China’s Firms Strive to Gain a Foothold in U.S. Venture Capital(wsj.com)
wsj.com
China’s Firms Strive to Gain a Foothold in U.S. Venture Capital
http://www.wsj.com/articles/chinas-firms-strive-to-gain-a-foothold-in-u-s-venture-capital-1479924623
46 comments
A lot of negative comments here, especially around IP theft. We have a couple of Chinese investors and they've been top quartile for us. The main reason Chinese money is looking to invest in the US is because they need a release valve for their money. RenRen invested in my friend's company and he said they've been great. I heard that Horizons has some tough terms but they are also great investors. As for the Chinese LPs I've spoken with, they seem much more entrepreneurial and less risk adverse than western LPs. This is an economy that has seen a near 38 year uninterrupted bull run with a lot of technological development. It's not surprising they are optimistic and want to invest in venture especially, if they want to diversify out of their existing industries/economy.
How do you know the main reason that the Chinese are looking to invest in the US within high tech VC?
There is growth opportunities all around the world that don't require leaking business plans or technologies to a government that is hostile to worldwide IP protection. They clone all our major businesses (Google, Uber, etc), they shut us out of their currency markets, they shut us out of their property markets, they burden us with complex banking requirements and inexplicably expensive and annoying travel visas.
But go on and tell me why I should be behind Chinese money further infecting our economy in this asymmetrical trading relationship.
I understand Nato policy towards China is one of engagement. Pulling them so far into trade that they can't afford to take drastic military action, but it's getting to be a bit much.
It's especially evident here in Toronto / Canada, where the government or highly, highly government connected businessmen fund some politicians and essentially not-for-profit news outlets (usually in Chinese).
China isn't Europe. Dealing with them requires a much more realistic, firm hand.
There is growth opportunities all around the world that don't require leaking business plans or technologies to a government that is hostile to worldwide IP protection. They clone all our major businesses (Google, Uber, etc), they shut us out of their currency markets, they shut us out of their property markets, they burden us with complex banking requirements and inexplicably expensive and annoying travel visas.
But go on and tell me why I should be behind Chinese money further infecting our economy in this asymmetrical trading relationship.
I understand Nato policy towards China is one of engagement. Pulling them so far into trade that they can't afford to take drastic military action, but it's getting to be a bit much.
It's especially evident here in Toronto / Canada, where the government or highly, highly government connected businessmen fund some politicians and essentially not-for-profit news outlets (usually in Chinese).
China isn't Europe. Dealing with them requires a much more realistic, firm hand.
To be fair, Chinese capital outflows are going everywhere in the US (and Canada), high tech is a tiny part of it. (Though there are structural reasons why capital leakage via investment is easier than other capital leakage.)
In your own country, I'd point to Vancouver's real estate market as an example of Chinese capital flight that has nothing to do with IP.
And to be fair, copying successful tech companies with local clones isn't a purely Chinese phenomenon. I forget the name of that German firm that was doing precisely that, but they're a good counterexample and a common villain on these forums.
In your own country, I'd point to Vancouver's real estate market as an example of Chinese capital flight that has nothing to do with IP.
And to be fair, copying successful tech companies with local clones isn't a purely Chinese phenomenon. I forget the name of that German firm that was doing precisely that, but they're a good counterexample and a common villain on these forums.
The difference is that they actively took steps to block our companies there, like Google, who had a fully working Chinese search engine.
I get the Realism in politics reason they did it, but it doesn't mean that we have to have to treat China with the open hearts, open doors philosophy we've been dealing with other more liberal economies.
I get the Realism in politics reason they did it, but it doesn't mean that we have to have to treat China with the open hearts, open doors philosophy we've been dealing with other more liberal economies.
Just to be clear, the Chinese are not alone in cloning business models. The difference is that the barrier to entry from us firms is higher so at least one Chinese clon of each type survived and grows.
> 38 year uninterrupted bull run
Umm, where were you Q1 this year when their market was crashing so hard it brought ours and everyone else's along with it?
Umm, where were you Q1 this year when their market was crashing so hard it brought ours and everyone else's along with it?
In the words of Elon Musk "If we published patents, it would be farcical, because the Chinese would just use them as a recipe book". From high speed trains, to maglev, to wind turbines, to kickstarter designs, to brands, designs, even entire styles of european and american cities like Paris, Venice, & London, the Chinese are notorious for stealing and reselling knockoffs of technologies. They simply rebrand it as "Chinese innovation".
