INSEAD VC – Entrepreneurs Summit 2007

On Friday I was invited to attend the VC – Entrepreneurs Summit 2007, organized by INSEAD. A very interesting conference with excellent speakers, covering the VC industry in China from the perspective of both the entrepreneur and the (foreign and Chinese) VC. The event took place in the KIC (Knowledge and Innovation Community), a new complex of working and living space for entrepreneurs, start-ups and VC’s in Shanghai’s Yangpu district (next to the Jianwan stadium in Wu Jiao Chang).

The conference was attended by most of the big VC’s active in China, including some of the major US funds. As usual, hardly any European funds… This point also came up during the summit, when Bruno Bersaid from the (French) China Expansion Fund raised the question why there are still hardly any European investors in China. There was no definite answer to that, but one reason is likely that Europeans are much more risk averse. That’s a pity, because they lose a lot of opportunities. Several US VC firms have people on the ground in China already, either through a cooperation with a Chinese fund or by having its own General Partners in China. Europeans you don’s see much yet, and if you see them they fly in and out, trying to make deals in a few days. That won’t work, but they will find that out soon enough. I know some European VC’s read this blog, so I hope this advice might help them. You need your own people in China for deal sourcing, deal valuation and deal follow-up. Without that you are very likely to fail – or for sure you will miss out on some excellent opportunities.

I don’t plan to give a whole report about all the speeches and panel discussions that I listened to (my wife was actually on a panel discussion, talking among others about how Tudou works with its VC’s), but just want to highlight a few key points that might be interesting for my readers:
– China is now the second biggest VC market in the world. Still much smaller than the US, but growing at an amazing pace. The focus is not only on high-tech, but also on high-growth (well, I guess most Chinese companies are high growth companies)
– The VC industry is the most internationalized industry in China
– There is a shift from offshore USD investments to onshore RMB investments. This year is probably the year that this shift will take place, partly due to SARFT regulation 75 which tries to limit offshore investments in China
– Local IPO’s become a more profitable exit option. For example a IPO on the Shenzhen stock exchange can be quite interesting, with a current P/E average of 51 and reasonable liquidity.
– The average life span of a business plan in China is….. just one month! The shows how fast the market (incl. regulations, competitors) change here. Foreign investors often don’t realize this. Competition is cut-throat here and you have to work twice as hard as outside of China to succeed, but you can also grow much faster than outside China.
– Because many funds are trying to get into China, it is getting easier for entrepreneurs to get funded. This means that they get more powerful, and as an investor you need a quick decision process to make sure you don’t lose the deal. I have some experiences here myself, and it is often difficult to explain this to investors from (especially) Europe.
– Chinese VC’s vs. US VC’s: Chinese VC’s are more hands-on, have tougher term sheets, invest in several tranches, are more short-term focused, and (of course) have better connections in China.

I had lunch at the IPO restaurant (great name!) with my wife and the successful US-Korean entrepreneur, Mr. Paul Song. He was also one of the speakers, and I was quite impressed by his achievements. He set up a company in the US in the early 1990’s (Aris Corporation) and without any VC capital managed to grow this to 900 people before listing it on the NASDAQ. He is now looking at opportunities in China and Vietnam, and we talked among others a bit about the opportunities for online gaming in Vietnam. Right after lunch I had to go back to the office, because I still had a lot of things that I wanted to finish before the weekend. A pity, because the first part was excellent, and I am quite sure I missed some interesting presentations.

SMS spam

More than half of the SMS messages that I receive on my China mobile phone number are spam. The messages vary from ‘normal’ ones such as business men trying to sell fake invoices, to more explicit ones such as a person offering the virginity of his sister to the highest bidder (seriously!). Very annoying, because unlike email I normally want to take a look right away when a message comes in. Somehow SMS seems a more urgent medium. There is nothing I can do about the spam, as far as I know (if anybody has a suggestion, please let me know).

But maybe the heavy punishments in China for SMS spammers may lead to less unwanted messages in the future. Earlier this week I read a story on Pacific Epoch that 4 mass SMS spammers were sent to prison for over 10 years each. However, according to the article they not only spammed, but also did not pay the SMS fees, causing a loss of about USD 40,000 to China Mobile. I am not sure what was more important in the sentencing, not paying the fees or the spamming itself. But I would not be surprised if it would be not paying the fees. Why? Because my spam messages really started to come in after I got a China Mobile VIP SIM card, meaning that the list of VIP members is somehow available to spammers. So spamming might actually be considered OK, as long as you pay your bills.

Cleaning service

This morning I was working at home before going to the office, when I suddenly heard some sounds outside my study window. I looked up and saw a building cleaner hanging on some ropes outside my balcony! I managed to take two pictures before he used his abseil technique to clean the 36 floors below my apartment.

