Commentaries

Now raising intellectual capital

Ex-Google China chief’s dream factory

Google’s former China head Kai-Fu Lee wants to create China’s next internet giant in a factory. He believes that by combining the smartest entrepreneurs, the shrewdest business people and the brightest business ideas, he will be able to create five highly sellable companies a year. That sounds like an ideal model for venture capital, but is he being realistic?

Lee’s plan, formulated while he spent time in hospital over the summer, follows a battle with Beijing regulators who wanted to censor Google  searches that lead to pornographic sites. It has drawn strong support from investors.
 
Lee has managed to raise $115 million in just one month, winning support from YouTube Inc. co-founder Steve Chen, as well as Foxconn Electronics, Legend Group, New Oriental Education and venture firm WI Harper Group.
   
They believe that as China embraces a start-up culture, Lee’s business, which is a mix of venture capital and development lab, will be well positioned to capitalize. Lee’s plan is to hire 100 to 150 young engineers, help nurture their ideas, then spin off 50 to 75 of them a year with
funding from his venture, whiling hiring new people to make up for the loss.
  
However, it looks as if his company, called Innovation Works, has yet to line up ideas or engineers. This kind of “incubator” model became popular in the U.S. and Europe during the dot-com boom, but most of them just burned through a lot of money and then folded.
 
Lee and his backers believe that China’s market is more favourable, as it is at a crucial point regarding “cloud computing” and mobile technology, and there is a strong need for early-stage funding.
 
The new fund is still starting off, but Lee plans to expand from its base in Beijing to places such as Taiwan, the Asian hardware manufacturing base and his hometown.

Investors are attracted by Lee’s reputation as the single largest magnet for talent in China. Lee, who went to school in the United States, has won a loyal following from Chinese students
through his numerous coaching books, public speeches and blogs, although critics say he has spent too much time promoting his personal brand.

An expert in speech recognition technology, he founded Microsoft’s China research lab in the late 1990s. When he left to join Google, Microsoft sued him for violating a promise not to join a competitor.

Khosla’s bet on cleantech looks speculative

If the world is counting on innovative companies to solve global warming, we may be in trouble. Venture investment in cleantech is slumping. Venture capitalists in the US poured $2 billion into 139 cleantech start-ups in the first half of 2008, according to data from PricewaterhouseCoopers. In the first half of this year, venture investments in the sector plummeted to $513 million in 89 companies.

Of course, venture investment in general has gone off a cliff, from over $15 billion in the first half of 2008 to $6.8 billion this year. But it seems odd that cleantech, the new, new thing that VCs seek, has plunged more than the average.

Start-ups better off with angels than VCs

Photo

Self-financed angel investors are often found where venture capitalists fear to tread. They typically provide seed financing to start-ups that is counted in the thousands or tens of thousands instead of the millions VCs have to throw around.

A newly released academic study (52-page Acrobat file) finds angel investors also cut the start-ups they invest in better deals, both in early financing rounds and in cases where the company eventually makes its way to an initial public stock offering.

from MediaFile:

Less and less funding for venture green shoots

VC fundrasing falls off cliff

Hard-pressed private equity firms complain a lot about the difficulties in making classic leveraged buyouts work. Some talk of elbowing in on early-stage investments of the sort which venture capital is known. They won't have lots of competition from incumbents.

The latest data from the U.S.-based National Venture Capital Association shows new fundraising activity among venture capitalists falling off a cliff, with the lowest number of funds raising money -- 25 -- in 13 years and the smallest number of dollars committed -- $1.7 billion -- since 2003.

  •