Every group of people have a desire for power and world domination, they all just use different methods. And for the Chinese, intellectual colonization seems to be working.
Every group of people have a desire for power and world domination, they all just use different methods. And for the Chinese, intellectual colonization seems to be working.
Recall that the US "stole" the inventions of britain during the industrial revolution:
https://www.techdirt.com/blog/innovation/articles/20130228/0...
Hollywood, one of the biggest defenders of IP today, is in california today so they could skirt Edison's patent royalties:
http://mentalfloss.com/article/51722/thomas-edison-drove-fil...
IP theft is how many industries in the united states rose to dominance... it's extremely hypocritical to cheat your way to success and then reprimand others for cheating. Of course there's the whole question of whether our system of IP is even reasonable in the first place.
https://www.techdirt.com/blog/innovation/articles/20130228/0...
Hollywood, one of the biggest defenders of IP today, is in california today so they could skirt Edison's patent royalties:
http://mentalfloss.com/article/51722/thomas-edison-drove-fil...
IP theft is how many industries in the united states rose to dominance... it's extremely hypocritical to cheat your way to success and then reprimand others for cheating. Of course there's the whole question of whether our system of IP is even reasonable in the first place.
The U.S. (and the USSR, but not the U.K.) also stole literally every patent Germany held after WWII. Every - single - one.
> it's extremely hypocritical to cheat your way to success and then reprimand others for cheating.
Wouldn't this logic condemn all of US history [land theft, slavery, etc.]?
Note: I don't think it's wrong to do so I just wonder where you think it stops.
Wouldn't this logic condemn all of US history [land theft, slavery, etc.]?
Note: I don't think it's wrong to do so I just wonder where you think it stops.
Indeed it does. Might often makes right, and contracts are only as good insofar as they can be enforced. Seen from that angle, IP law is just a tool that you use once you have IP and ignore until then.
Rather, I'd say that might makes. It doesn't make right, it just makes. Might makes right is just another version of a naturalistic fallacy, if i understand correctly. Therefore, people can still be held accountable for these things. Getting away with it doesn't make it right.
Fair enough, I suppose history will look down on these acts even if they have high payout.
So: "_____ is no big deal because _____ did it too."
How far should we take this....
- The Atlantic slave trade is no big deal because the Arabs did it too.
- Slavery in general is no big deal because Africans, Egyptians, Middle East Muslims, did it too.
- The Colonization of Africa is ok because the middle east Muslims, did it too.
- Making homosexuality illegal is ok because 30+ African countries did it too.
- Communism is ok because Cuba, North Korea, Germany, China, Vietnam, Bulgaria, USSR, etc... did it too.
- Rape and abuse of women is no big deal because, gosh everyone did it too.
So...what now, it's hypocritical of us to try to stop something bad from happening because a long time ago we did the same? Well then hell, lets just go back to the stone age. Screw law and civility.
How far should we take this....
- The Atlantic slave trade is no big deal because the Arabs did it too.
- Slavery in general is no big deal because Africans, Egyptians, Middle East Muslims, did it too.
- The Colonization of Africa is ok because the middle east Muslims, did it too.
- Making homosexuality illegal is ok because 30+ African countries did it too.
- Communism is ok because Cuba, North Korea, Germany, China, Vietnam, Bulgaria, USSR, etc... did it too.
- Rape and abuse of women is no big deal because, gosh everyone did it too.
So...what now, it's hypocritical of us to try to stop something bad from happening because a long time ago we did the same? Well then hell, lets just go back to the stone age. Screw law and civility.
I think you're oversimplifying. None of those things are actually a necessity to becoming an economic powerhouse.
Intellectual Property is a construct which exists to protect the creations of the incumbents, and more often than not, people get ahead by ignoring that construct until they have enough to suddenly care.
I'm merely pointing out that those with IP crying foul is the historical norm, and I'll extrapolate 30 years into the future when China has enough IP to complain about other industrializing countries "stealing" their inventions.
Intellectual Property is a construct which exists to protect the creations of the incumbents, and more often than not, people get ahead by ignoring that construct until they have enough to suddenly care.
I'm merely pointing out that those with IP crying foul is the historical norm, and I'll extrapolate 30 years into the future when China has enough IP to complain about other industrializing countries "stealing" their inventions.
