Birds of Feathers Stick Together

I have never hunted day in my life,or even liked to watch hunting shows. But wen I saw a commercial for the television show Duck Dynasty, I had to watch just because it looked so hilarious. Now I watch the show every time its on, even the ones that I have seen over and over and still laugh just like its the first time seeing it. Duck Dynasty is for anyone that likes duck hunting,comedy,drama,and life lessons. Duck Dynasty focuses on a reality television hit on A&E Wednesday nights at 10:00 pm. Duck Dynasty's third season ‘s final episode brought in a 9. 6 million in viewers compared to American Idol, who had a 3. million in viewers in their last episode (James Hibber) . That makes Duck Dynasty the highest viewed reality television show. Phil Robertson established the family business. He crafted the first duck call in 1973, In a small run down shed out back of his home in Louisiana. Willie, Phil s' son with his business degree took and turned the small low budgeted operation and turned it in to a multimillion-dollar business the Duck Commander. Before the guys of Robertson family starter the Duck Commander business, they filmed their own hunts and sold them on video tapes. The Robertson family was also on the outdoor channel on a show called â€Å"BENELI PRESENTS DUCK COMMANDER† back in the 80's. Phil told ABC news †We use to have a reality show but it was just a bunch of rednecks shooting duck†. Patriarch Phil and Willie are only two of the Dynasty’s family members. Jase titled(Willies brother)and Jep(Willies other brother) also help with the family business. Jase is the COO of the company he he runs the manufacturing of the parts, Jase fabricates the calls making sure each one is finely hand tuned. Jase is always trying to pull some kind of shenanigan over Willies head and trying to get out of work. His motto is duck hunting,family,and god. Jep helps put the duck calls together, he is the editor and cameraman for the family business. He is able to think like a hunter behind the camera to catch excellent footage for their Duck Men DVD. Jep is Miss Kay baby . Miss Kay, Phil's wife is the head of the family. What Miss Kay says goes. Miss Kay is a little bit of aunt Bee and a hint of Roseann to spice thing up. She thinks her cooking is a gift and should be shared,so most nights she will cook up a big feast for the whole family, sometimes for the entire neighbor hood. Wives of Jase, Willie and Jep have to infuse a bit of sanity to the proceedings. Then we have Si the crazy uncle, Phil's youngest brother and best friend . Si has the job of fashioning the reeds, the most important part of a duck call is the reed its what makes the duck sound. Si is a Vietnam war vet who loves to tell crazy unbelievable stories and say thing like â€Å"HEY†ADN â€Å"JACK†. Duck Dynasty is part of up coming category titled Redneck television thrown in to the mass of My Redneck Vacation , But the two's comparisons can can only go so far. Yes both shows have southern accents and redneck past times. Redneck vacation focuses on an extended southern family, that takes their southern hospitality and traditions to the uppity lifestyle of the Hamptons, but still highlights on how they can manage to get along despite the differences in culture. Redneck vacation has salty language ,violence,and drinking is visible . The show makes fun of rednecks as opposed to showing its lifestyle. Duck Dynasty also features the family being a little out of the ordinary to most of its viewers tuning in. We watch the Robertson's tromp threw the backwoods hunting duck, fishing, blowing tings up like beaver damns. But what saves Duck Dynasty from the Redneck Vacation fate, Is Dynasty's characters are in on the joke so that no one is getting hurt. Some of the situations at hand may seem to be fashioned for television and everyone know it and seem to play their positions well. As you watch the show you might fall down laughing at the family's redneck phenomena, but you may also be a little jealous of them . The Robertson's do pick on one another but only out of family admiration. They all give a helping hand and enjoy sharing astonishing meals; They never shy from their religious belief . No its not a perfect show bathroom humor is not uncommon with this clan, We do hear some references to sex mainly when Phil is giving one of the grand-kids a lecture. After sitting down and watching the show it didn’t make me want to go out and hunt duck,blow things up or even eat squirrel brain stew. But it did make me want to pull a chair up to the Robertson's table and exchange laugh’s with the family instead of at them .

