1

The Opportunities and Challenges of a Foreign VC

Investing in China

Venture TDF China Fund

Managing Partner

Tina Ju

2

VCs Classification in China• Overview of Buyout Funds, Private Equity and VC

• Local Venture Capital• Mainly founded by Government or state-owned entity; affiliation with

technology park or university

• Foreign Venture Capital• Mainly are US/European VCs （ Intel Capital,Carlyle Venture, Fidelity,

IDG, Softbank, etc ）

• Independent VCs• Fund raising & management by a VC fund management company (Venture

TDF）

3

VC Investments in China

0100200300400500600700800900

1000

2001 2002 2003 2004

2001:US$520M

2002:US$420M

2003:US$990M

20041H:US$450M

4

VC Investment in 1st Half 2004• Investment of US$450M for 80 projects

• Top ranked is (28%) in Semiconductors, Internet sector is the second welcomed (27%) and telecom is the third (19%)

• Most of the projects are in Beijing, Shanghai, Zhejiang and Shenzhen

• Sectors focus emerge from each city/region (IC; Telecom & Wireless; Internet; Software & Services; Electronics manufacturing, etc.)

• VCs exit from 36 projects with return of US$212M, including 9 VC-backed IPO events

5

Industry Distribution, 1 H2004Telecom ranked the first in terms of deal number, while IC got largest amount funding

Industry Number of Deals

Percentage

Number of Deals with Disclosed

Investment Amount

Disclosed Investment

Amount(US$ million)

Percentage

IC 11 14% 10 124 28%

Internet 10 13% 10 117 27%

Telecommunications 17 21% 16

8119%

Services 5 6% 5 30 7%

Software 2 3% 2 25 6%

Traditional 11 14% 9 21 5%

IT Service 3 4% 3 6 1%

IT Others 1 1% 1 6 1%

Biotech/Medicine 5 6% 4 5 1%

New Materials 2 2.50% 2 5 1%

Others 13 16% 11 18 4%

Total 80 100% 73 438 100%

6Confidential

Comparison of 2000 & 2004

Challenge 2000• Legal Risk

• Can’t set up a Local entity• Some sectors prohibition to foreign investment

• Exit

Opportunity 2004

• Improving legal environment• WOFE or Joint Venture• WTO entrance

• IPO in US, Hong Kong and Singapore• M&A

7

Special Arrangement for Projects

Offshore Holding

Offshore US Fund

PRC Co.

Invest

On Shore

(Licensing vehicle for ICP, …)

Off Shore

WOFE

8

Foreign VCs are More Aggressive in 2004

• VC investment from Foreign VCs contributed 85% of VC investment amount in China, surpassing local VCs and dominate the market

• Foreign VCs’ Average single deal size reached US$10 million, about 7 times that of domestic VC

• In June 2004, Silicon Valley Bank organized a VC delegation to visit Beijing and Shanghai

• U.S. based mainstream VCs and funds have been exploring China opportunity by top management visiting, seeking deals for direct investment, setting up China offices, or invest into China-specific VC funds

9

Improving Exit Environment

• Exit is viable and feasible for Foreign VC funds. They are getting realistic returns from China portfolios through IPO or being acquired

• In past 1.5 years, nearly 50 IPO and M&A cases showed that the exit environment were improving for VCs

10

Some Successful Exit Cases

• Amazon – Joyo

• Sohu – Goodfeel

• Sina – Crillion

• Sohu – 17173

• eBay – EachNet

• Yahoo – 3721

• NHN – Lianzhong

• HK.com – New Palm

• Tom – Leiting Wuji

IPO• Linktone

• SMICS

• Sinocom Software

• DMX

• Shanda

• Mengniu Dairy

• Lining

• Ctrip

• 51Job

• China Finance Online

M&A

11

Exit Analysis in 1H 2004

VCs exited a total of US$157 million from IPO, 74% of total exit amount

Exit RouteNumber of

ExitsPercentage

Number of Exits with Disclosed

Exit Amounts

Disclosed Exit

Amount (US$ M)

Percentage

IPO 11 30.56% 10 156.93 74.17%

M&A 3 8.33% 2 15.45 7.30%

MBO 1 2.78% 1 0.15 0.07%

Trade Sale 18 50.00% 15 29.83 14.10%

Unknown 3 8.33% 3 9.21 4.35%

Total 36 100.00% 31 211.57 100.00%

12

Venture TDF China Fund• US$120M is under management by Venture TDF Group

• Venture TDF China Fund (www.venturetdf.com) founded in Oct 2000 ， US$33M under management

• Sponsored by TIF from Singapore & Shanghai Venture Capital Corp

• Granite Global LLC, a U.S. based VC managing US$360M has been a strategic partner

• Focus in the area of Telecommunication, Media and Technology and other emerging and high growth sectors

• Total of 15 projects in China,including Alibaba, Baidu, Hurray, etc. 3 exits to date

13

Our Differentiation• One of the few independent China Venture Capital Fund

with local presence and owner like behavior

• Strong network of domestic, regional and US VCs, plus proven entrepreneurs where deals are sourced and syndicated

• Identify and invest in quality companies that are “Built to Last” (management, vision, solid business model and execution capabilities)

• Identify and invest in leaders of high growth sectors, leveraging on China’s vast and fast growing consumer market

• Balance return focus with emphasis on cash on cash and IRR returns to our LPs

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China Fund’s Investment Calendar

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Concluding Notes• Technology application is more promising than technology creation

• Products and technology for import substitution, distribution channel to reach vast and diversified customer have good potential

• Seasoned and well rounded founders is still scarce in China

• Portfolio management needs more hand-holding & proactive involvement

• To win the game, it is quite important to operate by professionals who are familiar with local regulations, industry rules and market admittance system

16

Contact Details

Shanghai Office

Venture TDF Shanghai Co., Ltd

Unit 2102 China Merchants Tower

161 Lujiazui East Road, Pudong

Shanghai 200120, China

Tel. : 86-21-5888 3185

Fax : 86-21-5840 0078