VCJ: Is venture tourism wrecking China’s venture market?
Chao: When Israel was hot, there was a lot of venture tourism going on in Israel. I think there’s going to be an element of that in China, as well. Even Japan went through a period where a bunch of VCs went in and then they all pulled out eventually. We will inevitably go through that stage in China.
Unfortunately, because of venture tourism, right now there’s a mid to late stage bubble going on because of all the U.S. VCs that are coming to China. They’re not comfortable with super early stage, so they end up investing in more comfortable mid to late stage deals. They’re jacking up the price. And local VCs are pissed. Many don’t like U.S. VCs anymore because of what they’ve done to the price of deals.
Kau: I was talking earlier with Steve Toronto about a deal that some other firm is doing, and they’ve hired the wrong law firm. It’s indicative of an outlook that says, I can do deals in China the same way I can do deals in the U.S. And so I’m going to take my U.S. model, I’m going to take my U.S. law firm, I’m going to take my way I’ve been doing business for 20 years and I’m going to fly over there and do a deal.’
But the pace at which people are flying in and writing big checks is scary. There are a lot of deals done at very high valuations that we won’t touch.
David Katsujin Chao
Co-Founder and Managing General Partner
DCM-Doll Capital Management
Offices: Menlo Park, Calif.,
Funds: $1B under management.
Focus: IT, hardware, software, Internet and semiconductors. Active in China since the mid-1990s. Allied with Legend Capital throughout China.
Notable Deals: 51job, SMIC, WorkSoft, Yilong and Apexone.