China Money Podcast – Audio Episodes

In this episode of China Money Podcast, guest David Pierce, CEO of Squadron Capital, a Fund of Funds manager with over $1 billion-under-management, talks about China's private equity industry in a slowing economy, lessons he learned from investments that have gone wrong, and why his firm doesn't want to become a QFLP (Qualified Foreign Limited Partner) yet. Listen to the full interview in the audio podcast, watch the shortened video version or read an excerpt. INTERVIEW EXCERPTS: Q: First give us a brief intro of Squadron Capital? A: We are a boutique fund of funds manager, focused on private equity funds principally in the Asia Pacific region. We also have a separate account program that includes the private equity portfolio of our sponsor, The Research Investment Group, which is the family investment office of Mr. Robert Miller, a co-founder of the Duty Free Shoppers. Q: What sets you apart from other Fund of Funds in the region? A: I think it's mostly our longevity in the market. My own experience of investing in private equity in Asia goes back to 1995. Most of the FoFs here, frankly, have arrived in the last few years. So we have a history with GPs (General Managers) in the region, so they are not fearful that we are carpetbaggers who are coming in for a bull market moment. So we are in for the long haul. Q: You have been in the industry for a long time, so where do you think the PE industry in China is right now, and where is it headed, particularly considering the slowing economy? A: Right now, there are a lot of uncertainties in the world, with China's economy slowing and troubles in Europe and the U.S. All these make investors and companies more cautious. China's private equity industry has also gone from the go-go period into a period of more reflection. Right now, people are thinking to themselves: Let's think about (our strategies) more carefully. Let's focus on how to create value for the long-term. Q: Give us some examples when you backed a private equity firm, but the result didn't turn out as expected. And, what lessons did you learn from them? A: Some of our investments have been disappointing in their ability to pursue the strategy they set out to pursue. It might not have anything to do with their own fault, but because of causes outside of their control. For example, one of our fund managers had one of their senior members tragically killed in an accident. One of the things that we learned is that these are relatively small operations. A fund generally relies on three or four people to make the fund successful. When you choose to invest in a smaller fund, the key people are very important. We have also been disappointed by the willingness of some members of the key team to stick it through. Again, it's a judgment we make. We've learned a lot about what motivates people. We are careful with our due diligence process to make sure the alignment of interests are there. We also focus on the chemistry of the team. In one case, two key people of the fund had personality clashes and became irreconcilable over time. In the end, one person left the fund. We as investors were anxious about their ability to succeed with a diminished team. So one thing I advise people when looking at smaller private equity funds is to try to deeply understand the team, the dynamics between the team members and the alignment of interests among the team members. A lot of the funds are quite new, so there isn't a rich history or track record to rely on. David Pierce is CEO of Squadron Capital, a fund of funds manager focused on the Asia Pacific region with over $1 billion under management. Previously, David was a partner at an international law firm in Shanghai and a managing director of a China-focused private equity firm. Pierce has rich experience in Asia, having first moved to the region in 1982, and has been based at various times in Beijing, Hong Kong, Shanghai, Singapore, Taipei and Tokyo.

