Learn mandarin - From start-ups to giants

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From start-ups to giants
(China Daily)
Updated: 2007-09-24 07:17

Finding one's perfect match is no easy task. Ditto for companies.

But putting compatible companies together could be a gold mine,
especially for matchmakers in China's sizzling venture capital arena.

Bao Fan, founder and chief executive of China Renaissance, has helped
about 20 start-ups raise more than $5 billion from venture investors in
the past two years. That's big money, but Bao says the figure may rise to
$10 billion by the end of the year, as China's aspiring but
often-inexperienced entrepreneurs have found a new ally for bargaining
with venture investors.

Like his start-up clients, Bao has bigger plan than just matchmaking. The
former Credit Suisse investment banker is now building his own investment
bank focusing on the needs of Chinese private companies. By helping his
still fledgling clients grow into giants in a decade or so, Bao also
expects to turn his now 40-person shop into something big.

In his office in the bustling CBD in Beijing's Chaoyang District, Bao
talks with China Business Weekly reporter Wang Xu about China
Renaissance's strategy and his opinions on China's venture capital market.

Q: What's the positioning of China Renaissance?

A: We identify ourselves as an investment bank for homegrown private
entrepreneurs. We focus on the financial consulting business and try to
provide entrepreneurs a total solution that covers their demands at a
company's different growth stages.

Q: What do you mean by 'total solution'?

A: When a company wants to tap the capital market, it has to deal with a
number of institutions and make an array of choices. For example, a
company first needs to get, in some cases, the support of venture capital
firms. Then it will choose investment banks or securities companies for
an initial public offering. During the process, law firms, and accounting
firms are also needed.

Once it has some extra money, it may want to buy asset management
products from investment banks such Goldman Sachs or UBS. There are tons
of choices to make and most Chinese entrepreneurs are not familiar with
such things. As we have strong background as investment bankers and
entrepreneurs, we could help design a package of choices that suit the
needs of a company. Our core competency is the ability to integrate all
the products offered by banks, securities firms and law firms and so on.
Meanwhile, since we only help select rather than offer a product in the
package, we are more objective in the process.

Q: You have some competitors now. What are the differences between China
Renaissance and your competitors?

A: I spend little time studying what others are doing. We want to become
an investment bank for Chinese entrepreneurs and then focus on the needs
of the best of them. So we have very clear positioning. Meanwhile, we
have very strong execution capability, largely due to our previous
experience.

As for the competitors, some of them seem to have vague positioning.
Sometimes, they work for entrepreneurs and sometimes for investors. Once
in a while, they may help conduct overseas acquisitions. And some even
manage venture capital funds directly.

Actually, we are all also start-up companies and faces similar problems
as our clients. A common pitfall for start-ups is trying to do too many
things at the very beginning and thus risking spreading out limited
resources.

Q: What's the typical procedure when you help a client acquire financing
from venture capital firms?

A: It starts with a careful study of a client's needs. Although a company
usually comes to us to acquire venture investment, it may not their best
option. After figuring out its needs, we will help map out a development
strategy for the upcoming two to three years. If venture investment is
truly needed, we then design a plan for that investment, ranging from
preparing business plan to setting up meeting with investors.

We try to establish a long-term relationship with clients and immediate
return is not the most important thing. The key is helping my clients
grow into giants in 10 to 20 years. If we maintain good relationship with
them and grow with them during the process, once they grow into giants,
so do we.

Q: Venture investors say they also help companies in terms of strategy
and daily operation. So is your two-year development plan necessary at
all?

A: It's quite necessary. Actually, a large proportion of our clients
already have investors on board before coming to us. Partly, it is
because we are more objective and common interest with entrepreneurs. On
the other hand, few venture capitalists in China bring more help than
mere money, despite all the talks. I believe it's no more than 20
percent. For example, we have tried to find a CFO and legal consultants
for our clients, which already have venture investors. If they really
helped, why come to us?

Q: You must have talked to quite a number of venture capitalists, who are
the best?

A: It's still too early to tell. The development of the venture capital
sector is still at the early stages in China and most investors' have
very little experience. It takes several decades for venture firms in the
US to build their capability and reputation. Making a couple of good
deals is nothing to brag about, you need to constantly prove your ability
in doing that. Or, it is just luck.

Q: What is hot for investors these days?

A: Everything is hot. In the past year, a major change in China's venture
investment area is that investment scope has been greatly broadened. It
used to be just telecom, media and high tech. But now people are betting
more on traditional industries. It's difficult to say whether that's
right.

Presently, Chinese companies are hot at home as well as overseas stock
markets. But investment into companies in traditional industries could be
risky. Some of them are successful now largely due to the overall boom of
the economy. Their entrepreneurs may never seriously consider business
model, future development strategy and so on.

There is an end to every boom. When it comes, whether entrepreneurs can
find a new area for growth is still a question.

Q: So you are conservative about investment into traditional industries?

A: It's definitely worthwhile to invest in companies in traditional
areas. It's just things are too hot. The price and equity ratio are often
more than 100 times these days even for companies in traditional
industries. That means they need to maintain an annual growth of more
than 100 percent. That's quite a task.

(China Daily 09/24/2007 page4)

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