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January 20, 2005

"VC bubble forming in late-stage investments in China"

From a Businessweek interview with DCM-Doll Capital Management's David Chao

Q: Which sectors look attractive in China?
A: There are a lot of semiconductor-design companies that work on next-generation chips. Another area is media services, as the overall advertising industry grows in China. We also look at next-generation Internet infrastructure plays. And the last category would be mobile platforms, like next-generation game companies or mobile-services companies.

Q: Is a VC bubble forming in China?
A: On the late-stage side of the fence, there's definitely a bubble. Things are being overpriced. It's natural. You have foreign investors going into China. They probably don't have the wherewithal to do the early-stage, hands-on growing of a company. So they end up investing in late stage because they have to do less of that. When they narrow themselves to that, and there's so much money chasing that, naturally prices are going to go up.

With US VC funds starting to make direct investments in India, it makes one wonder whether the late-stage bubble phenomenon will happen here as well.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.