http://www.chinamoneypodcast.com In this episode of China Money Podcast, guest Fritz Demopoulos, founder of Queen's Road Capital, shares his thoughts on China's Internet sector and entrepreneurship. As founder of two successful Chinese Internet companies, Shawei.com and Qunar.com, Demopoulos is now hoping to capture the next big opportunity in China's Internet evolution by deploying his own capital. Listen to the full interview in the audio podcast, watch the shortened video version or read an excerpt. Q: Last time when we talked, it was five years ago during the early days of your last start-up Qunar.com. This time around, you just founded Queen's Road Capital. What's your strategy and targeted industry? A: It's my personal investment vehicle that I use to invest in early stage companies. I try to focus on media and Internet companies, including consumer Internet, consumer facing models, and e-commerce related companies that are creating market places, that are thinking about how to deliver advertising better and more targeted (products and services) to consumers, as well as mobile consumer opportunities. Q: Any examples of companies that you have invested in? A: I'm an investor in a company called Wodache, a ride-share company. Everyone knows in the major cities of China, there are lots of traffic and it's very difficult to get a taxi. This company helps consumers to share cars through a mobile platform. It provides very strong functional value, so I'm very excited about it. Q: For those areas that you mentioned previously as places you look at intensely for investments, what specific elements do you try to find in a start-up that can lead to success? A: At least for me, the last thing I want to do is be where everyone else is. I always wanted to be the first within a category. You can't underestimate the value and advantage that a first-mover has. The team and concept is just a little bit down the learning curve than everyone else. Secondly, the team has to be completely focused on what they do. We need to see that the management teams and founders have skin in the game. Have they invested their own money? Have they given up other opportunities? Have they convinced their families and friends to invest? Thirdly, it's important that the founding teams understand their limitations. If they understand what they do well and what you are not good at, then they can simply hire the missing pieces. In terms of technology, clearly we live in a mobile world. Very rapidly, we are seeing the rise of mobile commerce, e-commerce, real transactions happening online, not just an order entry but proper payment processing all the way up to fulfillment. It is all about being able to present great product information to consumers in innovative ways that meets their specific needs. That entire chain is undergoing a significant revolution, especially with mobile and social media elements. Our Guest Today: Fritz Demopoulos is founder of Queen's Road Capital. He previously co-founded Chinese sports portal Shawei.com, and sold the company to Tom.com for $20 million in 2000. Then he founded Qunar.com, a travel search engine portal backed by venture capital firms including Mayfield, Tenaya, GSR and Granite Global. Qunar sold an estimated 60% stake to Baidu for $306 million in July 2011.

In this episode of China Money Podcast, founder of Qiming Venture Partners, Gary Rieschel, shares his thoughts on the Chinese economy, the technological evolutions of the Chinese Internet sector and why he is confident that Qiming will be well within the top quartile performers among China's venture capital firms, if he is not being too conservative. Founded in 2006, Qiming Venture is one of the most successful venture capital firms in China, having invested in and successfully listed companies including Jiayuan, ChinaCache and Touchmedia. Qiming recently closed its second RMB fund, raising RMB700 million in merely four months. Gary Rieschel talked to China Money Podcast in Shanghai. Listen to the full-interview in the audio podcast, watch the shortened video version, or read a transcript summary. INTERVIEW EXCERPT: Q: Let's start with the macro economy. It looks certain that the Chinese economy will grow at the slowest pace in more than ten years. How has your businesses been impacted? A: The Chinese economy this year will grow slower than in the past, but I don't think that's a great surprise. I think it's a natural evolution as China starts to go to (an economic model) more of a consumption driven, more higher valued-added products in the economy. There is some hesitancy by foreign investors, so you have seen a slight drop in foreign direct investment this year. But I think this is all relatively healthy as China starts to go through a transition. I think what's happening in our business is that you have to be more selective. You are not going to be bailed out of your mistakes by the fact that the market is growing very quickly. In the past for Qiming, we've made approximately 70 investments during the last six and half years. We had less than 10% of the companies fail, which is extraordinarily low for the kind of investing that we do compared to what would have been in the U.S. or other markets. So as our (venture capital) market matures, we expect more failures among early stage companies. In the U.S., somewhere from a third or half of the start-ups fail, but we have been nowhere close to that. This means we have to pick better CEOs, look for more complete management teams, and have a better idea of how technology will evolve. So for example, in healthcare and clean tech, we align ourselves more with government policy initiatives, such as the twelfth five-year plan as the leadership decides how they want the sector to develop. Gary Rieschel is founder of Qiming Venture Partners, a $1 billion-under-management venture capital firm started in 2006. Previously, Rieschel was the founder or lead investor in SOFTBANK Venture Capital, Mobius Venture Capital, SAIF Partners (China) and Ignition Partners. Earlier in his career, Rieschel held senior executive positions in Cisco Systems, Sequent Computer Systems and Intel.

