Silicon Valley VCs Engage in China Face-Off

Filed in archive Venture Capital on November 4, 2005

These days, the Silicon Valley venture capitalists are sharply divided into two camps: one rushing into China and one holding back. According to today's
New York Times, "the Valley's views of investment in China have tended to swing between wild optimism and deep anxiety - with the anxiety going beyond a fear of losing money. Some worry about helping Chinese start-ups move up the technology food chain."

However, it appears that even the diehard skeptics like legendary venture capitalist, Don Valentine of Sequoia is changing his tune. It was Matt Marshall in Silicon Beat, who reminded me that it was only last year that Valentine compared the rush into China to the jazz song, ``Fools rush in where angels fear to tread.''

That skepticism was also bolstered by the recently held US-China Economic Security Commission's public hearings in Washington, which called upon both VCs and international law firms to provide testimony about whether tech investments in China were energizing a formidable competitor to America.

Now the momentum is rapidly shifting and even stalwarts like Kleiner, Perkins, Caufield & Byers, another VC ideologically wedded to supporting American technology, is lifting the bamboo curtain and doing much more than peeking at the rise of investment opporutnities in the red-hot Middle Kingdom.

Kleiner's recent appointment of new associate Mandarin-speaking partner, Ellen Pao may spark a rally among other the marque Sand Hill Road VCs to create a new VC China investment paradigm. This may generate some real concern among the lower ranks of established China VCs already operating in Shanghai and Beijing. After all, the nascent China VC industry can ill afford to compete with Silicon Valley resources, talent and rewards offered to young bright Mandarin speaking venture capitalists.

Before entering the tech field, Pao was a corporate attorney for Cravath, Swaine & Moore in both its New York City and Hong Kong offices, working on deals across the Philippines, Singapore and Greater China.

It's no wonder that those unconverted VCs who held sway among their American colleagues about "saying no to China" investments are ramping up for investment opportunites in early 2006. With China promising further reforms and opening its financial markets, and with some of world's biggest stock and futures exchanges, including the New York Stock Exchange, NASDAQ and the Chicago Mercantile Exchange, opening offices in Shanghai, expect to read much more here on this evolving subject.