
China’s Firms Strive to Gain a Foothold in U.S. Venture Capital - t23
http://www.wsj.com/articles/chinas-firms-strive-to-gain-a-foothold-in-u-s-venture-capital-1479924623
======
rdlecler1
A lot of negative comments here, especially around IP theft. We have a couple
of Chinese investors and they've been top quartile for us. The main reason
Chinese money is looking to invest in the US is because they need a release
valve for their money. RenRen invested in my friend's company and he said
they've been great. I heard that Horizons has some tough terms but they are
also great investors. As for the Chinese LPs I've spoken with, they seem much
more entrepreneurial and less risk adverse than western LPs. This is an
economy that has seen a near 38 year uninterrupted bull run with a lot of
technological development. It's not surprising they are optimistic and want to
invest in venture especially, if they want to diversify out of their existing
industries/economy.

~~~
3pt14159
How do you know the main reason that the Chinese are looking to invest in the
US _within high tech VC_?

There is growth opportunities all around the world that don't require leaking
business plans or technologies to a government that is hostile to worldwide IP
protection. They clone all our major businesses (Google, Uber, etc), they shut
us out of their currency markets, they shut us out of their property markets,
they burden us with complex banking requirements and inexplicably expensive
and annoying travel visas.

But go on and tell me why I should be behind Chinese money further infecting
our economy in this asymmetrical trading relationship.

I understand Nato policy towards China is one of engagement. Pulling them so
far into trade that they can't afford to take drastic military action, but
it's getting to be a bit much.

It's especially evident here in Toronto / Canada, where the government or
highly, highly government connected businessmen fund some politicians and
essentially not-for-profit news outlets (usually in Chinese).

China isn't Europe. Dealing with them requires a much more realistic, firm
hand.

~~~
ryandamm
To be fair, Chinese capital outflows are going everywhere in the US (and
Canada), high tech is a tiny part of it. (Though there are structural reasons
why capital leakage via investment is easier than other capital leakage.)

In your own country, I'd point to Vancouver's real estate market as an example
of Chinese capital flight that has nothing to do with IP.

And to be fair, copying successful tech companies with local clones isn't a
purely Chinese phenomenon. I forget the name of that German firm that was
doing precisely that, but they're a good counterexample and a common villain
on these forums.

~~~
3pt14159
The difference is that they actively took steps to block our companies there,
like Google, who had a fully working Chinese search engine.

I get the Realism in politics reason they did it, but it doesn't mean that we
have to have to treat China with the open hearts, open doors philosophy we've
been dealing with other more liberal economies.

------
ChrisNorstrom
In the words of Elon Musk "If we published patents, it would be farcical,
because the Chinese would just use them as a recipe book". From high speed
trains, to maglev, to wind turbines, to kickstarter designs, to brands,
designs, even entire styles of european and american cities like Paris,
Venice, & London, the Chinese are notorious for stealing and reselling
knockoffs of technologies. They simply rebrand it as "Chinese innovation".

Every group of people have a desire for power and world domination, they all
just use different methods. And for the Chinese, intellectual colonization
seems to be working.

~~~
chillacy
Recall that the US "stole" the inventions of britain during the industrial
revolution:

[https://www.techdirt.com/blog/innovation/articles/20130228/0...](https://www.techdirt.com/blog/innovation/articles/20130228/01324622146/yes-
us-industrial-revolution-was-built-piracy-fraud.shtml)

Hollywood, one of the biggest defenders of IP today, is in california today so
they could skirt Edison's patent royalties:

[http://mentalfloss.com/article/51722/thomas-edison-drove-
fil...](http://mentalfloss.com/article/51722/thomas-edison-drove-film-
industry-california)

IP theft is how many industries in the united states rose to dominance... it's
extremely hypocritical to cheat your way to success and then reprimand others
for cheating. Of course there's the whole question of whether our system of IP
is even reasonable in the first place.

~~~
mark_edward
> it's extremely hypocritical to cheat your way to success and then reprimand
> others for cheating.

Wouldn't this logic condemn all of US history [land theft, slavery, etc.]?

Note: I don't think it's wrong to do so I just wonder where you think it
stops.

~~~
chillacy
Indeed it does. Might often makes right, and contracts are only as good
insofar as they can be enforced. Seen from that angle, IP law is just a tool
that you use once you have IP and ignore until then.

~~~
mark_edward
Rather, I'd say that might makes. It doesn't make right, it just makes. Might
makes right is just another version of a naturalistic fallacy, if i understand
correctly. Therefore, people can still be held accountable for these things.
Getting away with it doesn't make it right.

~~~
chillacy
Fair enough, I suppose history will look down on these acts even if they have
high payout.

------
Nokinside
It seems that the common subject of discussion and opinions is "China stealing
intellectual property".

That's not accurate description of what happens. I'm sure China is very
involved in industrial espionage, but that's not the main way to acquire
technological know-how.

Almost all happens completely legally trough normal technology transfer.
Chinese invest or allow foreign companies access to their market if some kind
of technology transfer takes place. New manufacturing plant in China transfers
much deeper knowledge base than some closely guarded secret blueprint. Chinese
engineers working shoulder to shoulder next to the senior engineers from the
foreigin company learn enough to start their own companies in China after few
years.

------
nullnilvoid
That is great news for U.S. entrepreneurs. We will have a new source of
funding.

~~~
zepto
VC's don't just provide funding, they also gain control.

