Dixon Doll Keynote Slides
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Transcript of Dixon Doll Keynote Slides
Dixon DollCSPA Conference
September 24, 2005
Confidential & Proprietary
AgendaAgenda
Brief introduction to DCM Perspectives on Investing in China Areas of Opportunity China strategies for non-Chinese tech companies
2Confidential & Proprietary
Confidential & Proprietary
AgendaAgenda
Brief introduction to DCM Perspectives on Investing in China Areas of Opportunity China strategies for non-Chinese tech companies
3Confidential & Proprietary
Confidential & Proprietary
DCM – Doll Capital Management OverviewDCM – Doll Capital Management Overview
Leading Sand Hill Road venture capital firm, investing both domestically, internationally
Over $1B asset under management: we mainly focus on early stage but also selectively invest in pre-IPO late stage companies
Communications, software, semiconductor, digital media, and security investments
Noteworthy portfolio successes in U.S. and Asia
4Confidential & Proprietary
Confidential & Proprietary
DCM Partners Track RecordDCM Partners Track Record
Bridge Communications Inc.
Confidential & Proprietary5
US
China Japan
Confidential & Proprietary
DCM Strategic FocusDCM Strategic Focus
6
Pac-AsiaCommunications
Confidential & Proprietary
AgendaAgenda
Brief introduction to DCM Perspectives on Investing in China Areas of Opportunity China strategies for non-Chinese tech companies
7Confidential & Proprietary
Confidential & Proprietary
DCM’s China ThesisDCM’s China Thesis
Unencumbered by legacy technology investments, greenfield opportunities will make China’s technology infrastructure take a different evolutionary path than that of the West / Japan.
Deployments of early adopter, cutting edge technology happening on a massive scale currently in China:• 2.5G / 3G• Packet based network• SMS/MMS/IVR
There are many sectors that the government has not focused on in the WTO deregulation process and is staying away from• Usually higher technical complexity or niche• Government is balanced in its policies by need to keep FDI flowing
There are working financial structures and ample success stories for VC backed companies, though on a relative scale, legal/financial infrastructure is still weaker than in developed countries
Conditions are ripe for VC investing – massive structural dislocations, large markets, early adopting markets, reasonable competitive landscapes and working entry/exit structures
– MAN
– Wireless local loop
– VOIP
8
Confidential & Proprietary
DCM China StrategyDCM China Strategy
Invest in resources to facilitate portfolio companies’ participation in China markets
Proactively encourage Chinese development units for portfolio companies
Establish presence through partnerships with major Chinese IT, communications firms
Invest selectively in top companies where we can add value
9
Confidential & Proprietary
China Venture Capital Investments Increasing StronglyChina Venture Capital Investments Increasing Strongly
Source: Zero2ipo-China Venture Capital Annual Report 2004
$518
$1,269
$418
$992
(US
$ M
illi
on
)
10
$402
Confidential & Proprietary
So Why Are We Investing in China? China Rising…So Why Are We Investing in China? China Rising…
Bill
ions
(E
xce
pt
for
Gra
ds
in
Th
ou
san
ds)
Teleco
m E
xpor
ts
Electronic Exports
Computer Exports
Engineering
Graduates
Germany$15.4
Germany$15.4
China$36.4
Rep.of Korea
$15.8
Rep.of Korea
$15.8
UnitedKingdom
$17.4
UnitedKingdom
$17.4
USA$21.6USA$21.6
Top 5 exporters of telecom Equipment (in billions), 2002
US59,536
US59,536
China219,563
Russia*82,409
Russia*82,409
Japan104,478Japan
104,478
EuropeanUnion
179,929
EuropeanUnion
179,929
Top 5 sources of engineering grads, 2001
US$2.5US$2.5
China$8.8
Rep.of Korea
$2.6
Rep.of Korea
$2.6
Germany$5.6
Germany$5.6
Italy$5.9Italy$5.9
Top 5 exporters of electronics(in billions), 2002
Ireland$4.6
Ireland$4.6
China$3.8
US$2.4US$2.4
Mexico$2.4
Mexico$2.4
Malaysia$2.7
Malaysia$2.7
Top 5 exporters of assembledcomputers (in billions), 2002
148,844
160,435175,439 181,890 195,354 212,905 219,563
252,024
Sources: Wired Magazine; China Statistical Yearbook (1997, 1999, 2001, and 2003 editions); National Science Foundation; United Nations Statistics Division*Data from 1999. Note: China’s engineering numbers exclude Hong Kong graduates. 11
Confidential & Proprietary
…And Will Likely Leapfrog U.S. and E.U.…And Will Likely Leapfrog U.S. and E.U.
