Summary: 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.