~~~
devoply
Business has very clear objectives. So it does not matter who controls,
whether it's Indians, Jews, Chinese, or Americans. They are all in it for the
money, and they pull founders along. Do your due diligence. Assume money makes
everyone into a sociopath. Go from there.

~~~
eveningcoffee
For some nations, politics is used to advance their business, for some nations
business is used to advance their politics.

------
qwrusz
I have worked on cross-border deals with Chinese firms over the past few
years. (I work in finance, but not VC). I’ve seen the growth and impact of
Chinese firms entering US capital markets, public equity markets, PE buyout
deals and real estate. I think it will be very interesting to see how it plays
out in VC...

VC is really nothing like any other type of investing. It doesn’t have the
same quite established valuation and due diligence processes as other types of
investing. And successful VC investing has so many non-quantifiable
ingredients to the process: VCs connections and reputations, how they evaluate
a team, unique sector insights, intuition, etc… And that’s after one gets past
any language barriers.

[1] I see the mixed comments on here. Clearly, there are good and bad actors
in China. And the caution and prudence the article brings up should be taken
very seriously. But the fact is there are legit, honest, good firms in China
that are worth partnering with and/or having as investors. More so, ignoring
the chance to have a great investor and partner in China is ignoring the
reality of the global economy that will more or less exist for probably the
rest of your lifetime. China has the largest GDP of any country in the world
(US is #3 if you count the EU). Times have changed. We all need to get
together and figure it out.

This has gotten long, might as well add a couple more:

[2] The article also mentions the importance of understanding culture
differences and avoiding possible miscommunications. This is hard to emphasize
but crucial to do _before_ real meetings start happening.

[3] When initiating meetings with potential Chinese investors, if you can hire
(temporarily or permanently?) someone who speaks, read and writes Chinese
_and_ English fluently this is a game-changer and I think it’s worth the cost.
Someone born to Chinese parents but who grew up in America for example.

[4] There are macro-level, systemic and regulatory-type risks for US firms
working with Chinese firms and vice versa. Companies really must discount
these risks in their business plan. The US and Chinese governments seem to
always be negotiating, about every topic, and so in some periods there are
positive developments and in others this reverses. Blocking of specific deal
is a risk but market wide roadblocks can be immediate and severe. Have a plan
B should this stuff happen.

[5] Deals with Chinese investors are not only about making good returns like
with US VCs. There may be other motives. Too many to list. It depends.

[6] The comment mentioning Elon Musk has a point: There is no more bankable
IP. It’s gone, the few exceptions are irrelevant. Companies can’t keep
anything secret, especially not IP. You probably can’t afford to protect the
IP in court if you had to. Don't let this stop you from working with China.
Best to build around this reality.

[7] Study the Facebook and Google and Uber stories how well or poorly they did
in China to see how complex this can get for a big growing company.

------
brilliantcode
I'm seeing a lot of Canadian Born Chinese or Chinese-Canadians moving to China
to start a business or startup. Their fluency in the language and culture
varies but they are just like you and me. Raised in Canada or America. They
passionately hold on to the idea of the _Zhunguo Meng (中國夢)_ or "The Chinese
Dream", a counterpart to The American Dream.

So far all of the reasons for this emigration to China seems to hinge on the
view that there is a lot of entrepreneurial activity and drive in China which
I think certainly holds true. For example, Alibaba allegedly closed over 17
billion dollars in sales within 24 hour on the "Chinese Valetines Day". Didi,
Wechat, Baidu and so on.

Some hold a much more nationalistic/ethnocentric perspective that the Chinese
economy will surpass America any day now and emerge as the new global
hegemony.

On the business level, there seems to be more emphasis on relationships and
reciprocal (?), you help me I help you kind of deal but with blurring of
expectations that you must deliver and demand to maintain that bond. I'm not
qualified to speak on this but I'm formulating this from a gathering of
anecdotal experiences from people I've spoken to.

I'm biased obviously since I'm unfamiliar with China and Chinese culture & the
language. I grew up in Canada all my life and this is all I know. What's that
saying? The devil you know is better than the devil you don't. So basically,
it boils down to what I know vs. what I don't know. China is a big unknown to
me personally but that shouldn't/doesn't phase those chasing after the dream.

So just taking a look at websites like
[http://chinalawblog.com](http://chinalawblog.com) , it raises some important
questions about their infrastructure and more importantly what compromises
would I need to make as a cost of doing business in China and whether all of
this structural down to individual changes is something worth investing all my
time in vs. dealing with what I know already.

Also a huge minus is the cultural and language gap. I most certainly cannot do
business without a contact or a close partner that is able to close that gap.
While that maybe fine for the most part, it does carry over risks as I am
tightly coupled to their interpretation.

I am constrained by the unknown and increasingly as I look at what's going on
in Hong Kong and rest of South East Asia, I can't help but feel intimidated.

Zuckerberg came to a compromise to be chums with the Communist party in China.
I wonder if that will ever pay off especially when you are so invested now and
the relationship is dictated completely on the conditions of the foreign
government. If this is the beginning then I shudder to think what the next
compromise will be that affects their end user. It sets an uneasy precedent
for future prospects eager to capture the enormous market in China.

This is strictly my personal opinion and I tried to be as objective as
possible to be respectful and neutral as possible. I just don't buy it when
somebody just tells me confidently that it's inevitable fate that China will
surpass US with the sole basis of their argument being the very thing they
assume will hold true in the long run.

I'd love to be corrected. However, if the argument that "China is taking over"
holds true, US politicians and the elite should be sending their offsprings to
study in the University of Beijing vs Harvard. The would leave in a posh part
of Beijing, blowing money on a Chinese supercar which also does not exist.
This suggest to me that the Chinese Dreams isn't even good enough for China's
elite so how the hell can it be good for people like you and me?