In today's China Money Podcast, our host Nina Xiang reviews the most important investment news of the week. http:///www.ChinaMoneyPodcast.com - Goldman Sachs/Gaohua cuts their growth forecast for China's economy to 7.6% from a previous 7.9% this year. It also cuts forecast for 2013 down to 8% from 8.5% previously. It cites a number of reasons for this cut: modest policy easing, upcoming leadership transition; weaker external demand and structural challenges. Other investment banks, including UBS, Barclay's and Chinese banks, have similarly cut China's growth this year by half a percentage point to around 7.5% from a previous level of around 8%. - One major cause for this downgrade is that the Chinese government hasn't stimulated the economy as aggressively as people were projecting. During the past couple of months, banks have been predicting multiple cuts of Chinese banks' reserve ratios and interest rates. But the last time China's central bank lowered reserve ratio was in May, and it has only lowered rates twice this year so far. Of course, it can still happen during the next few months, but any policy stimulus won't be reflected in the economy right way. In addition, a weak US economy and the debt crisis in Europe have hit China's export industry quite hard. A survey by Reuters shows that August export growth might be as low as 3 percent year on year. If true, that would be the weakest August since 2009 during the depth of the global financial crisis. - Inflation data released yesterday also shows that consumer prices are picking up again, with CPI up 2% year-on-year. Inflation pressure is likely to keep elevated during the rest of the year, making China Central Bank more cautious about any monetary loosening. - 2012 might be the year of paradigm change for China. Last time China's economy grew around the level of 7.5% was 13 years ago in 1999 and 1998 during the Asian financial crisis, when economy grew 7.6 and 7.8% respectively. Many agree that this time around, the slowdown is caused more by internal and structural challenges than external shocks. An investment-fueled growth model might be nearing an end.

http://www.ChinaMoneyPodcast.com Like our Facebook Page and follow us on Twitter @chinamoneypod In this episode of China Money Podcast, co-founding partner of Baird Capital Partners Asia, Huaming Gu, talks about his fund's fund raising during the depth of the financial crisis, and how his firm works with small and medium enterprises in China to clean up corporate governance and establish financial discipline, while hoping to achieve nice returns. Listen to the full-interview in the audio podcast, watch the shortened video version, or read a transcript summary. Q: First, give us a brief introduction of Baird Capital Partners Asia and your strategy? A: We are a China-centric growth equity fund that is dedicated to the small end of mid-market. We invest in three sectors: health care, manufacturing and business services, where we have deep knowledge globally. We look at companies with EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) north of $2 million. We take significant minority stakes and work with the company to improve the business. Our current fund has $75 million under management in China. Globally, we have $2.4 billion under management and have invested in over 250 companies. Q: China's private equity industry faces many challenges right now. Many fund managers say that right now is the time for private equity firms to add value. What have you done to deepen your own niche and create value? A: For us, it's actually a good thing. We never bank on IPOs as our primary exit route. We are more toward building a business for M&A exit. We are very operational intensive. We tend to look for companies that we can help them to make them better. We are investing more into operating expertise to our portfolios, an essential part of our strategy. For example, we add an in-house financial director to a portfolio company and try to put in place financial discipline at the company. Q: What kind of specific financial discipline do you try to instill in the company? A: The companies we invest in are smaller companies, which are probably run by an entrepreneur. Often times, they don't have a good financial controller. They probably will have bookkeeper or a cashier. We go in there to help them to first keep the records straight. We also install the discipline of expenditure, making capital investments and collecting money. Some industries in China are known for longer receivables. We help companies to manage cash flows to support their continued growth. Our Guest Today: Huaming Gu is co-founding partner of Baird Capital Partners Asia, a private equity fund focused on China's small and medium enterprises in the healthcare, manufacturing and business services sectors. Previously, Mr. Gu was at EQT Partners Asia, a China-focused buyout fund. Before that, Huaming was the general manager of China sales and marketing at General Electric Advanced Materials Automotive in Shanghai and Emerson Electric.