This is not some competition in morality. Nobody counts "moral superiority points". The only thing that is counted is money.
toomuchstuff(2)
It seems that the common subject of discussion and opinions is "China stealing intellectual property".
That's not accurate description of what happens. I'm sure China is very involved in industrial espionage, but that's not the main way to acquire technological know-how.
Almost all happens completely legally trough normal technology transfer. Chinese invest or allow foreign companies access to their market if some kind of technology transfer takes place. New manufacturing plant in China transfers much deeper knowledge base than some closely guarded secret blueprint. Chinese engineers working shoulder to shoulder next to the senior engineers from the foreigin company learn enough to start their own companies in China after few years.
That's not accurate description of what happens. I'm sure China is very involved in industrial espionage, but that's not the main way to acquire technological know-how.
Almost all happens completely legally trough normal technology transfer. Chinese invest or allow foreign companies access to their market if some kind of technology transfer takes place. New manufacturing plant in China transfers much deeper knowledge base than some closely guarded secret blueprint. Chinese engineers working shoulder to shoulder next to the senior engineers from the foreigin company learn enough to start their own companies in China after few years.
That is great news for U.S. entrepreneurs. We will have a new source of funding.
VC's don't just provide funding, they also gain control.
Americans are just figuring out what free trade and little/no capital controls means.
There is no free lunch, is there?
Business has very clear objectives. So it does not matter who controls, whether it's Indians, Jews, Chinese, or Americans. They are all in it for the money, and they pull founders along. Do your due diligence. Assume money makes everyone into a sociopath. Go from there.
For some nations, politics is used to advance their business, for some nations business is used to advance their politics.
In the short term, sure, there's easy money. But as the other commenter points out, with money goes control. You are selling control of your society's greatest asset, you, to a foreign, communist, government. These are not nice people. They are interested in your product, but they are also interested in depriving the US of you.
I'm sure not every chinese investor is trying to pawn you for nationalistic interests: the majority are probably in it for capitalistic gain. Seems no different than accepting money from In-Q-Tel and having the US intelligence community influence your product.
There's the scenario where such a capitalistic gain oriented investor is contacted by a PRC intelligence agency and made an offer he can't refuse. Remember this is a country where such a refusal can land you in a forced labor camp (https://en.wikipedia.org/wiki/Laogai) or executed with your family being sent the bill for the cost of the bullet (and they have the highest per capita rate of this in the world, based on the best available data, they also make this rather public).
It's also pretty natural for such a person to e.g. object to the PRC being the invaders in the remake of Red Dawn and make the company replace them with the DPRK (and while that's ludicrous, I wasn't exactly impressed by a Latin American Communist invasion of the center of the country in the original, although that got around the biggest logistics problem AKA the US Navy).
It's also pretty natural for such a person to e.g. object to the PRC being the invaders in the remake of Red Dawn and make the company replace them with the DPRK (and while that's ludicrous, I wasn't exactly impressed by a Latin American Communist invasion of the center of the country in the original, although that got around the biggest logistics problem AKA the US Navy).
They are just providing a new option to you. No one is forcing anything down your throat.
Hey kid, want some candy?
How funny. You are calling U.S. entrepreneurs kid?
No, but I do believe they have an intrinsic desire (money/sweets) that can be used to manipulate their behavior.
I have worked on cross-border deals with Chinese firms over the past few years. (I work in finance, but not VC). I’ve seen the growth and impact of Chinese firms entering US capital markets, public equity markets, PE buyout deals and real estate. I think it will be very interesting to see how it plays out in VC...
VC is really nothing like any other type of investing. It doesn’t have the same quite established valuation and due diligence processes as other types of investing. And successful VC investing has so many non-quantifiable ingredients to the process: VCs connections and reputations, how they evaluate a team, unique sector insights, intuition, etc… And that’s after one gets past any language barriers.
[1] I see the mixed comments on here. Clearly, there are good and bad actors in China. And the caution and prudence the article brings up should be taken very seriously. But the fact is there are legit, honest, good firms in China that are worth partnering with and/or having as investors. More so, ignoring the chance to have a great investor and partner in China is ignoring the reality of the global economy that will more or less exist for probably the rest of your lifetime. China has the largest GDP of any country in the world (US is #3 if you count the EU). Times have changed. We all need to get together and figure it out.