April Fool's Day joke leads to divorce

A Shanghai man wants to divorce his wife, because she keeps on surprising him with jokes. The last one was just too much for him. On the night of April 1 he came home from a tiring business trip, when he was shocked to see that his wife had hanged herself in the living room. According to the Shanghai Daily she had made it look as real as possible, and indeed her husband did not see it was fake.

He immediately called the police and the property management office. The property management helped him to put the body on a sofa, while the woman kept on acting as if she had died. While they were waiting for the police to arrive, the woman suddenly jumped up while shouting: “Happy April Fool’s Day!”.

This was too much for the man, and he now wants to file for divorce. He mentioned that his wife always made jokes with him, and he could not stand it anymore. He gave another example to the newspaper, saying that his wife once changed the lock and refused to let him in before correctly answering several quiz questions. The woman thought that making jokes kept the couple close, but it now turned out it had the opposite effect.

Fake Melrose pizza?

This afternoon I had lunch with Sam Flemming in my office, and we ordered two pizza’s from Melrose Pizza. I like their pizza’s, and delivery is always quick. I just received a flyer in my mailbox with a special promotion offer, two medium pizza’s for RMB 99, so we decided to go for that. While ordering we mentioned the promotion, but when the delivery guy arrived he wanted to charge us RMB 155. The receptionist came to my office to tell me I had to pay more, so I walked with her to the entrance to find out what the problem was. The delivery boy told us that they had made a mistake (the pizza’s that he brought us were not on sale, or something like that), so we had to pay extra. Interesting logic, they make a mistake, so we need to pay extra. The receptionist then called Melrose pizza to explain the problem, but they were quite arrogant and told us we had to pay. And if we didn’t want the pizza at a higher price they would never deliver to us again. I told the receptionist I would call the English number that they provided, and she mentioned that to the Melrose lady she was talking to. Her answer: go ahead, we won’t answer! I tried to call, and indeed they pushed my call away.

At that point Sam joined the conversation, who happened to indirectly know the owner of Melrose Pizza (Melrose is a franchise organization). He could not get hold of him right away, but the owner would call me back. So I decided to pay (my assistant had negotiated the price down to RMB 140 in the mean time) and wait for his call. He called within 5 minutes and apologized for what happened. He then asked which number I had called, and I gave him the number. He asked me to repeat it, and then said: “But that is not a Melrose Pizza number!”. He would check it out and call me back. He did call back about 10 minutes later, but did not tell me what exactly happened. He just wanted to know my address and would send me something to make it up to me.

That’s great service, and I appreciate it, but I now wonder whether there is a fake Melrose Pizza place in Shanghai. I noticed that the number on the pizza box was indeed different from the one on the flyer that I received. Yes, they not only copied the flyer, but even the box including the real phone number! In case you want to give it a try, the “fake” Melrose pizza can be reached at 021-5887 6011. Their fake English hotline is a mobile phone number: 1391 841 6180. If you want to make some prank calls, go ahead. But if you want the real Melrose Pizza call 800-620-9797. I hope the owner can quickly sort out this problem. Next time I will use the 800-number to order his pizza’s.

27 degrees in Shanghai

Spring has suddenly started this week. We had some warmer days already early February, but it got cold again afterwards. My internet thermometer shows that it is 27 degrees outside. Time to turn on my airconditioning for the first time this year.

Too bad the warm weather won’t last, this weekend it will get a bit cooler again, so no BBQ parties yet. Maybe next weekend?

Don't underestimate China's development

Whenever I give presentations to European or American audiences, I tell them that the Western world does not realize what is happening in China. Everything is growing so fast here, that very soon China will start overtaking them. And in some ways that has already happened. This morning I was quite surprised when I read in the Shanghai Daily that in 2006 more capital was raised in China and Hong Kong IPO’s than the total of all IPO’s on the NYSE, NASDAQ and American Stock Exchange. The figure for the Chinese exchanges was USD 62 billion versus USD 48 billion in the USA.

A big part of this was of course due to the mega-IPO’s of ICBC and the Bank of China, but it is not a one-year outlier. For this year PriceWaterhouseCoopers expects a total of about 58 billion in Greater China IPO’s, against 50 billion in the US. The time is over when a Chinese company would first think about a NASDAQ listing before considering a domestic public offering. This is partly due to the increasing regulations that you have to fulfill in the US (they are slowly digging their own grave), but also because much more investment capital is available in China.

Europe and the USA beware, China has become a force to reckon with and this will hit you sooner than you think. Don’t believe all the stories in the media about China still being backwards, China is where things are happening now.

