Tech innovation and venture investment with a Silicon Valley view of global trends
Saturday, January 23, 2010
Thursday, January 21, 2010
Keytone Ventures finalizes investment in China's Travelzen
Specialized travel sites in China have emerged as a hot sector for funding, the latest proof being a recent $15 million financing of travel search provider Qunar.com in Shanghai as well as a just finalized Series A investment by Keytone Ventures for Travelzen.com, an innovative travel site that offers bookings for Greater China and payment in multiple currencies.
Qunar’s third-round financing was led by GGV Capital, with participation from prior investors GSR Ventures and Mayfield Fund, which provided the series A funding in summer 2006, as well as Tenaya Capital (then Lehman Brothers Venture Partners), which was involved in a November 2007, Series B round. With the new financing at Qunar, GGV managing partner Jixun Foo joins Tenaya managing director Ben Boyer and GSR managing director Richard Lim on the Chinese startup’s board of directors.
The travel market has attracted considerable startup action and venture financings and early positions have been taken, most notably by NASDAQ-listed Ctrip.com, which, according to Analysys International, commanded a 52 percent market share as of the second quarter of 2009. Business for such sites has continued to boom as the increased standard of living among Chinese consumers sees growing demand for leisure travel. The online travel booking market in China expanded by 13 percent in the second quarter of 2009 compared with the same period last year, Analysys International figures show.
Qunar differentiates its business model from rivals by focusing on online vertical search for hotels, flights and travel packages, explained CEO and co-founder Fritz Demopoulos. It also differs from competitors by selling advertising on the site, but not handling the travel transactions or bookings, he added. Moreover, unlike Ctrip, the market leader in the travel space with both online and offline bookings, Qunar is purely online.
Qunar’s CEO said ample opportunity exists for expansion of travel sites in China, despite a proliferation of contenders. He pointed out that the online component of travel bookings and services is still only about 10 percent of the market versus about 60 percent in North America and Europe. “In a sense, we have only started this race and it is going to be a long one,” said Demopoulos, who brings 10 years China Internet experience to the job, having most recently served as senior vice president of corporate development for gaming company Netease.com. He pointed out that in the U.S., Expedia was a “late starter but eventually rose to prominence.”
Other specialized sites vying for room in the travel sector are Tuniu.com, a reseller of package tours, which was funded by Gobi Partners in April 2009, and HUBS, an online hotel booking wholesaler that picked up backing in November 2008 from GGV and Matrix Partners.
Qunar’s third-round financing was led by GGV Capital, with participation from prior investors GSR Ventures and Mayfield Fund, which provided the series A funding in summer 2006, as well as Tenaya Capital (then Lehman Brothers Venture Partners), which was involved in a November 2007, Series B round. With the new financing at Qunar, GGV managing partner Jixun Foo joins Tenaya managing director Ben Boyer and GSR managing director Richard Lim on the Chinese startup’s board of directors.
The travel market has attracted considerable startup action and venture financings and early positions have been taken, most notably by NASDAQ-listed Ctrip.com, which, according to Analysys International, commanded a 52 percent market share as of the second quarter of 2009. Business for such sites has continued to boom as the increased standard of living among Chinese consumers sees growing demand for leisure travel. The online travel booking market in China expanded by 13 percent in the second quarter of 2009 compared with the same period last year, Analysys International figures show.
Qunar differentiates its business model from rivals by focusing on online vertical search for hotels, flights and travel packages, explained CEO and co-founder Fritz Demopoulos. It also differs from competitors by selling advertising on the site, but not handling the travel transactions or bookings, he added. Moreover, unlike Ctrip, the market leader in the travel space with both online and offline bookings, Qunar is purely online.
Qunar’s CEO said ample opportunity exists for expansion of travel sites in China, despite a proliferation of contenders. He pointed out that the online component of travel bookings and services is still only about 10 percent of the market versus about 60 percent in North America and Europe. “In a sense, we have only started this race and it is going to be a long one,” said Demopoulos, who brings 10 years China Internet experience to the job, having most recently served as senior vice president of corporate development for gaming company Netease.com. He pointed out that in the U.S., Expedia was a “late starter but eventually rose to prominence.”
