BEIJING -- Last week, Intel's ( INTC) venture capital arm marked the one-year anniversary of its $200 million China Technology fund by announcing four more investments. It's now invested in 12 Chinese tech companies in as many months. spoke with Cadol Cheung, managing director of Asia Pacific for Intel Capital, for his take on the fast-changing China tech landscape. Cheung, who's had a 23-year career with the chipmaker, can claim to have been on the front lines of innovation in China. He spent three years as a software lab manager for Intel in Shanghai before taking up his current role.

TSC: In the past, Intel Capital has said one of its goals is to build out the PC and mobile ecosystem, to help create demand for Intel chips in both areas. Given last week's announcement that Intel has sold its communications-chip business to Marvell, will you still focus on mobile phones on the venture side?

Cheung: We're still trying to comprehend how that will affect our investment strategy. We don't have all the details yet, apart from what was announced. So to give you a short answer, I don't know.

Intel Capital president Arvind Sodhani was recently quoted saying he was seeing more innovation in China. Can you elaborate on that?

We started investing in China in 1998, and I've been with the Intel Capital team since 1998. Over the time I've been here, I've seen Chinese companies move from not only producing products, but also having their own innovations, their own intellectual property.

For example, one of the companies we announced we'll be investing in last Monday, Montage Technology, is producing mixed-signal ICs. There's some very interesting technology from that company that may be usable for Intel.

Compared to a few years ago, the market is more open, more competitive. Just copying something for and adapting it to domestic use is no longer the formula.

In general, we see a few business proposals a week. Just by looking at these business proposals, we've started seeing more and more companies being innovative, either on the business model or technology or product design.

A year and a half ago, venture capitalists were saying Chinese tech companies were getting very pricey, and it was looking like a bubble. Do you think the situation has gotten better or worse?

Now you hear even stronger comments that yes, things keep going up. High valuations are a concern. I know international VCs who invest both in the U.S. and China say things are still going up.

What metrics do you consider when you try to assign value to an investment?

For a company that has real revenue and profits, you have some way to justify the growth rate of the company. Then you can look at it from their earnings capability. But if it's an early stage company with no track record of financial performance, the only thing that can count is the market segment, its position relative to competitors and the quality of management.

And you generally usually invest between $1 million and $5 million per company?


In Asia, technology trends tend to originate in Korea and Japan. So what are you seeing there? Can you contrast your VC investments in those countries with what you're seeing in China?

Korea is very strong in mobile communication. They were first to widely deploy CDMA, to have fixed broadband, to have a very high penetration of mobile use. So, they've pioneered some very interesting models. We invested in Integrant, which developed integrated ICs for mobile TV, and they were sold to Analog Devices ( ADI) last month. Now mobile TV is getting more and more popular for other countries as well.

Taiwan is very strong on the supply chain; they've traditionally been the supplier of IT products for the world. I believe they manufacture something like 80% of the world's notebooks. So, we've invested in companies that provide products and services to the supply chain. For example, one of our investments transfers heat from CPUs central processing units using a fan. It has a good relationship with all the OEMs and design houses .

So, different countries have different strengths. In China, consumption is the theme of the day, so you have companies that provide products to the consumer -- like wireless services provider ( TOMO) or online and mobile instant-message provider Tencent -- that are especially interesting.

Compared to the $200 million China technology fund, which started up last June, Intel Capital opened an even bigger $250 million India tech fund in December 2005. Can you comment on what kind of innovation you're seeing in India vs. China?

India is very strong in the service industry. From the business-model standpoint, they're very creative on what segment of business can be outsourced and figuring out innovations on that service.

In China you see more innovation on the product side.

Do you prefer to work with early stage companies in China, where you can have more influence?

No, we don't have a preference. We have two criteria. Our portfolio companies need to be strategically aligned with us. We don't invest in real estate or food processing. And they have to be financially interesting, provide a financial return for us.

What's a typical profile of managers of your portfolio companies in China? Would they typically have studied or worked overseas? How old are they?

There are entrepreneurs who studied overseas and returned , and also local entrepreneurs. They're typically in their 30s or 40s with some working experience.

At Montage Technology, the CEO studied and did business in the U.S. He started his first company in China 12 years ago, sold it, and now he's on his second company now.

Where are most of your investment companies located?

Most deals are concentrated in Beijing or Shanghai.

Do you think either of those cities is emerging as the tech capital of China?

laughs I'm sure people in Beijing would want me to say Beijing, and people in Shanghai would want me to say Shanghai.

Generally, how long do you have an investment?

On average, we probably hold an investment for three to five years, though it depends on the stage of the company. If it's late stage, we'd hold for a relatively shorter period.

One problem for venture capitalists in China is figuring out how to exit their investments. I know Intel has said that of its more than 50 portfolio companies in China and Hong Kong, over 10 have gone public or were acquired. That includes some big names like PCCW (PCW), AsiaInfo Holdings (ASIA) and (SOHU). What happens with the rest?

Sometimes we negotiate for a company buyback. That's a potential exit. It depends on whether the company has the money to do a buyback. And some we still have investments in.

There have been a lot of changes in the financial markets in China lately. IPOs just started up again after a year-long moratorium, and now some of the bigger mainland companies listed in Hong Kong are planning to reverse list in Shanghai as well, which suggests you could see some higher-quality companies on mainland exchanges. Also, foreign strategic investors can now buy stakes in publicly listed companies on the mainland. Do all these changes open up new exit opportunities for you?

They provide more alternatives. The regulatory environment is getting more and more friendly, and the opening up of cross-border M&A rules, all these are helpful.