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G-Startup Stage Panel: Venture Capital Comes with Drawbacks

China’s venture capital environment is unlike any in the world, according to a panel of five senior Venture Capital Executives and Angel investors speaking about the dynamics of VC at the G-Startup Stage on Thursday morning.

The panel: Cyril Ebersweiler of  Chinaccelerator, Yen-Lu Chow of Whole Tree Ventures, William Bao Bin, of Singtel Innov8, Hiro Mashita of Hikari Tsushin and Li Feng of IDG engaged in a round-table Q&A moderated by Volker Heistermann, the cofounder of Yushan investments.

The internet market in China, according to the panelists, is the most competitive in the world. Great ideas, they said, are the currency of entrepreneurs, but more often than not, having a great idea is not enough. They need seed funding to get their company off the ground, and then further VC to ensure its growth and success.

In China’s booming internet and mobile industries, “It’s almost a case of too much money in the marketplace,” Chow said, adding that an entrepreneur must make himself stand apart by showing investors that he or she has a viable business plan and the persistence to carry it through.

Despite the explosion of VC funding in China’s marketplace, accepting VC is a decision that shouldn’t be taken lightly, the panel agreed. It’s a partnership akin to marriage, William Bao Bin said, adding that VC firms often demand quick growth – between 400 to 600 percent a year – and if not, they can shove the business aside.

“It’s grow or die,” Bao Bin said, adding that an entrepreneur who hopes to retain total control over his or her company shouldn’t accept venture capital, which best suits firms that hope to grow big and need strategic help as well as financing.

While the panel rattled a list of VC benefits that included acquiring funds necessary for growth and utilizing the VC investor’s brand and business know-how, they also voiced several cons that any entrepreneur should heed and consider.

William Bao Bin said that angel investors in particular can harm entrepreneurs because they give a little bit of money and take a huge amount of the company. When its time for an IPO, he said, often the entrepreneurs retain only 10 percent of the company.  Angels invest in many companies, with no team, so they might have stakes in 50 companies, with very little time to help iron out wrinkles in business plans, or to help solve problems. For the entrepreneur, the day-to-day strategy is left to himself.

Nick Compton

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