Venture capital feeds start-ups with advice
(CHANG TIANLE)
08/27/2001
When Ultrablue Software Co Ltd found itself strapped for cash two years ago, a venture capital idea occurred to General Manager Wu Ming. After contacting a number of venture capital firms in China and abroad, Ultrablue chose Shanghai Venture Capital Co Ltd (SVC), the only such firm funded directly by the Shanghai municipal government. Wu said SVC was not like venture capital firms set up by some domestic enterprises or listed companies, which "tend to put their nose into my company directly," or some western investors, "whose only concern is profit." Rather, SVC adopted international practices and was willing to help start-ups like Ultrablue expand their business, Wu said. Although sponsored by the government, SVC is more like a private fund as far as operational patterns and capital flow are concerned. Since it was launched by the government two years ago, its capital has been managed by a group of fund management firms - which examine projects from a market-oriented aspect - to minimize government interference. As soon as Ultrablue received 7.2 million yuan (US$867,000) in investment from SVC in August 2000, it was made the only management software provider to the nation's procuratorial organs. Sales are expected to bring them a total of 200 million yuan ($24.1 million) by 2005. Revenue in the second half of 2000 reached 6.8 million yuan ($819,000), against 1.2 million yuan ($145,000) in the first half of the year. This year's revenue is expected to reach 12 million yuan ($1.4 million). Ultrablue's story may not be universal, but is common among hi-tech start-ups which have been invested in by State venture capital firms. Shanghai Vice-Mayor Yan Junqi said the city would attach great importance to hi-tech start-ups by means of venture capital. However, a lack of experienced professional capitalists, an immature domestic capital market, capital exit problems, and the lack of an adequate legal framework for capital funds remain obstacles to further development. The country has about 150 venture capital companies and 160 management firms, with a total of 18 billion yuan ($2.2 billion) in venture funds. But only 3 billion yuan ($361.4 million) of this has been put into ventures, according to Cheng Siwei, vice-chairman of the standing committee of the National People's Congress. Cheng is also a senior consultant for the China Venture Capital Profession Commission of Science and Technology. He pointed out that some domestic venture capital firms do not fully understand what venture capital is and how it works, so they are short-sighted and only looking for short-term gains. "Profit isn't the only goal," Cheng said. "The key is to develop technology-based start-ups and to train local venture capitalists, and eventually, to form a healthy and mature venture capital market." All these factors put the onus on the government to play a leading role in market growth. Shanghai has more than 50 venture capital funds, one-third of which enjoy the government's financial backing, although these funds do not have much money by international venture capital standards.
|