Other specialized sites vying for room in the travel sector are Tuniu.com, a reseller of package tours, which was funded by Gobi Partners in April 2009, and HUBS, an online hotel booking wholesaler that picked up backing in November 2008 from GGV and Matrix Partners.
Monday, January 18, 2010
VCs weigh in on Google quitting China
My column at Forbes about the real reasons why Google is quitting China has generated a strong response. Check out the comments if you don't believe me.
http://www.forbes.com/2010/01/15/baidu-china-search-intelligent-technology-google.html
I asked a number of leading venture capitalists in China and Silicon Valley if they agreed with my premise: that it was primarily a business decision--not censorship--that is leading Google to quit China.
Here's what they had to say:
"You hit the nail on the head. Nice ink."
"Yes, I agree. This was purely a business decision. It is what is called a 'Hail Mary' in football."
"Interesting . . "
"Interesting perspective."
"One thing is real: arrogance is like the hare losing the race to the turtle. It's true that expats can't play local."
"Many people are happy that Google is taking this decision. We will see how this plays out. . . I think Google is on the right side of the discussion."
"Is it 100 percent business decision, probably not. But if they had been #1 in the market, would they say they were pulling out? Unlikely. So it definitely factors in that they are not winning and have a lot of bodies there."
http://www.forbes.com/2010/01/15/baidu-china-search-intelligent-technology-google.html
I asked a number of leading venture capitalists in China and Silicon Valley if they agreed with my premise: that it was primarily a business decision--not censorship--that is leading Google to quit China.
Here's what they had to say:
"You hit the nail on the head. Nice ink."
"Yes, I agree. This was purely a business decision. It is what is called a 'Hail Mary' in football."
"Interesting . . "
"Interesting perspective."
"One thing is real: arrogance is like the hare losing the race to the turtle. It's true that expats can't play local."
"Many people are happy that Google is taking this decision. We will see how this plays out. . . I think Google is on the right side of the discussion."
"Is it 100 percent business decision, probably not. But if they had been #1 in the market, would they say they were pulling out? Unlikely. So it definitely factors in that they are not winning and have a lot of bodies there."
Friday, January 15, 2010
Forbes: Why Google is Quitting China
Why Google Is Quitting China
by Rebecca Fannin
It's not censorship. The search giant just couldn't compete with Baidu.
It's easy to give up if you've already lost the battle. And Google is doing just that in China. Eric Schmidt's move to quit offering a censored Google.cn search engine to the Chinese market has been read by idealists as the right thing to do. But it is first a business decision.
Even though Google's market share climbed from 15% in mid-2006 to 31% today, the company had hoped for a bigger share by now. Kai-Fu Lee, Google China's former president, told me in 2006 that Google not only wanted to have a competitive product to Baidu's, the local search leader, but a superior product. This didn't happen: Baidu has only increased its market share, going from 47% in mid-2006 to 64% today. That's a big lead.
Baidu, started by China-born entrepreneur Robin Li in late 1999 just as Larry Page and Sergey Brin were cranking up Google in Silicon Valley, understands the local Chinese market better than Google's Mountain View team.
Google fumbled with an initially inferior Chinese search engine launched in 2000, while Baidu grabbed the lead in China--and kept it--with several innovative search features customized for local tastes. Baidu introduced community-oriented services that appealed to Chinese Internet users, including bulletin boards where leads on information could be exchanged--a service that Google China's former president Kai-Fu Lee dismissed as having nothing to do with search. Baidu also offered instant messaging, a hit with China's Netizens.
Plus, Baidu was first to the market with mobile search and information offered up in multimedia, including video clips. Baidu also set up a national network of advertising resellers in 200 Chinese cities to educate businesses about the power of online advertising--a step that Google did not take.
Baidu's search feature for music also proved highly popular. Google, realizing the potentially illegal nature of the free music downloads, opted to provide links to music stores instead. Baidu later began collaborating with music labels on authorized downloads.
