I recently caught up with my friend Derek Sulger, founder of Linktone (Nasdaq: LTON) and current founder and CFO of Smartpay, a Paypal-like play in China (I really like what Derek is doing with this one-no credit in China, use the mobile phones for debiting from bank accounts). Derek and I are college friends and we certainly have come a long way from college when he finds my email on Google under a heading "Geeking out with Ed Sim" (thanks to Jeff Clavier for this one!) because his mobile device with all of his data on it is cracked on his flight from China. That being said, we had a great chat on VC in China and opportunities he sees there.
First, from his perspective, he would rather pick one or two ventures at a time then spread out investments VC style. If you think about it, there have only been around 7 or 8 internet-type companies that have gone public in China since the last bubble in the US (Linktone is one of those) when the Sina.coms were out in the market. Given that, he would rather pick a couple sure bets and really work with them cradle to grave. It is also tough to have any real governance and control of an investment by just sitting on a board in China, especially if you are monitoring a deal from thousands of miles away. Secondly, he said it is tough to find good, experienced talent. That is one of his gaiting factors in ramping up his ventures. Finally, from an investment perspective, he would rather go consumer than enterprise. His first business was a systems integration play which spawned Linktone and Smartpay. He said it was difficult because the private companies you are selling to are really quasi-government agencies. It is tough to get paid and very tough to protect your intellectual property. At least on the consumer side, if you price your product or service appropriately, you can build a real PAYING user base and protect yourself from competitive threats with your base of subscribers. Look at the history of China going from Boeing to the automakers like GM which did joint ventures with companies in China only to have their IP recreated and used against them. I am sure GM could have protected themselves by charging less for their Buicks!
So there you have it from an experienced entrepreneur in China. His thoughts make a ton of sense.