us. The main reason Chinese money is looking to invest in the US is because they need a release valve for their money. RenRen invested in my friend's company and he said they've been great. I heard that Horizons has some tough terms but they are also great investors. As for the Chinese LPs I've spoken with, they seem much more entrepreneurial and less risk adverse than western LPs. This is an economy that has seen a near 38 year uninterrupted bull run with a lot of technological development. It's not surprising they are optimistic and want to invest in venture especially, if they want to diversify out of their existing industries/economy.

In the words of Elon Musk "If we published patents, it would be farcical, because the Chinese would just use them as a recipe book". From high speed trains, to maglev, to wind turbines, to kickstarter designs, to brands, designs, even entire styles of european and american cities like Paris, Venice, & London, the Chinese are notorious for stealing and reselling knockoffs of technologies. They simply rebrand it as "Chinese innovation".

Every group of people have a desire for power and world domination, they all just use different methods. And for the Chinese, intellectual colonization seems to be working.

It seems that the common subject of discussion and opinions is "China stealing intellectual property".

That's not accurate description of what happens. I'm sure China is very involved in industrial espionage, but that's not the main way to acquire technological know-how.

Almost all happens completely legally trough normal technology transfer. Chinese invest or allow foreign companies access to their market if some kind of technology transfer takes place. New manufacturing plant in China transfers much deeper knowledge base than some closely guarded secret blueprint. Chinese engineers working shoulder to shoulder next to the senior engineers from the foreigin company learn enough to start their own companies in China after few years.

That is great news for U.S. entrepreneurs. We will have a new source of funding.

I have worked on cross-border deals with Chinese firms over the past few years. (I work in finance, but not VC). I’ve seen the growth and impact of Chinese firms entering US capital markets, public equity markets, PE buyout deals and real estate. I think it will be very interesting to see how it plays out in VC...

VC is really nothing like any other type of investing. It doesn’t have the same quite established valuation and due diligence processes as other types of investing. And successful VC investing has so many non-quantifiable ingredients to the process: VCs connections and reputations, how they evaluate a team, unique sector insights, intuition, etc… And that’s after one gets past any language barriers.

[1] I see the mixed comments on here. Clearly, there are good and bad actors in China. And the caution and prudence the article brings up should be taken very seriously. But the fact is there are legit, honest, good firms in China that are worth partnering with and/or having as investors. More so, ignoring the chance to have a great investor and partner in China is ignoring the reality of the global economy that will more or less exist for probably the rest of your lifetime. China has the largest GDP of any country in the world (US is #3 if you count the EU). Times have changed. We all need to get together and figure it out.

This has gotten long, might as well add a couple more:

[2] The article also mentions the importance of understanding culture differences and avoiding possible miscommunications. This is hard to emphasize but crucial to do before real meetings start happening.

[3] When initiating meetings with potential Chinese investors, if you can hire (temporarily or permanently?) someone who speaks, read and writes Chinese and English fluently this is a game-changer and I think it’s worth the cost. Someone born to Chinese parents but who grew up in America for example.

[4] There are macro-level, systemic and regulatory-type risks for US firms working with Chinese firms and vice versa. Companies really must discount these risks in their business plan. The US and Chinese governments seem to always be negotiating, about every topic, and so in some periods there are positive developments and in others this reverses. Blocking of specific deal is a risk but market wide roadblocks can be immediate and severe. Have a plan B should this stuff happen.

[5] Deals with Chinese investors are not only about making good returns like with US VCs. There may be other motives. Too many to list. It depends.

[6] The comment mentioning Elon Musk has a point: There is no more bankable IP. It’s gone, the few exceptions are irrelevant. Companies can’t keep anything secret, especially not IP. You probably can’t afford to protect the IP in court if you had to. Don't let this stop you from working with China. Best to build around this reality.

[7] Study the Facebook and Google and Uber stories how well or poorly they did in China to see how complex this can get for a big growing company.

I'm seeing a lot of Canadian Born Chinese or Chinese-Canadians moving to China to start a business or startup. Their fluency in the language and culture varies but they are just like you and me. Raised in Canada or America. They passionately hold on to the idea of the Zhunguo Meng (中國夢) or "The Chinese Dream", a counterpart to The American Dream.

So far all of the reasons for this emigration to China seems to hinge on the view that there is a lot of entrepreneurial activity and drive in China which I think certainly holds true. For example, Alibaba allegedly closed over 17 billion dollars in sales within 24 hour on the "Chinese Valetines Day". Didi, Wechat, Baidu and so on.

Some hold a much more nationalistic/ethnocentric perspective that the Chinese economy will surpass America any day now and emerge as the new global hegemony.

On the business level, there seems to be more emphasis on relationships and reciprocal (?), you help me I help you kind of deal but with blurring of expectations that you must deliver and demand to maintain that bond. I'm not qualified to speak on this but I'm formulating this from a gathering of anecdotal experiences from people I've spoken to.

I'm biased obviously since I'm unfamiliar with China and Chinese culture & the language. I grew up in Canada all my life and this is all I know. What's that saying? The devil you know is better than the devil you don't. So basically, it boils down to what I know vs. what I don't know. China is a big unknown to me personally but that shouldn't/doesn't phase those chasing after the dream.

So just taking a look at websites like http://chinalawblog.com , it raises some important questions about their infrastructure and more importantly what compromises would I need to make as a cost of doing business in China and whether all of this structural down to individual changes is something worth investing all my time in vs. dealing with what I know already.

Also a huge minus is the cultural and language gap. I most certainly cannot do business without a contact or a close partner that is able to close that gap. While that maybe fine for the most part, it does carry over risks as I am tightly coupled to their interpretation.

I am constrained by the unknown and increasingly as I look at what's going on in Hong Kong and rest of South East Asia, I can't help but feel intimidated.

Zuckerberg came to a compromise to be chums with the Communist party in China. I wonder if that will ever pay off especially when you are so invested now and the relationship is dictated completely on the conditions of the foreign government. If this is the beginning then I shudder to think what the next compromise will be that affects their end user. It sets an uneasy precedent for future prospects eager to capture the enormous market in China.

This is strictly my personal opinion and I tried to be as objective as possible to be respectful and neutral as possible. I just don't buy it when somebody just tells me confidently that it's inevitable fate that China will surpass US with the sole basis of their argument being the very thing they assume will hold true in the long run.

I'd love to be corrected. However, if the argument that "China is taking over" holds true, US politicians and the elite should be sending their offsprings to study in the University of Beijing vs Harvard. The would leave in a posh part of Beijing, blowing money on a Chinese supercar which also does not exist. This suggest to me that the Chinese Dreams isn't even good enough for China's elite so how the hell can it be good for people like you and me?