DEVELOPING CROSS BORDER VENTURE CAPITAL DEAL FLOW

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Building Opportunity

• Business Development and Marketing Steps to Build
  Cross Border Venture Capital Investment
  Opportunity
• Creating an Efficient Environment
• Marketing to the World
• Joining the Global Venture Capital Community

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Building Opportunity

• Obstacles Discussed at China Venture Capital
  Forum 2005 in Shenzen
• Include
• Taxation Policy
• Government Domination of Funding
• Legal Protection of Intellectual Property
• Exit Channels
• Corporate Information Transparency
• Legal Framework for Capital Structure

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Growth in Foreign Direct Investment in China

• 1985 thru 1995 -- Averaged 11.7 Billion
• 1998 Increased to 43.8 Billion
• 2002 Rose to 52.7 Billion 60 of Total FDI in
  Southern Asia
• 2004 Over 60 billion

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Venture Capitals Role in FDI

• Venture Capital has not yet contributed
  importantly to FDI
• Should Not be a Surprise
• Venture Capital is essentially local
• It is essentially risk averse
• It is early in Chinas new economy
• This will change

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China Has Taken Important Steps to Increase RD
FDI

• Encouraged foreign companies to build design and
  research facilities as well as manufacturing
  facilities
• Encouraged Chinese born scientists to come home
• Built modern science and technology parks

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Steps China Has Taken to Increase RD FDI
(continued)

• Invested Promoted Technical Education
• Established Institutes for Basic Research
• Physics
• Biotechnology
• Materials Sciences
• Information Technology
• NanoTech

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Steps China Has Taken to Stimulate Foreign
Venture Capital

• Built Domestic Venture Capital Firms
• Canton Venture Capital Corporation
• Zero2ipo
• New Margin Ventures
• Tsinghua Investment Management
• China Venture Capital Association
• - Building information services and network
• - 100 members more than half foreign
• 100 billion funds under management

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Nature of Venture Capital

• Venture Capital -- Local Business
• Why?
• Active Investors overseeing Company Management
• Specialized by Science Sector cluster around
• Universities
• Entrepreneurs
• Even Global VC Firms are merely an aggregation
  of many Local VC operations

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How to Get US VCs to Consider Investing in China

• Create an efficient work environment
• Increase information flow and marketing
• Become part of the world VC family

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Clusters

• A Cluster is
• A geographically proximate group of
  interconnected companies and associated
  institutions in a particular field, linked by
  customer, supplier, or other relationship
• Professor Michael Porter
• Harvard University

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Science Cluster

• Includes
• Corporations
• Universities
• Public Research Organizations
• Professional Services Firms (law, accounting,
  consulting)
• Capital Providers (VCs)
• Industry Associations

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Boston Life Science Cluster

• 58 Diagnostic Life Science Firms
• 19 Public Research Organizations
• 37 Venture Capital Firms
• All major accounting and law firms

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Why Clusters areImportant

• Formal and informal lines of communication
• RD Connectivity with Knowledgeable Capital
• Attract and Retain Human Capital

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Why Clusters are Important (continued)

• Stimulate commercialization because connectivity
  between RD, corporations and capital is
  continuous
• Effective Commercialization creates Economic
  Impact of RD

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CaliforniaLife Science Clusters

• 3 Major Clusters
• 19 U.S. Life Scientists in California
• 17 U.S. Life Science PhDs in California
• 21 U.S. Life Science Patents (1990-1999)
• 13 of all U.S.University RD Dollars
• 49 of all Life Science Investments made by VCs
  from California

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Cluster Requirements

• Infrastructure -- Both Physical Information
• Anchor Corporations
• Education Infrastructure (scientific and
  entrepreneurial talent)
• University Research Centers
• Coordination of efforts within the Region
• Promoting the benefits of commercialization

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Entrepreneurial Talent

• Problem globally is not science
• Problem globally is not even scientists
• Problem globally is entrepreneurial talent
• There are not enough good entrepreneurs and the
  good ones are not always where you want them

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Entrepreneurial Talent

• Universities are developing entrepreneurial
  degree giving programs
• Universities are running contests
• Corporations are encouraging risk taking
• Rewarding risk taking even when it increases
  losses

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• Creating Science Clusters and Building
  Entrepreneurial Talent Are the Most Important
  Steps That Can be Taken to Encourage
  International Venture Capital Investment

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Guangzhou Venture Capital Marketing Center

• Information Includes
• Top Investors
• Top Foreign Investors
• Deal Descriptions
• Sciences Seeking Entrepreneurs
• Sciences Seeking Capital

• Information Delivered by
• Web-Sites
• Newsletters
• Books
• Email Tools
• Offshore Conferences
• Capital Missions to Guangzhou

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U.S. Venture Capital Fund

• Establish Guangzhou Venture Capital Fund for
  Investment in U.S.
• Best to partner with U.S. VC
• Put offices in key U.S. cities or clusters
• Become local
• Seek to invest in U.S. deals lead investor and
  syndicates
• Build up relationships with VCs

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SUMMARY

• As Corporations move RD to China
• As Universities produce 1st Class Scientists
• As China Creates Innovative Products
• As China becomes Major Market for Innovation
• As China develops Clusters
• As China Promotes Workforce and Capabilities

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