http://www.chinamoneypodcast.com Like our Facebook page and follow us now on Twitter @chinamoneypod. In this episode of China Money Podcast, guest Bob Partridge, managing partner of transaction advisory services at Ernest & Young, explains why it is a good time for overseas institutional investors to invest in China's private equity right now, and what is in store for the industry next year. Listen to the full-interview in the audio podcast, watch the shortened video version, or read a transcript summary. Q: China's private equity industry is in a challenging position right now with a large capital overhang and difficult exit channels. Some are calling for an industry consolidation. What's your view? A: There are a lot of concerns going on in the public markets right now, and that's driving activities on both sides of the deal picture. On exits, there are certainly lower opportunities for private equity to exit. But on investing side, it creates better valuation opportunities. As a result, we are seeing a mixture of expected lower valuations, and the old problem that we always have in this market, that sellers always want to hold out as long as they can before they recognize changes in valuations. But overall, deal volume and fundraising are up, so it's not a bad time to invest in PE in China. Q: How has fundraising and deal volume been? A: In the first quarter, we had a good quarter. The second quarter, fundraising came down on concerns of what RMB funds really mean for the industry. In fact, last year, all the funds raised are unrealistic. The most recent quarter, deal volumes are up 9%. Because we see things before they become public, I can say deal pipelines are very strong. We predict that the third quarter will be up slightly because of the summer months. The fourth quarter, deal volume will continue to go up. Overall, total dollars deal volume will be up in 2012 year-on-year. Q: The somewhat strange phenomenon in the Chinese markets now is that valuations in the public markets are lower than private markets. What does that mean for investors? A: There is lots of insanity out here. It's easy to zero in on some high valuation deals. But a lot of things here aren't as transparent as New York or London. Entrepreneurs expect high valuations, when they hear a public deal getting done at 20-times multiple, for example, they think their company should be worth at least 21 times. So you have mixtures of exaggerated reporting and embellishment of what the real valuations are. But in general, we are seeing valuations are coming down on a historical perspective. Q: Exiting has been the most challenging part for private equity this year. Will M&A and secondaries really emerge as viable alternatives? A: If you look at seasoned international private equity investors, they all position their companies for a variety of exits. That's happening now in greater China. Private equity investors are not desperate to sell unless their fund life requires them to do so, which is not really the majority of the funds. Private equity here are buttoning down and trying to create value at their portfolio companies. They are looking at next year (for exits). So for the time being, they are thinking what can we do to close out 2012 as strongly as possible, clean up corporate governance, expand channels and improve profitability. Of course, that's also positioning the company for trade sales. Secondaries are developing. Clearly, it will increase this year and next year. Some of the secondaries that were done are long-time held investments where the GPs really have to close down and return to LPs. Q: There are lots of uncertainties now in China's macroeconomic outlook, and companies are more prudent on M&A. Will we really see more M&A deal? A: M&A will probably be soft compared to last year, as companies are staying more prudent. Next year, with Europe's situations improving, the U.S. elections over,

In this episode of China Money Podcast, Goodman Group's Hong Kong-based managing director, Philip Pearce, discusses opportunities in China's logistics property market, and why his firm is expanding investments in China ten-fold in the next five years. Listen to the full interview in the audio podcast, watch the shortened video version or read an excerpt. Philip Pearce is a managing director at the Goodman Group, a Sydney-headquartered logistics property developer and manager with $2.5 billion under management in Asia. Based in Hong Kong, Pearce is responsible for Goodman Group's investments in Greater China. Before joining Goodman in 2002, Pearce was at Ascendas-MGM Funds Management and AMP Henderson Global Investors.

In this episode of China Money Podcast, Pantheon Venture's global head of investment, Chris Meads, talks about how private equity in China has to shift strategies to succeed in the future, and how his firm is looking to back more control-oriented funds. Listen to the full interview in the audio podcast, watch the shortened video version or read an excerpt. Our Guest Today: Chris Meads is the global head of investment at Pantheon Ventures, a global fund of funds investment firm with $25 billion under management worldwide and close to $3 billion dedicated to Asia. Previously, Meads was at HSBC Hong Kong, Brierley Investments and CS Frist Boston. He was also a former economist for the National Bank of New Zealand and the Reserve Bank of New Zealand.