One other key factor put Baidu in the lead: Its search technology was considered superior to Google's in the Mandarin language. Scrambling to catch up, in 2005 Google hired the experienced Lee as its president from Microsoft. Then in 2006 Google launched its first Chinese-language search engine run from China, Google.cn. With Lee at the helm, Google recruited dozens of top engineers and linguists to its Beijing headquarters to perfect search results on Google.cn. Working at the towering headquarters of Google China at Zhongguancun Software Park in northeastern Beijing, some 100 engineers wrote codes to deal with inputting Pinyin or Roman letters to signify Mandarin sounds and such intricate tasks as delineating words in Chinese characteristics that don't clearly define white spaces.
The efforts paid off with speedier and more precise search results as well as more reliable service. But no matter the global brand name, the maximized effort and the financial resources, Google's Chinese search engine couldn't trump Baidu.
Perhaps Google should have turned over its business to local rival Baidu and let Baidu run with it. There is a precedent. Back in 2005 Jerry Yang turned over the management reins for Yahoo! in China to Jack Ma, the charismatic leader of China's e-commerce powerhouse Alibaba. Yang knew that Ma, thinking local, acting local, would have a better shot at getting the right formula for China.
Granted this is still a work in progress as Yahoo! refines its features for the Chinese market. But as Zeng Ming, former president of Yahoo! China, told me, "The net is about culture. You can't have expats running it."
Indeed, why give up now--unless you realize there's no way you're ever going to win the race. After all, Page and Brin had already crossed the line back in 2006 by agreeing to have their new Google.cn, run from China, subject to censorship. They didn't have much choice. All companies doing business in China follow the same Chinese government rules. Yes, Baidu's search results are also censored.
It wasn't all that long ago--2004--that it looked like Google might use Baidu as its entry route. Google invested $5 million in Baidu for a 2.6% stake but shifted strategy in mid-2006 by selling those shares for more than $60 million and rolling out Google.cn the same year. In hindsight, and given its bumpy history in China and this latest jockeying with the Chinese government, maybe Google should have pursued the go-with-Baidu strategy.
If Google exits the $300 million Chinese search market now, it's giving Baidu runway to be a monopoly. And if that happens, Baidu has a shot at becoming the world's dominant search company (it's already entered Japan) by sheer arithmetic alone.
By serving China's nearly 300 million Internet users and 670 million mobile phone users--both the world's largest markets--Baidu may someday be bigger than Google globally, something Robin Li once told me he has no doubts will happen.
Rebecca A. Fannin is an internationally recognized author and journalist who has been writing about entrepreneurship and innovation for nearly 20 years. Her book, Silicon Dragon, was published by McGraw-Hill in 2008 and translated into several languages. During the height of the dot-com boom from 1999-2001, she was international news editor at Red Herring, later joining the Asian Venture Capital Journal as international editor and writing for several leading business publications, including Inc., The Deal, Worth, CEO and Fast Company. She also authored "A New Dawn" for KPMG in 2009. Fannin has lectured at several universities in Asia and the U.S., and has made numerous public speaking appearances worldwide.
See Also:
Google's China Blues
Google Takes on China
Baidu Rises on Google News
Wednesday, January 13, 2010
Supersize status for VC funds
Super-size is the trend among venture capital shops that can still raise funds in the current depressed economy. That's how I'm reading such recent developments as NEA's newly raised $2.5 billion fund plus a $1.2 billion fund for Norwest Venture Partners and $1.1 billion for Khosla Partners. More power to them! Many firms along Sand Hill Road keep trying and trying to close new funds and capitalize on the ripe opportunity to invest. These giant funds currently in the market doing deals will have the advantage as the venture world shrinks with winners separated from the losers. Valuations to get into entrepreneurial deals are lower, quality teams are easier to assemble and even the IPO exit route shows signs of getting more traveled in 2010. Sure, venture returns are depressed and fund raising is not much fun, hitting a five-year low in the U.S. with a 68 percent drop to $95.8 billion in 2009. But don't count venture out. It's a highly cyclical business, as I know all too well having endured the dotcom ups and downs when I was doing international editing for Red Herring. And, when venture is less crowded, that's when the investment returns are best.