This has gotten long, might as well add a couple more:
[2] The article also mentions the importance of understanding culture differences and avoiding possible miscommunications. This is hard to emphasize but crucial to do before real meetings start happening.
[3] When initiating meetings with potential Chinese investors, if you can hire (temporarily or permanently?) someone who speaks, read and writes Chinese and English fluently this is a game-changer and I think it’s worth the cost. Someone born to Chinese parents but who grew up in America for example.
[4] There are macro-level, systemic and regulatory-type risks for US firms working with Chinese firms and vice versa. Companies really must discount these risks in their business plan. The US and Chinese governments seem to always be negotiating, about every topic, and so in some periods there are positive developments and in others this reverses. Blocking of specific deal is a risk but market wide roadblocks can be immediate and severe. Have a plan B should this stuff happen.
[5] Deals with Chinese investors are not only about making good returns like with US VCs. There may be other motives. Too many to list. It depends.
[6] The comment mentioning Elon Musk has a point: There is no more bankable IP. It’s gone, the few exceptions are irrelevant. Companies can’t keep anything secret, especially not IP. You probably can’t afford to protect the IP in court if you had to. Don't let this stop you from working with China. Best to build around this reality.
[7] Study the Facebook and Google and Uber stories how well or poorly they did in China to see how complex this can get for a big growing company.
VC is really nothing like any other type of investing. It doesn’t have the same quite established valuation and due diligence processes as other types of investing. And successful VC investing has so many non-quantifiable ingredients to the process: VCs connections and reputations, how they evaluate a team, unique sector insights, intuition, etc… And that’s after one gets past any language barriers.
[1] I see the mixed comments on here. Clearly, there are good and bad actors in China. And the caution and prudence the article brings up should be taken very seriously. But the fact is there are legit, honest, good firms in China that are worth partnering with and/or having as investors. More so, ignoring the chance to have a great investor and partner in China is ignoring the reality of the global economy that will more or less exist for probably the rest of your lifetime. China has the largest GDP of any country in the world (US is #3 if you count the EU). Times have changed. We all need to get together and figure it out.
This has gotten long, might as well add a couple more:
[2] The article also mentions the importance of understanding culture differences and avoiding possible miscommunications. This is hard to emphasize but crucial to do before real meetings start happening.
[3] When initiating meetings with potential Chinese investors, if you can hire (temporarily or permanently?) someone who speaks, read and writes Chinese and English fluently this is a game-changer and I think it’s worth the cost. Someone born to Chinese parents but who grew up in America for example.
[4] There are macro-level, systemic and regulatory-type risks for US firms working with Chinese firms and vice versa. Companies really must discount these risks in their business plan. The US and Chinese governments seem to always be negotiating, about every topic, and so in some periods there are positive developments and in others this reverses. Blocking of specific deal is a risk but market wide roadblocks can be immediate and severe. Have a plan B should this stuff happen.
[5] Deals with Chinese investors are not only about making good returns like with US VCs. There may be other motives. Too many to list. It depends.
[6] The comment mentioning Elon Musk has a point: There is no more bankable IP. It’s gone, the few exceptions are irrelevant. Companies can’t keep anything secret, especially not IP. You probably can’t afford to protect the IP in court if you had to. Don't let this stop you from working with China. Best to build around this reality.
[7] Study the Facebook and Google and Uber stories how well or poorly they did in China to see how complex this can get for a big growing company.
I'm seeing a lot of Canadian Born Chinese or Chinese-Canadians moving to China to start a business or startup. Their fluency in the language and culture varies but they are just like you and me. Raised in Canada or America. They passionately hold on to the idea of the Zhunguo Meng (中國夢) or "The Chinese Dream", a counterpart to The American Dream.
So far all of the reasons for this emigration to China seems to hinge on the view that there is a lot of entrepreneurial activity and drive in China which I think certainly holds true. For example, Alibaba allegedly closed over 17 billion dollars in sales within 24 hour on the "Chinese Valetines Day". Didi, Wechat, Baidu and so on.
Some hold a much more nationalistic/ethnocentric perspective that the Chinese economy will surpass America any day now and emerge as the new global hegemony.
On the business level, there seems to be more emphasis on relationships and reciprocal (?), you help me I help you kind of deal but with blurring of expectations that you must deliver and demand to maintain that bond. I'm not qualified to speak on this but I'm formulating this from a gathering of anecdotal experiences from people I've spoken to.
