Dixon Doll Keynote Slides

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Dixon Doll CSPA Conference September 24, 2005

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Transcript of Dixon Doll Keynote Slides

Page 1: Dixon Doll Keynote Slides

Dixon DollCSPA Conference

September 24, 2005

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Confidential & Proprietary

AgendaAgenda

Brief introduction to DCM Perspectives on Investing in China Areas of Opportunity China strategies for non-Chinese tech companies

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AgendaAgenda

Brief introduction to DCM Perspectives on Investing in China Areas of Opportunity China strategies for non-Chinese tech companies

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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

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DCM Partners Track RecordDCM Partners Track Record

Bridge Communications Inc.

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US

China Japan

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DCM Strategic FocusDCM Strategic Focus

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Pac-AsiaCommunications

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AgendaAgenda

Brief introduction to DCM Perspectives on Investing in China Areas of Opportunity China strategies for non-Chinese tech companies

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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

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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

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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

)

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$402

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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

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…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

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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.

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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

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DCM Investment in ChinaDCM Investment in China

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( )埃派克森微电子(上海)有限公司

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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

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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

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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

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AgendaAgenda

Brief introduction to DCM Perspectives on Investing in China Areas of Opportunity China strategies for non-Chinese tech companies

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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

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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

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AgendaAgenda

Brief introduction to DCM Perspectives on Investing in China Areas of Opportunity China strategies for non-Chinese tech companies

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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

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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

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Paradigm Shift for SV in 3DParadigm Shift for SV in 3D

Business/Product Development

Outsourcing/Cross Border Hybrids

Direct Investments

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Capital Markets are Critical for China’s Future SuccessCapital Markets are Critical for China’s Future Success

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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

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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

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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