Another interesting thing these funds have in common--besides size--is an outlook on India and China. NEA now has teams in both India and China, and Norwest has staffed up an Indian office and may open in China, Promod Haque told Silicon Dragon. He pointed out that India has strengths in software development and outsourcing of business processes, while China kicks in with hardware as well as semiconductor production and logistics. Over the past year, Norwest has funded three companies in India: the National Stock Exchange of India, mobile value-added service OnMobile and Shriram City Union Finance Limited. Norwest also inked a deal in China: mobile software startup Borqs Inc.
Spotted at the recent holiday party Norwest had in the Valley, Vinod Khosla also indicated that he's got at least one cleantech deal in India. I bet there will be more soon.
Not to be outdone, NEA's Dick Kramlich has spearheaded his firm's outreach in both India and China-and even moved to Shanghai for a few stints to show NEA's commitment to the region. He has two public listings of Chinese semiconductor companies to show for it too, plus more in the works. Next to make the move to China may be Scott Sandell, at least from what he recently told Silicon Dragon. Stay tuned.
Meanwhile, some well-known firms that have scurried to raise new funds and are still on the fund-raising trail have downsized their ambitious targets. Draper Fisher Jurvetson is one. While the firm now has two RMB funds, Tim Draper told me, the much-heralded shop has dropped its fund-raising goal to $400 million from $600 million.
Look for other funds to follow that lead as the big get bigger and suck up the also constricted limited partner dollars for lesser groups.
History shows just how cyclical the business is. When I was working at Red Herring during the dotcom bubble, super-size venture capital funds were the trend then too. Then came the meltdown and suddenly the 'in' thing to do was to downsize. Walden International was one of the pioneering leaders who took down the size of its fund, in this case from $1 billion-plus to a more right-sized fund of $600 million with its latest fund at $380 million.
Walden went on to score successive hits, and the industry too shored up for several more years until this latest meltdown in late 2008. Again, let's not count venture out just because of the poor returns of 2009. It's a new year, and a new beginning for those who tough it out.
Monday, January 4, 2010
Tudou, Youku going IPO in 3 years
Video sharing sites worldwide have struggled to get the right money-making model and competition has been heated, but two Chinese video sharing sites–Tudou and Youku–are both expected to reach profitability and go public within three years. Tudou.com founder and CEO Gary Wang (see photo) recently told Silicon Dragon News, “If we do go IPO, NASDAQ is a natural choice and it should happen within three years.”
Likewise, Youku CEO Victor Koo said in an interview with Silicon Dragon News that his video sharing site will reach profitability within three years and will then file for an IPO in Hong Kong of New York.
Predictions are that the field will narrow from four players to one or two standalone survivors in the highly competitive sector.
The positive outlook by Youku and Tudou comes as the online video ad market gained considerable momentum from the fourth quarter of 2008, with strong sales growth into 2009, noted one venture source in China. An IPO within three years is possible, he added.
China’s Youku, though getting a slightly later start in the market than Tudou, has gained the lead. It ranks eight in page views next to 12th for Tudou, according to recent CR-Nielsen rankings for page views.
Youku raised $40 million in mid-2008 from Sutter Hill Ventures, Chengwei Ventures, Farallon Capital and Brookside Capital, a fund affiliated with Bain Capital. Most were repeat investors from Youku’s prior round of financing at $25 million.
Tudou is backed by China’s IDG Technology Venture Investment Fund, which was a seed investor in late 2005, as well as GGV Capital. A second round of $8.5 million in 2006 was joined by IDG and JAFCO. A third round of $18 million was completed by Capital Today, General Catalyst Partners and KTB Network in July 2007.
Rival KU6 Holding Limited, which was funded by Draper Fisher Jurvetson, DT Capital Partners, UMC Capital and SBI Broadband Fund, was recently sold to Hurray! Holding Co., Ltd. for $37 million in what a Silicon Dragon venture source said was a distress sale since KU6.com was out of cash.
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