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Business> Finance
UPDATED: December 23, 2006 NO.51 DEC.21, 2006
The Anatomy of Angels
From their philanthropic Broadway roots to nanny qualities, angel investors are start-up guardians
By TARA TAO & ANITA ZUO
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The early stages

Angel investment in China has a long way to go before it reaches a large scale.

"Due to the shortage of angel investment, many venture capitalists are somehow acting as angel investors," Sun of Eplanet Ventures said. In the first half of 2006, VCs invested in 58 initial-stage enterprises, marking the first time that this number has surpassed that of expansion-stage enterprises.

"Angels" are now found throughout China, with some private meetings being held, taking the shape of small angel investor associations. For example, various meetings are held in Zhejiang aimed at accumulating capital through relatives and friends.

Chinalabs, founded in 1999 by Fang Xingdong, was an incubator of global Internet companies and startups. It acted as an angel investor for the Internet industry and has successfully nurtured a number of projects including the blog hosting site chinablog (http://www.chinablog.com). Lin Fuyuan, a venture capitalist and angel investor, successfully introduced the $30 million Acorn Campus incubator fund to China in collaboration with the Shanghai Government, making it the exclusive fund for Chinese entrepreneurs wishing to develop projects in China. In addition, some private angel associations, including the investment promotion bureau's "angel investors' club," are popping up throughout the country.

A shortage of regulations

Angel investing in China faces a shortage of rules and regulations due to its infancy. It is not uncommon to find companies using their angel invested funds to buy into the stock market, or for real estate purchases, instead of their intended purpose-the development of the company. In developed countries, there are strict legal procedures and operational regulations for both VCs and angel investors. How can Chinese angel investors avoid investment risks?

Ni of Zero2ipo Group believes that it is not necessary for angel investors to become involved in company management, but they should definitely keep in close contact with the entrepreneurs. "We attend board meetings where we help enterprises to create development strategies, discuss company budgets and seek partners. We meet with the entrepreneurs at least once a month."

Ni pointed out that the earlier the stage that the enterprise is in, the higher the risk. As an angel investor, Zero2ipo makes its own judgments and project selection based on due diligence.

"You can't avoid risk 100 percent of the time, so to help minimize the risk we extend our partnerships throughout the initial growth period of the enterprise, and help them with strategic decision-making along the way," Ni said. "Every company has its advantages, and through cooperation we can help to reduce their risks as well as ours."

In addition, angel investors should carefully examine business proposals in order to fully understand the specific profit model.

Zhang Xiangning, CEO of Tixa.com-an Internet information and advertising services provider-pointed out that currently, angel investors are facing an environment with no rules or regulations. "The current market might be rapidly expanding, but if we do not create regulations and establish sound systems in a timely manner, today's boom might turn into dispute-filled chaos in the future."

(Xinhua Finance)

DISCLAIMER: The information contained herein is based on sources we believe to be reliable, but is provided for informational purposes only, and no representation is made that it is accurate or complete. This briefing should not be construed as legal, tax, investment, financial or other advice, and is not a recommendation, offer or solicitation to buy or sell any securities whatsoever.

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