Money wise

VC/SME B04

1 . 中國日報香港版

WANG ZHENGHUA 2007-04-09

Money wise

Young hi-tech entrepreneurs are learning some traditional truths as they raise venture capital

SHANGHAI: A year ago Sandy Yan resigned from an investment bank in London, braving resistance from friends and family, to pursue the dream of starting her own business, a technology company in Beijing that began operation last September.

But half a year later, she founded her fl edgling fi rm, called BaBeeTa — which provides individual cellphones with wireless e-mail services — in urgent need of capital to fuel further development.

“It’s my fi rst time to stand here,trying to invite outside investors to fi nance my company,” Yan says at a recent matchmaking meeting between hundreds of hi-tech project owners and venture capital (VC) investors in Shanghai.

“I need $3 million, mainly for a promotional campaign. In the years to come, I believe my business could bring investors unexpectedly high returns,” she adds.

Swept away by enticing entrepreneurial legends, many people like Sandy are joining or are determined to join the army of young entrepreneurs to take advantage of the country’s fastgrowing economy and opportunities for start-up businesses.

Yet these young executives of hi-tech companies have to answer some important central questions — how can they secure support from the right VC investors, and more importantly, how will they use the money wisely?

“You should understand how a VC company is running and not try to obtain funding just for the sake of getting that money,” says Ding Xuewen, a board member of WI Harper Group, one of the first United States-based hi-tech venture capital fi rms focused exclusively on creating a bridge between the US and China.

According to Ding, who was invited to address the matchmaking meeting in Shanghai, it ’s impor tant for project owners to study which VC funds might fit their business,based on the amount they want to raise, the industry sector they are in, the stage of their business and where the business is located.

Under some circumstances, an unfi t VC investor might stretch the original notion in a way that distorts it, perhaps to the detriment of the founders and the business itself,he adds.

Entrepreneurs are advised to stick to the fundamentals and clichs about how they should treat VC money — use it as if it were their own, don’t waste money and make every penny count. For many ventures, $10 million should get an entrepreneur to profi tability or even an initial public offering. In that case, they won’t have layers and layers of liquidation preferences to worry about.

People still remember the free video sharing website called Mysee that rose to brief fame in 2005 and obtained its fi rst VC capital of $1.5 million. Yet only half a year later,the growing website, which offered many trendy things, including web2.0, online video and features for post-1980 generation, was deeply mired in fi nancial woes and had to change its president.

Taking it to extremes, the company hired more than 100 employees, said Guo Tao, who took over the presidency of Mysee in October, 2006.

He says the company, to match its sudden status, wasted money renting high-end off ice space,unnecessarily expanding its team and on promotional campaigns.

When he took over, Guo slashed the headcount by 70 percent and studied each cent he spent. Now the company is cooperating with traditional media such as TV stations to earn new revenues via advertising on television or by providing services.

Northern Light had invested $4 million in follow-on investment in Mysee, says Guo, who expects balanced revenues and expenditures later this year.

According to an annual Global Entrepreneurship Monitor report,the world’s most comprehensive study of start-up activity, an entrepreneurial boom does indeed exist in China.

New business start-ups in the rising Asian power are up to 16.2 percent from 13.7 percent last year,while 60 percent is opportunitydriven,70 percent of the Chinese think entrepreneurship is a good career choice and 32 percent expect to start a business in the next three years, the report said.

Chinese government policies are most supportive — new funds,new research and development and new science parks are all recent initiatives, the report explains.

Improvements in education,more funding and commercial infrastructure are still in demand.

By contrast, the report, which analyses entrepreneurship in 42 countries, found substantial declines in the proportion of people involved in early-stage start-up activities in several of the world’s richest nations.

In the US, the figure fell from 12.4 percent in 2005 to 10 percent last year, in Germany it dropped from 5.4 percent to 4.2 percent and in France the decline was from 5.4 percent to 4.4 percent.