Focus
Voice
WAP
SMS
Conferencing
ContentDistribution
Collaboration
A/VStreaming
MMS
MobileBanking
MobileCommerce Location
SmartApplications
Mar
gin
Communication Content Application
LowMargin
MediumMargin
HighMargin
Source: IDC 2003.
Attractive demographics
Cost of access devices a key determinant
Rapid adoption driven by “killer” applications (e.g. interactive games, online gambling)
e.g. Rapid Migration to Broadband Mobile
12
Confidential & Proprietary
9 of Top 25 Global Websites are Chinese9 of Top 25 Global Websites are Chinese
Rank
naver.comMyspace.comGoogle JapanGoogle UKN.TopAllyes.comAOL AnywhereBBC Onlinedaum.netTom.comCNNTaobac.com
Site Name
141516171819202122232425
Alexa – Global Web Site Traffic Rankings
KoreaUSAJapanUKKoreaChinaUSAUKKoreaChinaUSChina
CountryRank
Yahoo!MSNGoogleYahoo!JapanBaidu.comSinaPassport.neteBay163.comSohuqq.comAmazon.com3721 (Yahoo!)
Site Name
123456789
10111213
USAUSAUSAJapanChinaChinaUSAUSAChinaChinaChinaUSAChina
Country
Source: www.alexa.com, 5/31/05. Note that Alexa’s traffic rankings are based on usage patterns of opt-in users of Alexa’s downloadable toolbar.
13
Confidential & Proprietary
Zero2ipo-China’s Ranking of Top 10 Venture Capital Firms in 2004Zero2ipo-China’s Ranking of Top 10 Venture Capital Firms in 2004
Rank Firm
1 SoftBank Asia Infrastructured Fund
2 IDG Technology Venture Investment
3 Doll Capital Management
4 CDH Investments
5 NewMargin Ventures
6 The Carlyle Group Asia
7 Warburg Pincus Asia LLC
8 Legend Capital Ltd.
9 Acer Technology Ventures Asia Pacific Ltd.
10 Shangdong High Technology Investment Co. Ltd.
Source: Zero2ipo-China Venture Capital Annual Report 2004
14
Confidential & Proprietary
DCM Investment in ChinaDCM Investment in China
15
( )埃派克森微电子(上海)有限公司
Confidential & Proprietary
Forging An Exclusive Partnership With A Leading Local FirmForging An Exclusive Partnership With A Leading Local Firm
Formed an exclusive partnership with Legend Capital in 2003
We cross source deals and share due diligence Legend Capital’s extended reach through Lenovo
and Digital China proved significant value-add Coinvested in 3 deals, China and US Success in our partnership comes from mutual
trust, respect, constant communications and working together on deals
16
Confidential & Proprietary
DCM’s China ResultsDCM’s China Results
Perceived as the leading Silicon Valley VC in China China a strong contributor to DCM’s returns We won multiple awards and industry recognition
• The most Influential International VC of the Year in China • Top ten ranking of VC firms in China• David named one of 2004’s top VCs by Zero-to-IPO (a venturesource-like company in China)
China leadership boosting our domestic franchise and attracting US entrepreneurs Strong international portfolio synergy
17
Confidential & Proprietary
Silicon Valley VC Concerns Over Investing in China, Emerging MarketsSilicon Valley VC Concerns Over Investing in China, Emerging Markets
Critical shortages of experienced managementTechnology uniqueness & defensibilityLegal protectability of intellectual propertyVenture friendly legal system, regulatory infrastructureUnnecessary company formation complexityCorporate governance, compliance, transparencyInadequate international stock exchanges, listing requirements,
currency constraints (exit constraints)Political, country riskShareholder rights issues (e.g. CNC)Ever changing, conflicting government mandates and their impact on
startups
18
Confidential & Proprietary
AgendaAgenda
Brief introduction to DCM Perspectives on Investing in China Areas of Opportunity China strategies for non-Chinese tech companies
19Confidential & Proprietary
Confidential & Proprietary
Selected Opportunity AreasSelected Opportunity Areas
Voip services, infrastructureWLan systems – all typesBroadband wireless services (WiMax, Clearwire)Triple play infrastructure, IPTVSoftware-as-a-service business modelsOpen source softwareInnovative security, authorization, access solutions
Infrastructure uniting mobiles, portals
20
Confidential & Proprietary
Selected Opportunity Areas Cont. Selected Opportunity Areas Cont.
