You Have Gotta Be Here!

Tuesday, April 24, 2007 2:12
Comments Off on You Have Gotta Be Here!

A year back, while showing around a couple analysts from a hedge fund, we ran into a group of established China based VC/ Hedge Funders playing pool. Of course, over their 3 month existence they had worked out the lay of the land and were now screaming about how the group I was showing around HAD TO BE HERE.

That only by being here could you understand the opportunities, that there were deals everywhere, that they had ACCESS to the DECISION MAKERS…

All in all, it was pretty funny, but the fact remains that they were right… you have to be here.

Last week while reading through my WSJ articles, I came across an article entitled Investors open offices or enlist local allies to raise presence in the country written by Brian Gormley, and I had to once again laugh.

There have been books written, speeches given, and website devoted to the fact that YOU HAVE TO BE HERE, and about the perils of not being here.

In the recent few months, there have been a number of announcements from KKR, Kleiner Perkeins and others that their shops are open (or will be opened), but the it is fascinating a that many firms are partnering up with other firms to get here…

Waltham, Mass.-based Kodiak Venture Partners, for example, co-invested last year with Shanghai’s Dragonvest Partners in a first round of financing for Wireless China, a Beijing provider of text-messaging infrastructure services. That allowed Kodiak to tap Dragonvest’s local networks and market intelligence informally, a spokeswoman said.

Essentially, VCs are now using other local firms as what can only be financial trading companies that source and manage the deals for them rather than bring on their own staff or open their offices.

I would be really interested to learn more about why this is the case. There are so many talented people in Shanghai already that have VC/ PE backgrounds, have been in country for the last 3-5 years, and are putting together their own deals already. Yet, these same people are often overlooked for expatriates who have been successful in their home countries but know little or nothing about China and end up spending a year in China following the path of least resistance
Instead, by outsourcing the value add portions of identifying, sourcing, and executing the deals these firms are creating a system whereby they will always be reliant upon others to close deals…. and as these firms take the more of the pot, further busy the pipeline, and build their own teams, the terms of the deals will soon become more than their partners are willing to take on… yet those partners will have little choice as the OUTSOURCED the value add.

So, if you are going to “be here”. Be HERE. spend the money to open an office, staff up, and bring in external consultant to help understand the market and executed on the deal. . Get out of the primary cities to source deals that are not pumped, and make the commitment. There are plenty of deals, but YOU GOTTA BE HERE to find them..

following the path of least resistance and partnering up was ok 10 years ago, but now with so many groups in town who are already fully capable, a firm needs to put in the investment up front to ensure the long term integrity of operations.

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