When McGovern started planning his first VC fund in China at the beginning of the 1990s, people in the same industry were sarcastic about his plan. To them, China had no conditions for VC and the country had no innovative spirit, enterprises were not vigorous and they were short of high-end talents. Furthermore, there were no channels at all for VCs to exit. McGovern, however, was brave enough to put forward his plans. According to him, his confidence was based, on one hand, on sufficient cash flow accumulated by the operations of his Group. And on the other hand, his confidence was based on his expectations on the bright future of the China market. “No other markets have more attractions, for China’s market has a population of 1 billion people,” he said, “I can feel that people have a thirst for entrepreneurship.”

As he rightly predicted in the 1950s that computers would bring about fundamental changes to the life of mankind, McGovern’s insight has been proved again. Today, China has become the most active area for the world VC business. The report made by Zero2ipo, a VC advisory institution, indicated that the VCs market in China had a total investment of US$1.7 billion in 2006, 51.5 percent higher than 2005. IDGVC founded, by McGovern himself, has become a leading company in the VC industry with its advantage of being the first to enter China. “We have VC funds in Boston, San Francisco, China, Vietnam and India, but in terms of return rate, our VC business in China is the best with an overall rate of return exceeding 40 percent,” McGovern said with satisfaction. Statistics from IDGVC have shown that up to December 31st, 2006, IDGVC had invested in over 200 companies in China with a total investment of US $400 million and had exited from 50 projects, of which 12 companies had been listed in NASDAQ, Hong Kong Stock Exchange and Shenzhen Stock Exchange. IDGVC’s operations and management have become a spotlight and a model for more and more international VCs that have just entered China.

Experiencing Hardships

Despite its advantageous position, IDGVC cannot forget the hardships and dilemmas experienced at the beginning of its operations in China. In 1993, PTV under IDG established Shanghai PTV, a joint venture with Shanghai Science and Technology Committee. This was IDG’s first VC fund in China with a total amount of US $20 million and the main investor -- IDG. Later, IDG set up similar companies with local science and technology committees in Guangzhou and Beijing. As early as 1980, IDG established China Computer World Publishing and Servicing Company, still the only foreign joint venture in the publishing industry in China, with Institute of Science and Technology Information Center under the Ministry of Information Industry. In the following years, the joint venture has published a series of influential journals and newspapers. The three joint ventures in the three cities were in a dilemma from the beginning of their founding, and some investments could not be returned as they had experienced difficulties in system and management. Furthermore, the market was not mature, relevant law and rules were not full-fledged and people were not experienced. “Our first project was a failure. We only paid attention to technology, but not the market. We lost all our investment,” said Hugo Shong, Executive Vice President of IDG, Founding Partner IDGVC. Shong, a legendary figure in VC industry in China, was very calm when he talked about the failures. He said “we have obtained valuable experiences from our failures.”

With the development of the business, PTV has also experienced more and more problems in the operation of joint ventures. In June 2000, IDGVC changed into a partnership and became an independent VC fund. McGovern explained: “Partnership can help funds operate in a more flexible way and mobilize the initiatives of the people.”

Cooperation

IDG’s principle of “thinking globally but acting locally” has a long history. As early as 1972, McGovern started publishing Computerworld in Japan. He firmly believed that the Japanese publication would not be a US Computerworld clone. In terms of IDGVC’s management, he always insists on the principle of “focusing on the major issues and giving a free hand to small ones and respecting the staff.” When a fund was founded at the beginning, he sent people to come to China to train the people here. After these people had obtained special qualifications, they would be empowered to be involved in the investment process. IDGVC can respond very quickly to the market changes. McGovern said, “The target of the VC business is the market. And the local people know the local market much better.”

At present, IDGVC has seven partners with various specialties and backgrounds. They are complementary making the management team stable. IDGVC holds meetings regularly and the partners would put their head together to solve major issues. This model can minimize mistakes in decision-making and avoid investment risks. Besides locating suitable targets for investments, another part of IDGVC’s core business is to provide value-added services and create more value for them with the Company’s advantages in technology, management, legal and governmental relations. The different knowledge and professional backgrounds of the partners have become very important. Many of IDGVC’s investments are accomplished together by different partners, including “jrj.com,” the web information provider which was listed in NASDAQ in October 2004.

Finding What Others Cannot

According to McGovern, at present IDGVC evaluates over 100 proposed projects each month. After strict appraisals, the Company picks one or two targets for investment. As for proposals, entrepreneurs can search IDGVC’s website to send emails. “Project managers will carefully read each proposal and make judgments as soon as possible,” said Hugo Shong.

IDGVC has its own standards. The most two important conditions include: First, the invested company must be equipped with a high-quality management team, being able to make fast responses to market changes. IDGVC believes that this is one of the key links to control investment risks. Second, the invested company must know the technology with a broad market prospect. And the technology must have the quality that is hard to be copied by others. A partner of IDGVC revealed that the reason that IDGVC had chosen Ctrip was because of the team of this website and its e-commerce mode being different from B2B, B2C and C2C. The strict evaluation standards have also helped IDGVC to target projects of great potentials such as Sohu, Baidu, JRJ, and Huicong International. IDGVC has also obtained good results from those projects.

IDGVC’s leading position in the VC industry in China depends on its forecasting ability on the market. With regard to the IDGVC’s team, its investment in Soufun is a case in point. In 1997, IDGVC invested about one million US dollars in Soufun and in 2003, when a world famous investment institution withdrew its investment at a low price, IDGVC increased its investment shares in Soufun. The original investment made by that well-known investor in Soufun amounted to US $5 million. In September 2006, Telstra, the largest Australian telecommunication company, one of the world top 500, acquired 51 percent of the equities from Soufun for nearly US $254 million. This big transaction made IDGVC one of the largest beneficiaries. IDGVC has obtained “a profit of more than 40 times” by transferring part of the Soufun equities, proving IDGVC’s insight and decisiveness.

After the web bubbles were evaporated, IDGVC laid more attentions to telecommunication and application based on the Internet and even found commercial opportunities in traditional industries. When HomeInn was listed in NASDAQ on October 26, 2006, IDGVC made another bumper harvest from its investment. People from other industries were very doubtful: When VC moved to traditional industries, would the concept of VC be changed totally? McGovern has his own views, “The first consideration in VC should be given to market demands. When technology cannot be combined effectively with the market, this type of technology should not be a target of VC.” He added, “Of course, traditional projects invested by VC should also have some innovative elements.”

Turing Competition into Cooperation

If IDGVC’s achievements today can be attributed to its entrance into the China market more than ten years ago, will the flush of competitors today end this legend? McGovern answers light-heartedly, “The coming of competitors does not make me uneasy, on the contrary, I welcome them. IDGVC is good at initial investments. Many of them are good at long-term investments for expansion. I hope to work together with them to help new companies in China grow and develop. Each party can benefit in its own way…”

Talking about his business in China, McGovern, who turns seventy this year, indicates that his business in China is the most important part of his entire business operations. Since his first visit in 1978, he has made 99 visits to this land, the most recent in February this year. He says that he loves the culture here and admires the changes made in the last three decades. He says he will keep on making investment in this land and maintain the frequency of his visits to China with four times a year.

We hope McGovern will continue with his China dream.