Innovative last mile solutionsVideo, rich media mobile appsPower saving chips, LED’sEthernet transport servicesVideo compression chipsMobile games, servicesSpecialized portals, MVNO’sAlternative energy sources
21
Confidential & Proprietary
AgendaAgenda
Brief introduction to DCM Perspectives on Investing in China Areas of Opportunity China strategies for non-Chinese tech companies
22
Confidential & Proprietary
China’s IT Market FactsChina’s IT Market Facts
China’s IT Industry Will Grow Two Times Faster than GDP•Total IT market size in 2004: $50 billion•Projected IT investment 2004-2008 $288+ billion
Fast Growing Internet and Broadband Penetration•Over 80 million users in 2004•Online gaming and messaging great fit for local culture
Largest Telecom Market in the World•421 million fix-line and 302 million mobile subscribers•137 billion SMS sent in 2003, represents 49% growth over 2002
Leapfrog Adoption of Technology•Little or no legacy systems in most sectors•China setting own standards – DMB-T for digital TV, etc.
Government Support for Semiconductor, Communication and Software Sector•Large demand for local semiconductor consumption
23
Confidential & Proprietary
Case for Direct InvestmentCase for Direct Investment
China’s Domestic Market Advantage•Purchasing power amongst consumers growing•Per capita GDP>$2000 in key cities – over $5000 in Shanghai
Capitalize on Newly Trained Technology Workforce•Universities around Beijing and Shanghai – Singh, Peking, Fudan and Jiaotong•Overseas graduate returnees bring home world-class training and experience
Government Policies to Further Open-market Growth•Growth-oriented economic and fiscal policies to encourage private sector•Directives to focus on technology-driven infrastructure and services
Strong Entrepreneurial Culture•Reverse brain drain from US and Taiwan•Accelerated influx of foreign capital and know-how
24
Confidential & Proprietary
Paradigm Shift for SV in 3DParadigm Shift for SV in 3D
Business/Product Development
Outsourcing/Cross Border Hybrids
Direct Investments
25
Confidential & Proprietary
Capital Markets are Critical for China’s Future SuccessCapital Markets are Critical for China’s Future Success
26
Confidential & Proprietary
M&A and Follow-OnFinancings• Coradiant• SMIC• UP Technologies• Vernier
Partnerships & Channel Distribution• AdSpace• Luminous• Spoke Software• think3• UP Technologies
Customers• 2Wire
• Analogix
• Callipso
• IPWireless
• Luminous
• SMIC
International Business DevelopmentSelected ExamplesInternational Business DevelopmentSelected Examples
Board Members & Management Team• 51job
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Confidential & ProprietaryMorgan Stanley Dean Witter & Co.
1980 – 2000 1995 Large home markets Great technology companies World-class universities New ideas / new industries Intellectual property rights Effective patent laws Entrepreneurs Icons Low capital gains tax Venture capital funding M&A market for new technology companies Easy access to big IPO market
YesYesYes
ComingNoYes
Yes++Coming
YesYes
ImprovingImproving
Current
YesNoYesNoNoYesYesNoNo
StartingNoNo
USA PRC
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Improving Conditions for New CompaniesImproving Conditions for New Companies
Confidential & Proprietary
The Investment PlaybookThe Investment Playbook
Invest in High Growth Market Segments• Identify emerging, vast consumer markets, but select high margin sub-segments• Capitalize on the emergence of China’s new technology standards
Invest in Best Management Teams• Returnees from US or home-grown mgmt with MNC discipline• Taiwan and Hong Kong management transplant in China• Management with extensive domain and process experience
Invest in Technology and Proprietary Business or Technology Process• IP and Talent sourcing from science and industry parks across US, Taiwan, Japan and China
• Create barriers to entry for market leadership and sustainability through potential bubble cycle
29
Confidential & Proprietary
Key Lessons Learned So FarKey Lessons Learned So Far
Stay in synch with government preferences Less concerned about capital market risks Main challenge: Experienced management talent scarcity Importance of extensive due diligence and legal process
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Dixon DollCSPA Conference
September 24, 2005