Like our Facebook page and follow us now on Twitter @chinamoneypod. In this episode of China Money Podcast, guest Amir Gal-Or discusses investing in deals that transfer foreign technologies to China, partnering with local governments to run RMB funds and how to instill professional management to state-owned enterprises. Listen to the full interview in the audio podcast, watch the shortened video version or read an excerpt. Our Guest Today: Amir Gal-Or is the founder and managing partner of the Infinity Group, a China focused private equity firm with 2 billion RMB and over $700 million under management. Gal-Or is the chairman of 12 local Chinese companies, and has led three IPOs and 12 M&A deals, most of them in China. He holds an MBA degree from Tel Aviv University, and is a former pilot in the Israeli Air Force.

In this episode of China Money Podcast, guest Chris Brooke discusses whether China's property market recovery is real, and how can foreign investors make money in the crowded commercial real estate market in China. Listen to the full-interview in the audio podcast, watch the shortened video version or read an excerpt. Q: CBRE entered the Chinese market very early in 1988. Have you seen the commercial real estate part of the market as hot as it is now? A: As we stand here in the middle of 2012, the commercial sector has obviously grown considerably. In terms of investment volume, RMB88 billion of investment properties in the commercial property sector traded, compared to RMB84 billion in 2007. So it’s on a similar level to even the peak of the market. During the first half of this year, we’ve had RMB42 billion. We are expecting this year to turn out similar to 2007, even though it has been a bit subdued during the first half. Q: Since China loosened monetary policy, the overall property market looks to be recovering, is it? Or is this just a temporary blip on the way down? A: Well, you got to distinguish the residential or commercial part of the market. In residential, sentiment has definitely improved with sales and transactions recovered to some extent. I think the government will still remain a restrictive policy around anything that will result in more speculation and a rebound in prices. So residential prices will stay stable at least until the end of this year. Obviously, the leadership transition next year means policy uncertainties, so it’s difficult to see beyond that. On the commercial side, we still see rents increasing in major cities like Beijing. We are also seeing tenant demand moving to the western regions, like Chengdu, Chongqing and Wuhan. Q: Where do you see the biggest risks right now in China’s property sector? There have been lots of commercial building, and there is concern that they might not attract enough people to keep them afloat? A: I think that’s a genuine risk, particular in secondary cities or provincial capital cities. There is definitely a mismatch between the timing of supply and demand. A lot of cities are developing new CBD (Central Business District) areas and new commercial districts, and a lot of that supply are coming on simultaneously. Another broader risk relates to what happens globally. If demand continues to be impacted by uncertainties in the U.S. and Europe, it would mean some organizations might delay decisions on expansions, which will clearly impact the demand of office space. Q: From foreign investors’ perspective, where do you see they could most likely succeed? A: It’s clear that the time when foreign investors can come and buy assets at relatively low price, reposition them and resale them for capital gains – those days are over. Investors need to think about either coming in and pay true market value for high quality assets, or they have to develop their own projects. If you look at strategies employed by some Singaporean funds, such as CapitaLand and Mapletree Investments, they are clearly coming in and buying land for future hold of their fund. Flexibility is what investors need to get into their plan going forward.

Like our Facebook page and follow us now on Twitter @chinamoneypod In this episode of China Money Podcast, guest Peter Fuhrman discusses why RMB funds will likely have a monopoly over the best investment opportunities in China, and why USD funds can n...

