A Venture Capital Bubble in China?

Filed in archive Venture Capital on October 13, 2007

Min Zhu is the founder of Cybernaut, a Hangzhou-based venture capital firm. He lived through the Cultural Revolution in China, graduated from Zhe Jiang University with a degree in engineering, came to the U.S. in 1984 and studied at Stanford University, founded a couple of American firms in the Silicon Valley, including WebEx, and became a partner at NEA.

And Min Zhu says a "venture capital bubble" is forming in China. He told that to an audience of faculty, students, and local area venture capital professionals at a seminar sponsored by the Stanford Program on Regions of Innovation and Entrepreneurship.

What exactly is a bubble? A bubble is speculative market or stock in which prices rise very rapidly and then fall sharply. Usually the prices become disconnected from either the real or potential value of a stock or commodity as the bubble expands (or prices go up), and when prices decline to reflect something more in line with the actual value of the stock we say that the bubble bursts.




Min told the seminar that many venture capitalist investors arrive in China and develop "love at first sight" and want to invest in everything. "But 70 percent of VCs could lose money," Min was reported as saying. "Most VCs are unqualified because they are using Silicon Valley thinking to manage their fund in China."

Min talked about differences in the U.S. and Chinese business environment and discussed the difficulty involved in finding talents and trustworthy staff in China.