KP attracts cream of crop for China effort

While its peers streamed into China over the past couple of years, Kleiner Perkins Caufield & Byers refused to make the leap until it was certain that it had a group of VCs worthy of the KP brand name.

All told, KP Partners Ellen Pao and Ted Schlein spent about two years assembling the team and putting together the deal that resulted in KPCB China. Pao personally traveled to China 11 times during that time. “We really wanted to find the right team and we were willing to wait for the right folks to work with,” she told VCJ.

The $360 million fund, which was announced in late April, is a partnership between KP and several accomplished Chinese investors. KPCB China absorbed Shanghai-based TDF Capital and its partners, Tina Ju, David Su and Forrest Zhong, as well as TDF Principal Ian Goh. It then added Joe Zhou, formerly of the Softbank Asia Infrastructure Fund, and Ying Lee, who had joined KP’s U.S. partnership in January 2006 after serving as deputy GM of UTStarcom’s IPTV business unit based in Hangzhou, China.

We have been able to find a team that has on-the-ground success. They can hit the ground running. The chemistry here is pretty hardened and it matches ours.”

Ellen Pao, Partner, Kleiner Perkins Caufield & Byers

“We have been able to find a team that has on-the-ground success,” Pao notes. “They can hit the ground running. The chemistry here is pretty hardened and it matches ours.”

It would be difficult to overstate the quality of the investors KPCB China has been able to attract:

  • Managing Partner Ju has had a string of monster hits, including Alibaba, which was sold to Yahoo in a deal valued at $4 billion, Baidu (Nasdaq: BIDU), which went public in 2005 and saw its share price rise more than 350% in its first day of trading, and Focus Media (Nasdaq: FMCN), which has seen its value increase more than 330% since its 2005 IPO.
  • Managing Partner Su was also an investor in Baidu, as well as P-Cube, which was bought by Cisco Systems in 2004 for $200 million.
  • Partner Zhou notched a solid exit with casual gaming company Shanda Interactive Entertainment (Nasdaq: SNDA), which launched a $152 million IPO in 2004.
  • And Partner Zhong recorded exits with such companies as China GrenTech Corp. (Nasdaq: GRRF), which went public in March 2006, and Fiberxon Inc., which this year signed a deal to be acquired by MRV Communications for $131 million, a healthy return for venture investors who had put $30 million into Fiberxon.

Pao is quick to point out that the new partners will be equals to the rest of the firm, although she would not discuss details of compensation or benefits that might accrue to the U.S. partners for launching the new fund. “We’re not just franchising the brand,” she says.

They’ve been able to get the pick of the litter.”

Scott Bonham, Managing Partner, Granite Global Ventures

Kleiner Perkins is not the first VC firm to dedicate a new fund to investing in China, or to open an office there with the help of Chinese investors. Sequoia Capital did the same thing in 2005 when it absorbed Beijing-based Westbridge Capital Partners.

Still, other VCs seem almost envious of Kleiner Perkins’ ability to attract talent. “They’ve been able to get the pick of the litter,” says Scott Bonham, founder and managing partner of Granite Global Ventures.

Granite invests about half of its fund in Chinese companies and has been working in China since 2000, when it briefly shared offices with the investors of TDF. “When we started this in 2000 there were no teams there,” Bonham says. “We did a lot of deals together [with TDF] and grew up together in China.”

Although KPCB China is new, Pao notes that Kleiner Perkins has been investing in China for years. It has three Chinese portfolio companies, including a stealth company, shirt maker YES PPG, and digital mapping company AutoNavi, which raised $30 million in a Series A in September 2006, according to Thomson Financial (publisher of VCJ).

KPCB China

LOCATIONS: Shanghai and Beijing

FUND: $360 million

TEAM: Managing Partners Tina Ju and Joe Zhou; Partners David Su and Forrest Zhong; “Senior Team” members Ian Goh and Ying Lee.

LPs: Institutional and individual investors from Kleiner Perkins and TDF Capital, which was absorbed in the formation of the new fund.

FOCUS: Chinese Internet, alternative energy, media and wireless startups.

INVESTMENTS: KP has previously invested in three Chinese companies: a stealth company, shirt maker YES PPG, and digital mapping company AutoNavi.

Source: VCJ reporting