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IT start-ups in China vs US

IT start-ups in China vs US. Wu-Fu Chen Acorn Campus September 9, 2003. The VC “LANDSCAPE” in 2000. 2000 693 8368 164 497 105.05 211.4. 1980 87 1035 24 57 2.08 36.5. 1990 375 3794 14 82 3.20 39.0. # of VC Firms in Existence # of Professionals

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IT start-ups in China vs US

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  1. IT start-ups in China vs US Wu-Fu Chen Acorn Campus September 9, 2003

  2. The VC “LANDSCAPE” in 2000 2000 693 8368 164 497 105.05 211.4 1980 87 1035 24 57 2.08 36.5 1990 375 3794 14 82 3.20 39.0 # of VC Firms in Existence # of Professionals # of First Time VC Funds Raised # of VC Funds Raised This Year VC Capital Raised This Year ($B) Avg VC Fund Size Raised This Year ($M) Source: NVCA Yearbook 2001; Venture Economics

  3. Round Type Date Amount Raised (MM) Pre-Money Valuation (MM) IRR Multiple 1 Seed Jan-90 $ 0.50 $ 2 101% 32.53 2 1st Jan-91 $ 3.00 $ 10 70% 8.13 3 2nd Jan-92 $ 8.00 $ 32 50% 3.30 4 3rd Jan-94 $ 13.50 $ 100 32% 1.32 5 IPO Jan-95 $ 150 Total Private Capital $ 25 A Generic Early 90’s Model Million

  4. Round Type Date Amount Raised (MM) Pre-Money Valuation (MM) IRR Multiple 1 Seed Jan-97 $ 5 $ 35 79% 18.37 2 1st Jan-98 $ 10 $ 100 65% 7.35 3 2nd Jan-99 $ 25 $ 200 59% 4.04 4 3rd Jan-00 $ 60 $ 600 52% 1.52 5 IPO Jan-01 $ 1000 Total Private Capital $ 100 $200 ? A Generic Late 90’s Model4 Million

  5. VC funding cycles • 1990 – 1994: Market Driven • 1995 –1999: Technology Driven • 2000 – 2005: Cash/Finance Driven • 2006 – ????: Market Driven

  6. Market Trends • A lot of IT technologies were developed during bubble years • IT technology applications will move migrate from Enterprise to Home, Automobile, and Human

  7. Fundamental Market Drivers • Live better, Quality of life • Material • Spiritual • Live longer, Quantity of life

  8. Quality of Life • Basic human’s needs are pretty well fulfilled due to advances in Manufacturing Technologies • The supply side ( supply limited) economy is shifted to demand side triggering potential deflation • Future valuation creation will be shifted to soft features such as: improve safety, reduce stress, save time, improve look and feel

  9. Quantity of Life • As the Quality of Life improves, human would like to live longer and hence the Quantity of Life becomes priority 1

  10. Great market opportunities • E-services • Integration of computing, communication, and storage • Entertainment/ Educational • Digital Media • Online gaming • Health Care • Remote monitoring, Diagnostics • Drug discovery computing platforms

  11. Business Model • The world gets smaller due to improvements in communications and transportation technologies • It is critical that a startup must access to global market and leverage global resources to be competitive

  12. Mega shifts • Switching – from circuits to packets • Data then voice; Backbone then access • Transmission – from electronic to photonic, wired to wireless • First long haul then metro then access • Functions – moving from the enterprise to the net • First intra, then inter-enterprise • Offering – from products to services • Quality of Services. SLAs define new relationship with customers • Information Technology – from in-house to off-shore

  13. Factors for successful high Tech startups • Market • Management & Technical Talents • Regulatory Environment

  14. Market • Huge Market attracts great products • US has huge market and early adaptor market for IT • China has huge potential IT market under development • China is already the world number 1 in IT manufacturing

  15. Management & Technical Talents • US has long history of entrepreneurship with a great supply of management & technical talents • China has a large number of low cost junior technical talents but lacks experienced management & technical talents

  16. Regulatory Environment • Over all, China is still way behind US in this front: • Corporate Governance • Financial Transparency • IPR protections • Exit strategies • This is the number one reason that international investors are still hesitating

  17. Strategy for IT startups in China • Recruit overseas experienced management team and technical leaders • Set up global operations from day 1 • Focus on Greater China market initially • Build Solution and Distribution partnership

  18. Conclusion • Regulatory environment is the number one for improvement to reduce investment risks • Good time to invest cautiously since the market is turning around • Great China investments will shine and continue to improve for a long time

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