Xie Zhonggao, head of the Beijing office for AsiaVest Partners, had lived
in the United States for 16 years before settling down in Beijing in 2004.
Xie had felt like “going home.” In the U.S. he was “amazed by the wide
open market for Chinese consumer concepts,” and sensing an opportunity, he returned to China to invest in manufacturing and consumer product enterprises. Here he talks with Chinese Venture: about AsiaVest’s business focus and vision as well as about the venture capital market in China as a whole.
Chinese Venture: There are many success stories in Internet investment. Why is AsiaVest so cautious about Internet enterprises?
Xie Zhonggao: It’s not that AsiaVest hasn’t seen the potential in Internet enterprises. We once have invested in an Internet enterprise in Taiwan in the past-Taiwan’s Kimo website, which was later acquired by Yahoo and became Yahoo Taiwan in 1998.We also invested in a couple of other websites in 2000, but the results were not promising.
We are not confined to any particular industry. We are cautious about Internet projects because we have not found an enterprise with a mature business model and a sustainable profitability model. We don’t want to join in the fantasy about any old Internet concept. We want to be pragmatic and to increase our average yield.
AsiaVest is mainly involved in the chip, semiconductor and manufacturing industries. How do you assess the future of an enterprise when it is still in the technologically maturing stage? What is the normal payback period for these projects? Are there any safeguards if you choose to exit the projects?
AsiaVest is a typical “growth capital” firm. That is, it favors enterprises in the growing stages. Under normal conditions, enterprises have to have a track record to show for their technology, customers and market models so that we can assess their developmental prospects and control the risks of our investment.
In addition to the team, and the frequently mentioned marketing and business models, we also consider other factors. For example, we evaluate if the company can survive setbacks in any of its business components, or if there are enough upstream suppliers. Unlimited upside potential is no doubt desirable, but we have to consider the odds as well. That is, if the business becomes unable to continue, how much would we lose? All of these are important factors for consideration.
The payback period for chip enterprises is two years at least, and four years at most. The chip industry advances quickly. If there are no good benefits in a few years, chances are there won’t be any. Therefore, the payback period for this industry cannot be five years-waiting for five years is like crafting a piece of art that takes forever to do.
The probability of exit from chip projects is quite high. Because of the high technological entry threshold, a company’s team, equipment and technologies can be easily sold even if the company is doing poorly.