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Turning Up The Heat For China Venture In Shanghai

This article is more than 10 years old.

Where's the heat in the China venture market? We posed that question to our group of expert panelists at a recent Silicon Dragon event in Shanghai. Here's some quick highlights of what VC dealmakers Ron Cao, Patrick Loofbourrow, Jenny Lee, Richard Liu, Hope Chen and Gary Rieschel had to say.

For the first time in the 10-year history of the China venture market, the amount of money raised by venture firms for investment is lower than the actual investment in deals. No more too much money chasing deals?

Today, there is no new original idea in the Chinese Internet space. What really matters today in a startup's success is how well the founding team executes.

Chinese tech brands will go global and are already going regional. It's only the beginning of a major trend. Western brands should enter Southeast Asia and India first before tackling the Chinese market as a way to defend their turf in those regional markets against the Chinese brand entries.

The RMB fund market has collapsed in China. With no domestic IPOs since August 2012 after a China regulatory stop,  funds denominated in the Chinese currency can't exit from their portfolio companies. Many RMB funds invested in late-stage deals that were being readied to go public but now are trapped. Speculation is that policy makers may reopen the A share market for domestic listings after the Communist Party Congress this November.

Mergers and acquisitions by the big Internet players in China -- Baidu , Alibaba and Tencent -- continue strong. An exit via an M&A transaction is now seen as a viable option to going public for startups and their venture capital investors. But only market leaders will get the high valuations.

Limited partners in venture funds are scaling back the number of firms they will back, and only the best of breed firms will be able to raise new funds.

Secondary sales among private equity and venture firms as an exit from deals is being frowned upon by limited partners and are not the kind of exits that the business needs for sustainability.

The IPO market for Chinese companies overseas is looking up after a long dry spell. Large IPOs such as Alibaba could improve the overall climate for smaller IPOs in the wings that are heading to NASDAQ, NYSE and SEHK before the end of 2013.

Valuations in financing rounds for emerging companies continue to be the leading source of deal breakers. Deal structures have become increasingly complex as onshore and offshore options become part of the equation.

The winners among China technology: sizeable brand leaders benefiting from large economic scale that have reached high market caps, ranging from $10 billion to $50 billion. Those in this league include Baidu and Tencent as well as those on the rise: Qihoo and Youku.

The losers among China technology startups: e-commerce and group buying sites. Too many look-alike sites jumped in to the market at the same time without major points of differentiation among them, creating a price war and the weeding out most players.

Opportunities for startups are clearest in healthcare and consumer lifestyle services. Cleantech is no longer hot.  Mobile is still seen as a fast-moving category with high potential.

Licensing of technology from abroad and bringing it into China with a local team is seen as a strong entry path.

Finding and recruiting high-quality talent continues to be the number one hurdle for small businesses.  While China entrepreneurs are creative and talented, they lack basic knowledge of business practices such as governance issues and need to be trained.

By the way, you can view the Silicon Dragon video of the VC panel here.