In this episode of China Money Podcast, guest Monte Brem, CEO of private equity firm StepStone Group, shares his firm's investments in China and how offshore investors can protect themselves when investing with local Chinese managers. Q: You have been relocated to China for more than two years, and StepStone’s office in Beijing opened about two years ago. How have your businesses in China grown during this time? A: We’ve increased the amount of capital we invest into China by a huge amount. We used to invest around $25 to $30 million into Chinese managers and deals. Now we are investing around $300 to $500 million a year. So on the investment side, there has been huge growth. Q: So where do you see attractive opportunities right now? A: Almost all the money we invest into China is somehow connected to the consumer market. (Because) a lot of markets like mining and resources are very difficult. Most of them are not accessible to foreign investors anyway. The consumer markets tend to be more open and less politically oriented. We’ve invested in a firm called QiMing Venture Partners, which is a private equity firm that does both consumer and health care investments. The other one is CDH (insert name) that has a focus on consumers. We’ve also done some nontraditional investments as well, such as Citi Capital, which does SOE (State-Owned-Enterprise) buyouts. Q: What kind of return are you targeting? A: Most investments are targeting return of 30 percent IRR as China is such a growth oriented market. Globally, the target is in the range of 20 percent on a growth basis. Q: Do you mostly invest in overseas funds or Chinese locally run USD funds? A: As a firm, we tend to favor local managers, particularly in China, so those managers with local approach and have a local team. When we invest in local managers, one of the challenges we face is that we can’t invest in RMB funds because we are not a local Chinese entity. So today we are investing in offshore USD funds of Chinese managers. Most of these managers manage both a USD fund and a RMB fund. Q: There may be potential conflict of interests when a manager invests both a USD and a RMB fund. What’s your observation on how managers handle this? A: Overall, it has been a major headache. It’s one of the things that makes the Chinese market more complicated and less appealing. But those managers who are committed to their offshore businesses have gotten very good in balancing the conflicts and put together structures that protect the offshore investors. I think the most important thing is that you have to find the managers who really value the offshore part of their strategy. That’s the main protection you have as many managers understand that foreign capital tends to be more institutional and long-term.

In this episode of China Money Podcast, guest Howard Marks reveals his thoughts on China’s economy and its investing environment. He also gives a surprisingly frank evaluation of Oaktree Capital Management’s performance in China. Listen to the full-interview in the audio podcast, watch the shortened video version or read an excerpt. Q: You’ve just completed a trip in China, and Oaktree has had an office in Beijing since 2007. How would you rate China’s investment environment? A: I have a lot of respect for China’s long-run economic outlook. But this is a period when (China’s economy) is slowing. There are some questions about how it will land – whether it’s hard or soft – of course you know I don't claim to know the answers. Also, China’s customers – the U.S. and Europe – have been growing very slowly themselves. So that will have a retardant effect on China’s economy as well. The combination of the two suggests that China is in for a slow period. On the other hand, valuations in China have corrected quite a bit from two or three years ago when everybody assumed China’s outlook was flawless for eternity. Prices have come down considerably both relative to valuations in other countries and in absolute terms. That’s very healthy for the investment outlook. Q: What unique challenges do you face investing in China? A: A controlled economy probably has the ability to do better in the short term. In the long run, there is not much experience with that. Many (such experiments) in the past haven’t lasted. Of course, China is making a compromise between a controlled economy and a less controlled one. The world has yet to see how it is to do business in China dealing with issues such as property rights: whether foreign private investors can do well as owner of businesses. It’s important that people do not assume that business-as-usual in China is the same with business-as-usual elsewhere. So if you don’t know how property rights will be treated, then you should try to avoid situations that pivot on that issue. For example, in our distressed debt investing, we often invest in the debt of the companies that fail to pay for their debts because we have creditor rights that can give us access to the value of the company. We don’t know how creditor rights will be treated in China, so we probably won’t invest in (this method). Q: Is that why Oaktree’s operations in China has been in private equity? A: (Yes,) in private equity and slow going. We raised a fund a few years ago. We invested slowly. It’s not fully invested yet, and probably won’t get fully invested. It did not invest in distress-for-control or loan-to-own situations for the reasons we discussed. We will continue to move carefully. Q: So can we look at Oaktree’s presence in China as first, to be there, secondly to learn how to handle those challenges? A: We of course try to make money. But you are right, it’s important for Oaktree to plant its flag and learn the way. As we gain experience in China, hopefully, we will perfect our methods. One thing I want to stress is that we are not going to go in and assume that the methods we applied in U.S. and Europe will work there.

