Securing Venture Capital from China

(page 2 of 2)

Also, "even in a horrific world economy, China's economy is still targeting significant growth levels while the rest of the world has seen economic growth disappear completely. In effect, Chinese venture capital firms have significant advantages when competing for Chinese deals. These advantages dwindle or even disappear when the firms are forced to compete for overseas opportunities," he says.

Other Options for Chinese Venture Capital

This does not mean there are no opportunities to obtain Chinese venture capital, however. A significant number of venture capital firms are located in Hong Kong, a jurisdiction that offers much more convenient foreign exchange regulations, Haneberg notes. Some of them may have U.S. offices as well, though you should recognize that venture capital firms in general are more reluctant in today's economy when traditional exit strategies such as M&A transactions and IPOs are dwindling.

The current world economy has similarly impacted China's venture capital community, Haneberg says, noting that the research arm of the Zero2IPO Group in Beijing reported 20 new domestic and foreign VC funds raised $492.1 million in the third quarter of 2008, a far cry from the $3.02 billion raised by 40 new funds in the second quarter of 2008.

You might also explore strategic partnership investments (BusinessWeek.com, 7/2/08) with Chinese businesses, many of which have assets located in Hong Kong to ease foreign exchange transactions and have displayed a willingness to invest capital in U.S. companies in similar business lines. "Consider whether these strategic investments, which may have more long-term impact on the day-to-day operations of a U.S. company, make business sense," says Haneberg.

Carmosky raises another possibility for you: Qualifying for the EB-5 Investor Visa Program, in which international investors gain the option for a family green card based on investing $500,000 in certain enterprises certified by the U.S. government as creating a set number of jobs. "The qualification involves an audit, paperwork, and time—how much paperwork and time depends on what state you're in," Carmosky says. "Some states have been very proactive in building EB-5 investor visa programs; others are not even out of the blocks."

Money for the program does not come from venture capital firms but from qualified individual investors. "There is no shortage of qualified investors in China and high demand for green card-related investment opportunities," she says.

Karen E. Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.