Février 2006

China’s institutional private equity and venture capital markets are evolving to finance the innovation and globalization of Chinese firms. This study undertaken in collaboration with the China Venture Capital Association outlines the key lessons learned by leading venture capital and private equity firms investing in China. Investing in China often requires greater operational expertise and involvement in ventures than typically required in investing in Silicon Valley. Based on our interviews of key venture investors we identified seven disciplines helpful to successful investing. These include the disciplines of :

• Guanxi - the development and use of social capital to access critical information and influence key stakeholders

• Corporate governance - the implementation of global standards and practices of governance and shareholder rights

• Intellectual property - the protection and leverage of brand and other intellectual property

• Local adaptation - the translation of product and business innovations to local contexts

• Value addition - to provision technical and managerial expertise to grow Chinese ventures

• Corporate structuring - the structuring of ventures and funds to align incentives and enable the flow of capital

• Strategic Compliance - the mastery of regulations for competitive advantage.

This report illustrates how venture investors exercise the above disciplines to help grow new ventures, and bridge the gap between global institutional investors and emerging private entrepreneurs in China.

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