US venture capitalists take longer term view
By Chen Zhiming (China Daily)
Updated: 2004-06-21 10:15

There are great opportunities for US venture capitalists to ride the wave of surging investment in China, according to the Silicon Valley Bank (SVB).

"There are clearly more opportunities in the Chinese market," said Harry Kellogg, vice-chairman and president of SVB's merchant banking group.

SVB provides diversified financial services to emerging and mature companies in the technology, life sciences and premium wine markets.

"I think VCs in the US clearly see the market opportunities here, given the size of the market and maturity of the management teams (of Chinese companies)," he told China Daily yesterday in an exclusive interview.

SVB is leading a business delegation of 25 Silicon Valley and Boston-based venture capitalists to China.

According to Kellogg, the trip will help venture capitalists better understand the economic and political climate in China, and understand first-hand what it takes to work with Chinese companies.

Topics to be addressed include the macro economic environment, accessing the Chinese market, manufacturing and software outsourcing and investment.

"As far as the technology and venture capital sectors are concerned, I don't think these particular sectors in China are overheated," Kellogg said.

"They are going extremely well and will continue to expand because there is still a need for investment in private high-tech firms here," he said.

 The US venture capital delegates have shown great interest in the telecom industry, semiconductor and Internet sectors.

Kellogg said he expected wireless services to be one of the hot pursuits given the growth rates in the area.

Investment is being made in China both directly and indirectly.

On an indirect basis, about 10-25 per cent of the companies the venture capital delegates have invested in have research and development teams located in China and are outsourcing manufacturing, or have significant revenues coming from China.

On a direct basis, more notable investments include companies like Semiconductor Manufacturing International Corporation (SMIC), CSMC Technologies Corporation and Ctrip.com.

CSMC Technologies Corporation is reported to be possibly listing on the Hong Kong Stock Exchange later this year, while SMIC is listed on both New York and Hong Kong exchanges, and Ctrip.com is listed on the NASDAQ.

Kellogg believed the lacklustre performance of China-based companies on the NASDAQ market since the beginning of the year won't have much effect on venture capitalists' investment plans. This is because venture capital typically has a long-term strategy of five to seven years.

Kellogg said mergers and acquisitions are also a major exit path for investors.

He added it is "necessary" to draw up laws to protect venture capital in China, and the market would "need time" to realize that.

SVB plans to set up a representative office in China by the end of next year.

"Where we will set up the office is yet to be determined. We are still analyzing the marketplace," he said.

The office will primarily service SVB's US-based clients that are doing business in China, and secondly assist Chinese companies to enter the US market.

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