Chinese discipline

By MIT Sloan Management Review, winter 2006, Vol 47 No 2 Wednesday, 26 April 2006

Venture capitalists invested a record $1.2 billion in China in 2004, but the market is young and involves unique challenges, including a lack of ready information about VC opportunities and local entrepreneurs who know little about corporate structures or governance.

China's talent problem

Research among 20 leading venture capitalists and private equity investors identifies critical disciplines for investment in China, including an appreciation of the importance of social networks - guanxi - and a commitment to developing those connections.

Picking the right local entrepreneur is vital because investors do not generally have majority control of a company and cannot replace management. Employees and customers may also be more loyal to the CEO than the company. Working with management is therefore an ongoing process involving coaching and nurturing, and overcoming cultural dissimilarities. Offshore companies can be used to give investors preferential stock and create a dual share structure, which is the norm among western VC investments.

Source: The seven disciplines for venturing in China
Ajit Kambil, Victor Wei-teh Long and Clarence Kwan
MIT Sloan Management Review, winter 2006, Vol 47 No 2

Review by Steve Lodge