In this episode of China Money Podcast, our host Nina Xiang reviews the most important investment news of the week. Listen to the complete interview in the audio podcast, watch a shortened video version, or read an excerpt below. - China recently released its twelfth five-year plan for its water supply systems. The plan indicates that the water supply industry may go into its greatest boom in the next several years. - The plan calls for a total of 410 billion Yuan of investment into urban water supply systems by 2016. That is about $65 billion dollars. Around 130 billion Yuan will be used to upgrade water treatment technologies, and around 270 billion Yuan will be used to build new water factories and water pipes. - China is aiming to provide urban residents with water that largely qualifies the national standards by 2020. According to estimates by Chinese media, possibly around half of China’s water currently fail to match such standards. This means China's need for technological expertise is enormous. - The five-year plan’s more immediate objectives include managing pollutions at water sources, upgrading outdated water supply infrastructure and expanding water supply areas - China may launch new measures on the 15th anniversary of Hong Kong’s return to China on July 1. Potential policy initiatives might include allowing high net worth individuals in the mainland, meaning those with over one million Yuan, to invest in Hong Kong - Other initiatives include the launch of an ETF based on Hong Kong's stock market in the mainland; and conversely, an ETF based on the Chinese stock market in Hong Kong through the RMB QFII program. - Changes are also expected on how much individuals can exchange Hong Kong dollars to RMB. Currently, there is a 20,000 RMB daily conversion limit. It could be scraped to allow individuals to purchase unlimited RMB.

In this episode of China Money Podcast, guest Hellen Song shares her views on where great investment opportunities exist for venture capitalists in China, and what type of entrepreneurs are more likely to survive — and succeed — in the rough markets of China. Q: We are sitting in this beautiful Beijing courtyard hotel, which you have invested in. Tell us how did you find out about this opportunity? A: During Tsinghua University's hundredth anniversary, I (as an alumni) came to Beijing and found it’s hard to find a boutique hotel with an (old) Beijing flavor. I walked into this area and found this hotel, but it's under very poor management. Though they only charged 100RMB, the hotel was still empty. I stayed here for seven days. When I left, I asked the owner if I invest with him and get a good manager to run this hotel, would he work with me. That’s how we started. Q: I’m surprised to hear that you didn’t previously know the hotel owner. We all know how important Guanxi is in China? A: It depends on which industry. If it’s government dominated sectors, then Guanxi is of course very important. For us, we are looking for a person or a team to invest, it’s not really Guanxi that we are looking for. We are looking for a good CEO with good experience and good execution skills. Q: In terms of industry and strategy, where do you see attractive investment opportunities? A: My favorite investor is Peter Lynch. I admire his strategy, which is “follow the consumers' money.” So I focus on three sectors. One is children-related industries, because in China, it’s six people’s salaries (two parents plus four grandparents) raising one child. Also, this sector is not a mature market yet in China. Second, women dominate families’ cash flows in China. So I want to invest into the industries where women are spending money. Third, older population-related industries. In China, there are 115 million people who are over 60 years old. Therefore, bio, medical equipment and health care are all very attractive. Q: What kind of investment process do you go through from reading the initial business plan to making the final investment decision? A: We use six elements to screen through the business plans that we receive. First, understand what do they do; second, how is the market; third, why do THEY do it; fourth, their strategy to fight in the market; fifth, their financial planning. Where do they spend money to grow their market? Sixth, have they thought thoroughly how they exit the company? After a few months or a few years, where will they be? If they want to sell, who will they sell to? If they want to go through an IPO, what is the specific steps they will take to go through that process? If they answer all these six questions properly, then we will meet with the team to have further discussions. Hellen Song is the founder of Shanghai-based financial advisory and venture capital firm, La China Capital. Ms. Song was educated at Tsinghua University and INSEAD. She worked in both China and Silicon Valley, founding two start-up companies in the 1990s in China, before founding La China Capital in 2004.