A panel of prominent investors at the Silicon Dragon conference in Shanghai see big changes for China’s VC industry in the coming years.

GGV Capital’s Jenny Lee (Portfolio: Tudou, Alibaba Group, Qunar) believes the day of grand slams (’25x returns’) and easy homeruns (‘10x returns’) are over and that “all of [the VC funds] will be put to test in the next 5-10 years”.

Qiming Ventures’ Hans Tung (Portfolio: Xiaomi, VANCL, Kaixin) said that the sentiment of institutional investors such as Trowe Price and Wellington is that there are too many technology stocks in China and consolidation is needed. He said Chinese start-ups face real challenges in recruiting talent and besting often aggressive competitors who are willing to sabotage their businesses with bogus orders, fake traffic, and more. Tung believes successful start-ups are those who offer “a unique brand experience” and are led by a “grizzly veteran”. According to Tung, VANCL and Xiaomi both possess these qualities.

I previously wrote about the litany of obstacles blocking the exits for VC firms in China, including the potential for U.S. listed stocks to return to the relatively under-capitalized Chinese exchanges, thereby reducing the capital available to today’s nascent Chinese firms. During the earlier panel on Exit Options, and much to the chagrin of NASDAQ’s Frank Giglio, Sidney Austin M&A attorney Joseph Chan said that Private Equity will hunt for more take-privates like that of Focus Media in the future. Tung agreed, saying that the prospect of management increasing its ownership stake through a sweetheart deal and later relisting at a higher PE ratio in Hong Kong or Mainland China is tempting. However, there is a clear risk that China’s markets will be overwhelmed if a large-scale flight of Chinese companies from U.S. capital markets takes place.  

Steamboat Ventures’ Alex Hartigan (portfolio: YY Inc., Cocoa China, GoPro) foresees greater specialization among Venture Capital firms in China—whether by industry (e.g. biotech) or stage (e.g. Series A, Series B). He suggested the shakeout will play out over several years and may involve some consolidation of talent and the formation of new funds. Steamboat is already fairly specialized in digital media and consumer technology.

Overall, the panels were perhaps more pragmatic about the future than pessimistic. While Qiming’s Tung conceded that Silicon Valley is one-of-a-kind, he foresees Chinese breakthroughs in the medical/healthcare and mobile internet sectors—necessity may prompt them given the country’s rapidly aging population and conflict-ridden hospitals, and that mobile internet accounts for 72% of all internet users in China. Tung said it’s a matter of patience and that we need to see a generation of Chinese entrepreneurs grow up. Former CEO of Qunar Fritz Demopoulos agreed in the earlier panel, saying that dramatic reactions to short term market changes are impractical and that the 7-8 year time horizon of Venture Capital requires more long-term thinking. Demopoulos’ own trade sale of Qunar to Baidu was mentioned as an exit method V.C. firms could employ more in the future.

Venture Tech Trends Panel: David Chen (Angelvest), Richard Liu (Morningside Ventures), Richard Chen (Ceyuan Ventures/Yefei Investment), Hans Tung (Qiming Ventures), Alex Hartigan (Steamboat Ventures), Jenny Lee (GGV Capital); Moderated by Rebecca Fannin (Silicon Dragon)

Learn more about the Silicon Dragon Conference in Shanghai and check out Rebecca Fannin’s piece on the Venture Tech Trends panel in Forbes.

 

About the Blogger

James Hopkins is an American working for Alibaba.com in Hangzhou, China. He previously lived in the tech-heavy district of Nanshan in Shenzhen. The views expressed here are his own and do not represent those of his employer.