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June 24, 2006

Google sells stake in Baidu

For every reasonably famous (as against "successful") online services business model in the US, there is a copycat being created - and venture capital funded - in China. I'm however not sure what the exit model for VC backers of these copycat ventures are going to be.

Do the investors expect the "originals" from the US to come and acquire these companies? Not likely, going by Google's recent sale of its entire in its Chinese competitor (and search market leader) for $63 million.

From the Reuters report (emphasis mine):
"We have disposed of our modest investment in Baidu," Google spokeswoman Debbie Frost confirmed. "It has always been our goal to grow our own successful business in China and we are very focused on that," she said in an e-mailed statement.

...Google, which acquired its stake in Baidu in June 2004 for $5 million, was once considered a potential acquirer of Baidu. At the time of the August 2005 IPO, Google's stake represented about 2.6 percent of Baidu shares. But Google, a distant No. 2 in the Chinese Web search market, has subsequently moved to establish operations in China and competes ferociously with Baidu in the world's most populous market. Baidu commands the same dominant position in China that Google does in most other countries.

If Baidu can't keep Google interested, all other copycats - and their VCs - better beware.

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