GGV's Scott Bonham on China Investment & Entrepreneurship

Filed in archive Venture Capital on February 19, 2006

As part of CVN's expanded in depth China VC interview format, I was able to gain these insights from Scott Bonham, managing director of Granite Global Ventures. His VC firm is widely regarded as one of the first VCs to actively introduce U.S. companies to new markets in Asia, and is counted among the early venture pioneers to fund start-ups in China.

According to Beijing based, Pacific Epoch, Granite Global Ventures has closed its second fund, Granite Global Ventures II. The company raised US$225 million from a number of limited partners, includes university endowments, pension funds, and returning LPs. This VC fund was founded in 2000 and has invested in Alibaba, and Hurray, along with several other Chinese companies.

Here are the questions and expansive responses from Scott Bohnam on investments in China, the VC industry in China, and the rapid development of an entrepreneurial culture.

CVN: It's now 2006 post Chinese New Year, and more foreign VCs are continuing to swarm into China. How do you explain this?

SB: China continues to grow at an unprecedented rate and the opportunities within this market are significant. We believe that this growth should be viewed
long-term. China has delivered great value to investors, and venture capitalists
have begun to feel comfortable investing in China's growth. Also, Chinese entrepreneurs recognize the valuable role VCs can perform in helping build world-class companies.

CVN: More specifically, do you think that this surge of foreign VCs into
China attributed to their huge domestic market, excellent engineers and
entrepreneurs and the New China innovation characteristics?

SB: All of the above. The recent surge of foreign VCs in China is attributable to the capital efficiency derived from significant cost advantages. From a business standpoint, there is a huge shift in China as the doors are opening to a more
open society, consistent with a rapidly emerging entrepreneurial culture across
the country. Moreover, this new Chinese entrepreneurial class will continue to
drive a wider array of innovation, business processes, and economic models;
not only in the business and tech sectors within China itself, but also in the global arena.

CVN: Accel Partners and of course, IDG Ventures have gone on record as stating "China is the country with the best business opportunities for a venture capitalist." Is this view shared by GGV?

SB: Granite Global Ventures believes that the global flows of capital, people, and ideas create global opportunities for venture investing. However, China's
large and growing markets combined with its entrepreneurial and well-educated population make it particularly attractive.

CVN: Does China now have sufficiently trained domestic talent to manage VC funds?

SB: Granite Global Ventures has been on the ground in China since 2000 and now has four investment professionals living in China; supplemented by two people in Singapore and five in Silicon Valley.

CVN: What's the next big thing in China?

SB: Granite Global Ventures is always looking for promising opportunities with great upside potential. We see trends in China that point to the consumer class
and a broad variety of products and services tailored to meet their needs. Also, there is a a buzz around business-to-business enterprise technology solutions emerging along with other tech segments that address broad lifestyle trends,
such as gaming and social networking.

CVN: Have recent regulatory changes in China made the exit channels more attractive for VCs in 2006?

SB: The Venture Capital Industry is relatively new in China. We strongly believe that well-managed companies in high-growth sectors will ultimately provide
exit opportunities for investors. The Chinese regulatory environment is increasingly favorable and supportive of the goals we share with Chinese entrepreneurs for long-term capital appreciation and liquidity.

CVN: As a matter of record, do your local partners make the rounds at the traditional Chinese tech parks- Zhongguancun Technology Park, Beijing
Economic -Technological Development Area, Zhangjiang, Zhejiang, Jiangsu and even Anhui and others seeking new technology and entrepreneurs? Or do
you see signs of "garage start-ups" now emerging in China?

SB: The team based in China provides Granite Global Ventures with direct access to investment opportunities throughout China. Even though we include opportunities from the traditional Chinese tech parks in our deal flow, we've been particularly successful with our "off-broadway" strategy, deriving unique, high-quality deal flow from regions in China that mainstream investors often
overlook.

CVN: What is the average size of investment GGVC is making in Chinese start-ups now and what does GGV seek in reviewing a plan- technology, consumer appeal or key management personnel?

SB: Granite Global Ventures' average investment size is approximately US$3-$10 million. However, the ultimate investment amount in any particular venture
depends upon a host of factors including capital needs of the company,risk/opportunity profile, and the overall economic model.