How to Capture Unique Opportunities in China

Joe Tian, founder and managing partner of DT Capital Management, a Shanghai-based private equity firm which manages over US$500 million in three funds, has devoted his career to the China venture capital industry since returning to China following his graduation from Wharton in 1998. Before founding the firm in 2006 with his partner Shao Jun, he worked as chief investment officer and managing director for Dragon Tech Ventures, a corporate-sponsored VC firm focusing on China.

As one of China's early returnees from school abroad and also one of the first batch of venture capitalists in the country, Tian has witnessed the emergence of China's venture capital industry in the midst of several ups and downs in international capital markets, including the still-unfolding global financial crisis. In a recent interview with China Knowledge@Wharton, Tian talked about the challenges of being a venture capitalist in a rapidly growing, uncertain market like China.

The following is an edited version of the interview.

China Knowledge@Wharton: Can you give us a brief overview of DT Capital and your personal background?

Tian: I have lived in the U.S. for almost ten years and worked in investment banks such as Merrill Lynch (MER Quote) and JP Morgan (JPM Quote), and I've also worked as a management consultant at McKinsey. Following my graduation from the Wharton School in 1998, I returned to China and subsequently started my career in the PE/VC business focusing on China. I have worked as chief investment officer and managing director at DragonTech Ventures, a venture capital firm sponsored by Shanghai Industrial Investment Corporation, a Hong Kong-listed company. In 2006, my partner Shao Jun and I set up DT Capital, and our first fund was US$130 million, our second fund was US$350 million, and we also raised one of the first RMB [Chinese currency] funds in China with a size of RMB 250 million. So, all together, we manage over US$500 million investment funds.

As one of the early [venture capital firms] in China, we witnessed the emergence of China's venture capital industry and we learned a lot from real cases while seeing very good returns.

China Knowledge@Wharton: How you differentiate yourself from American investment firms?

Tian: We are different because we are a local firm with international standards, which means we understand China and we operate in a flexible way based on China unique characters. Although our funds come from the U.S. and one of our key investors is the Walton family (which started Wal-Mart (WMT Quote)), and although we have a LP/GP structure and our internal process is in full compliance with international standards, we are a local investment firm because we are based here in China. Our team members are all local talent, we deal with local entrepreneurs and we have local investment strategies.

China Knowledge@Wharton: What is your local investment strategy?

Tian: In the venture capital industry in China, especially for projects in seeds stage, there has been a strategy called "Me Too" -- i.e., if you have Google (GOOG Quote) in the U.S., you will invest Baidu (BIDU Quote) [China's largest search engine company] here. We actually have a partner who is an early investor in Baidu and he still sits on their board today. This strategy still works, but it only represents one category of opportunities -- a small portion. The majority of investment opportunities at this moment belong uniquely to China.

For example, we have invested in Suntech (STP Quote), a solar manufacturer based in Wuxi, the first Chinese private company that launched its IPO on the New York Stock Exchange. There are no such public companies in the U.S., nor in other countries, I think. So, Suntech is a very China-unique model. Global demand on clean-tech, alternative energy, strong technical know-how, high value-added manufacturing enterprises -- these elements have made the market capital of Suntech once the highest among Chinese private companies who went public abroad.