I'm biased obviously since I'm unfamiliar with China and Chinese culture & the language. I grew up in Canada all my life and this is all I know. What's that saying? The devil you know is better than the devil you don't. So basically, it boils down to what I know vs. what I don't know. China is a big unknown to me personally but that shouldn't/doesn't phase those chasing after the dream.
So just taking a look at websites like http://chinalawblog.com , it raises some important questions about their infrastructure and more importantly what compromises would I need to make as a cost of doing business in China and whether all of this structural down to individual changes is something worth investing all my time in vs. dealing with what I know already.
Also a huge minus is the cultural and language gap. I most certainly cannot do business without a contact or a close partner that is able to close that gap. While that maybe fine for the most part, it does carry over risks as I am tightly coupled to their interpretation.
I am constrained by the unknown and increasingly as I look at what's going on in Hong Kong and rest of South East Asia, I can't help but feel intimidated.
Zuckerberg came to a compromise to be chums with the Communist party in China. I wonder if that will ever pay off especially when you are so invested now and the relationship is dictated completely on the conditions of the foreign government. If this is the beginning then I shudder to think what the next compromise will be that affects their end user. It sets an uneasy precedent for future prospects eager to capture the enormous market in China.
This is strictly my personal opinion and I tried to be as objective as possible to be respectful and neutral as possible. I just don't buy it when somebody just tells me confidently that it's inevitable fate that China will surpass US with the sole basis of their argument being the very thing they assume will hold true in the long run.
I'd love to be corrected. However, if the argument that "China is taking over" holds true, US politicians and the elite should be sending their offsprings to study in the University of Beijing vs Harvard. The would leave in a posh part of Beijing, blowing money on a Chinese supercar which also does not exist. This suggest to me that the Chinese Dreams isn't even good enough for China's elite so how the hell can it be good for people like you and me?
So far all of the reasons for this emigration to China seems to hinge on the view that there is a lot of entrepreneurial activity and drive in China which I think certainly holds true. For example, Alibaba allegedly closed over 17 billion dollars in sales within 24 hour on the "Chinese Valetines Day". Didi, Wechat, Baidu and so on.
Some hold a much more nationalistic/ethnocentric perspective that the Chinese economy will surpass America any day now and emerge as the new global hegemony.
On the business level, there seems to be more emphasis on relationships and reciprocal (?), you help me I help you kind of deal but with blurring of expectations that you must deliver and demand to maintain that bond. I'm not qualified to speak on this but I'm formulating this from a gathering of anecdotal experiences from people I've spoken to.
I'm biased obviously since I'm unfamiliar with China and Chinese culture & the language. I grew up in Canada all my life and this is all I know. What's that saying? The devil you know is better than the devil you don't. So basically, it boils down to what I know vs. what I don't know. China is a big unknown to me personally but that shouldn't/doesn't phase those chasing after the dream.
So just taking a look at websites like http://chinalawblog.com , it raises some important questions about their infrastructure and more importantly what compromises would I need to make as a cost of doing business in China and whether all of this structural down to individual changes is something worth investing all my time in vs. dealing with what I know already.
Also a huge minus is the cultural and language gap. I most certainly cannot do business without a contact or a close partner that is able to close that gap. While that maybe fine for the most part, it does carry over risks as I am tightly coupled to their interpretation.
I am constrained by the unknown and increasingly as I look at what's going on in Hong Kong and rest of South East Asia, I can't help but feel intimidated.
Zuckerberg came to a compromise to be chums with the Communist party in China. I wonder if that will ever pay off especially when you are so invested now and the relationship is dictated completely on the conditions of the foreign government. If this is the beginning then I shudder to think what the next compromise will be that affects their end user. It sets an uneasy precedent for future prospects eager to capture the enormous market in China.
This is strictly my personal opinion and I tried to be as objective as possible to be respectful and neutral as possible. I just don't buy it when somebody just tells me confidently that it's inevitable fate that China will surpass US with the sole basis of their argument being the very thing they assume will hold true in the long run.
I'd love to be corrected. However, if the argument that "China is taking over" holds true, US politicians and the elite should be sending their offsprings to study in the University of Beijing vs Harvard. The would leave in a posh part of Beijing, blowing money on a Chinese supercar which also does not exist. This suggest to me that the Chinese Dreams isn't even good enough for China's elite so how the hell can it be good for people like you and me?
toomuchstuff(2)