Miserable yet magical VC investment in Hard Technology?

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I could have enjoyed beautiful California sun and comfortable life in Silicon Valley, but I determined to return to China for more exciting opportunities… the most severe smog here does not terrify me a bit…” said by a very confident female VC who co-founded her boutique investment firm in Shanghai.

She was a native Chinese, and later on earned her PhD in science in US, accumulated profound experiences in California, then worked for Silicon Valley Bank Capital. But she ended up with VC adventure in her mother land.

Strong-willed, well-calculated and fully-convinced , she knew the business model of VC market here cannot be more different than the one in Silicon Valley. Because China startups are often aiming for:

  • mass, mass, and incredible mass market
  • survival in the bloody red ocean because rivals might increase everywhere everyday
  • tolerate long period of thin profits
  • Superman style of entrepreneurship

Though China might be anything Silicon Valley is not, she detects there is one common feature between the two markets: that is both tend to invest less in hard technology; in particular at this stage the proportion of such investment in China is still not exceeding 15%. Thus she fully dives into it and puts her focus on:

  • Clean tech
  • B2B oriented IOT (interne of things)
  • Semiconductor
  • Pharmaceutical and Health

Yet investing in hard technology is darn hard. In China these sectors often face below challenges:

  • Require very heavy investment beforehand
  • Lack of collaborative scientists
  • Distribution channels can be opaque: i.e. for drug product, how are you going to talk through these pharmacy and hospital, taking into account all these complicated regulations and bureaucracy?
  • Marketing costs for sales would be costly, a barrier to stop you reaching the mass consumers
  • Imperfect supply and value chain: i.e. B2B oriented prototyping is almost non-existent
  • Shortage of talent for building startup team: in China many would aspire to be their own boss, however not that many would be willing to work for a startup as employee

This list probably goes on and on…

As miserable as the situation might look, she is savvy enough to grab her own niche. Thanks to her well-connected network, including government level personnel, and above all her capability of blending the mentality of east and west, she proclaims she now holds a database of 2,000 startups. What is more, her investment approach is targeted at entrepreneur with a profile of either expatriate or Chinese returnee, who presumably would learn and acquire the leading technology in the top university from overseas, with their startup size usually estimated around RMB 300 million.

Few typical examples from her portfolio are:

  • A Beijing based startup specialized in rock analysis to trace oil, and the founder is a native Chinese, graduated from Cambridge University; albeit without any prior working experience, his technology research is claimed to be at the leading frontier
  • IOT based technology startup to serve Steel company for tracking gas
  • a fabless IC company, in developing disruptive technologies to address: home networking, IP Camera Connectivity and IOT
  • A connected health device to monitor kidney disease (Shanghai Municipal Government already offered the endorsement by purchasing 5,000 devices from the company; additionally it is discussion with Shanghai Pharma regarding partnership)
  • A French background startup in smart energy solution and management which evaluates markets like China and Taiwan hold the company’s thriving future

So when China media has been hyped with ongoing and aggressive corporate venture from China BATs, or staggering amount of M&A deals flowing around, the thrill is actually stirred by the fast but rather bubbly growth of internet fervor, the so called “soft technology” or “online user experience oriented innovation”. In the less flamboyant arena of “hard technology”, although not a less tough business, the woman VC from a tiny firm is quietly tasting her magical moment of lucrative exploration.

Cecilia Wu

A witty, nutty and frosty writer who hopes to jot down moments of inspiration from her daily life

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