China Venture Capital and Innovation: Valley of Jade or String of Pearls?

More than 100 entrepreneurs, investors and tech industry executives came together in Silicon Valley, Shanghai and Sydney last Thursday night for the Advance Enter the Dragon videoconference.

Moderated from Silicon Valley by Dr. Larry Marshall of Southern Cross Ventures and from Shanghai by Joseph W.K. Chan, Partner and Head of China VC & PE, Pillsbury, panelists addressed the unique opportunities for innovative Australian and American companies in the world’s two largest marketplaces – the US and China. While much is known about the investment climate and protocol in Silicon Valley, little is on record about China. Will its formidable entrepreneurial spirit be able to foster an investment climate that will turn it into a Valley of Jade, or merely a string of pearls?

Among the highlights of the 90-minute videoconference:

  • China truly is a land of opportunity. Whereas in Silicon Valley investment opportunities are typically in technology, in China, they are more broadly based – across clean tech, consumer and industrial sectors.
  • Since 2006, China has been second only to the US in total VC investment made. In the past, the VC investment made in China was typically from foreign sources at an 80-20 ratio, but in the first half of 2009, the investment has been 80% domestic to 20% foreign.
  • While in Silicon Valley investors are known to put their money behind “two guys working in a garage,” in China there is no such thing. Resources are so cheap and so available there are 15 engineers on the job from the start. Things move really quickly in China.
  • 37% of the world’s products are manufactured in China. It is in the process of transitioning from a manufacturing economy to an innovative one. This will probably shift within the next 10 years.
  • The government in China has begun to stimulate demand, rather than just supply.
  • China is still using technology invented 10-15 years ago to create products, rather than creating the technology (as is done in the US). This makes the US and China tech markets symbiotic and complementary.
  • The biggest challenge in China right now is to help companies grow and develop so that they can begin to really innovate their own ideas.
  • Like the US, in order to do business in the China market, you need to be present in the marketplace. Things happen very fast in China and if you are not there, on the ground, you will miss out in your dealings and negotiations.
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