New pictures on Flickr


I had some problems automatically uploading my pictures to Flickr, after I was forced to switch from my early-adopter ‘real’ Flickr account to a Yahoo login name. But today I managed to solve it (just download the tool again… Should have done that weeks ago already instead of trying all different kinds of tricks), and I uploaded a few of the pictures from the past 4 weeks.

Among others skiing in Beijing, the ice lantern festival in a gorge in Yanqing (north of Beijing), the new Olympic Stadium in Beijing (not finished yet of course), and a few pictures that I took on Saturday in Qiandaohu (1000 islands lake), one of the most beautiful places in China, and reachable in less than 3.5 hours by car from Shanghai.

If you have not been to the Thousand Islands Lake, I hope the picture above showing the natural beauty of the area, and below, of one of the 10 best hotels in China (the New Century Resort), right on the lake, will convince you to take a look.
Note: All my pictures can be found here

Fuchun Resort in Hangzhou: I will never go back

Many Chinese companies that I meet make good products or deliver good services. But a lot of these companies don’t understand the concept of marketing them, or dealing professionally with potential customers. This sadly not only applies to small start-ups, but sometimes even to 5-star resorts. A typical example is the upscale Fuchun Resort in Hangzhou.

On Sunday I was in Hangzhou and decided to make a detour to Fuyang to take a look at the Fuchun Resort there. I had seen the resort in several glossy magazines, and also received a brochure the last time I was having dinner at T8 in Xintiandi. The pictures looked fantastic, and it seemed like a great place to spend a weekend. Prices were on the high side, with the cheapest rooms on weekends coming in at over RMB 2200 per night (with a minimum 2 night stay), but if the quality is right I am willing to pay that – even in rural China where people live a whole year on that amount.

We drove over in our car, and asked for directions from the phone directory service 114. That went fine until we were in Fuyang, where the directions they had given us led us to a dilapidated hotel with the same name next to the Party School. Not exactly what we were looking for. So we called the resort, and the girl on the phone asked if we had made a reservation. A reservation? No, we just want to take a look to see if the location is suitable for a conference. The reply: if you don’t have reservations I won’t give you our address! I asked for the manager, and was put on hold. After waiting for over 5 minutes I realized nobody would come on the phone and hang up. We called again, and got someone else on the line. This lady claimed to be the manager. She said she did not want to tell us the address either. If we wanted to take a look we should call on Monday. We told her we are potential customers and had driven over all the way from Shanghai. She literally said: “Bad luck for you. Go back to Shanghai and call back on Monday for an appointment”. My wife asked her name and if she would be willing to take responsibility for her actions. She told us her name was Huang Juli, and she had no problem taking responsibility for this. “Just go back to Shanghai, I won’t tell you where the resort is located”.

I still thought it was just the staff that was not well-trained. So I decided to find out the address of the hotel in another way. My wife stopped a few taxis and finally found one that knew the place. It was just a five-minute drive to the entrance. But there we were stopped again of course. This time it took us about 15 minutes to convince the guard to get the (real?) manager on the phone.

Her tone was extremely bitchy, how did I dare to drive up to the gate of the hotel? I explained her my idea to organize a 40-person VC conference here in September, but she did not really care. I should call on Monday to make an appointment if I wanted to take a look. I kept calm and explained that we drove all the way over, and that we were standing at the entrance road of the hotel. She told me the hotel was fully booked and that the guests ‘were just teeing off’ so we could not enter. I repeated that I was a potential customer and would only need a few minutes to get an impression. No, this was not possible. But I don’t give up easily and kept on asking her if she really wanted to send potential customers back on the 3 hour drive to Shanghai. Finally she told me she would make a one-time exception and we would be shown around for a few minutes.

We were indeed shown around, but not by the manager of course, but by a receptionist who hardly spoke any English. On our tour of the hotel we only saw two guests on the terrace of the restaurant, the rest of the place was deserted. Even the pool and hot whirlpools had no guests. I seriously doubt that the 70-room hotel was indeed full. I asked the receptionist how many members the club had, and she told me about 100. Not an awful lot of people for such a golf club resort. The place looks nice, but the location (very close to Fuyang city, and not directly on the river as they imply in their advertising) could be better.

Note: generally I tend to write quite positive about places that I visit or restaurants where I eat. If the experience is not good, I often just don’t write about it. I know the impact that a negative blog post potentially can have, especially when it’s indexed in Google and could end up high in the search results. But what happened here is something that I do not want to keep silent about. I am still flabbergasted about the way this resort is sending away potential big customers. The Fuchun resort is not a private club that does not allow any outsiders in, but a hotel with a golf course that can even be booked through discount websites such as Ctrip.

They have of course lost me as a potential client because of how they treated us. And I advise all my readers to think twice before going there – and if you go, don’t forget to make a reservation first 🙂 If you want a nice weekend with good service there are a lot of better options around Shanghai.