Expository Essay

Expository Essay Some memories are joyful, while others are quite sad, and then the bittersweet moments are a combination of both. These bittersweet memories are often memorable and one that stays fresh in my mind is the coming and going of my Golden Retriever puppy, Chance. I was overjoyed when we first got him and couldn’t have been happier but his death was unpleasant and left me with a bad taste in my mouth for weeks to come. This whole experience taught how to appreciate what I have because you don’t know what you got till it’s gone.One of the most memorable and impactful memories of my life happened when I was just six years old. It was a chilly day in mid January as I cheerfully scampered off the school bus to dash inside and be greeted by a mug of hot chocolate and warm cookies. I was clumsily toying around with Legos while waiting in anticipation for my dad to get home. The moment I saw my dad walk through the door I darted down the stairs and was shocke d to see him holding a large, mysterious cardboard box.He informed me that contained inside were loads of cupcakes he had gotten from work, but to my surprise when I looked inside I saw a tiny little puppy bundled up in blanket sleeping on the base of the box. I was thrilled at first but soon after my hopes were crushed when I realized this little dog had fatal cancer and only had a short month to live. Due to his horrible condition we named him Chance for his perseverance to survive such a sickly Herring 2 disease. My roller coaster experience with him helped to mold me into the person that I am today.This memory is so important to me because Chance was the first pet I had ever had the opportunity to call my own and I had also desired to own a puppy ever since I was a baby. Over a short time Chance and I had developed a strong bond from racing around the house and bounding around in the fresh snow. This connection we shared showed me how important companions were and how much I enj oyed having them around me. After a few weeks of living with him he began to show signs of weakness. He would sometimes stumble while walking and even vomit after eating a meal.I was feeling miserable to see him experiencing this pain so our family had to make a decision. We came to a general consensus that it was time to put him down. After a lot of shed tears and heartache I began to understand the situation in a different light. I had begun to realize life ends and living things don’t last forever. I really appreciated chance for what he was and dearly missed him. The great memories with Chance still remained and helped me to cherish his existence even more. Overall this memory taught me how to enjoy what I have and be grateful because I may blink and not see it ever again. Expository Essay

Should sick people pay more for health insurance Research Paper

Should sick people pay more for health insurance - Research Paper Example However, I do not think sick people should pay more for health insurance. This is because doing so would create several ethical issues that may in turn lead to crisis. It is worth noting that the value of life cannot be quantified by money. Making sick people to pay more for health insurance would create some shadow of discrimination amongst the people in the society. The feeling of not being wanted would set in the sick. Surely the sick need the support of the society to keep them psychological and emotionally strong. They need this support more than the healthy. When such a thing happens, we would be killing these people by making demanding much from them instead of supporting them. Besides, sickness is not a permanent condition thus it is wrong to assume that if someone is sick today, then they will be sick tomorrow. It is therefore unnecessary to make people pay more when their conditions are not permanent. It will therefore inhuman to subject the sick in more expenses when they need our

The community paramedic Essay Example | Topics and Well Written Essays - 500 words

The community paramedic - Essay Example This helps in the identification of all the relevant facts about the patient and communicating it to the team in order to avoid the misunderstanding of what may arise particularly the level of expected care. The communication tool that may be used could be written, verbal, or both. Members of the health care team may use a record and read back process before actually taking an action on either a verbal order or verbal report of essential test results of patients (Epstein et al., 2005). Verbal communication such as telephone call or face-to-face conversation may be used. Face-to-face communication is more preferable since it allows for close and direct interaction between the health care team and the patient. Face-to-face communication also provides nonverbal information expressed by facial expression and body language. Written communication, on the other hand, assist the health care team to convey clinical information in an organized manner (Lyndon, 2006). It also provides the patient with hard copy of background information that is computer-generated for reference. There should also be documentation of all interactions between the health care provider and the patient in order to help in making referral. In order to improve the care coordination, there should be a close working relationship between the community paramedic and the patients and a well as their family members. The community paramedic should develop personal relationship with people with a chronic disease by accessing their homes. They need to constantly remind the patients of the forthcoming appointments. Involvement of the family members ensures consistency of care to such patients because family members are in close contact with the patients and are able to monitor them very effectively (Bodenheimer, Wagner, & Grumbach, 2002). The family members are able to arrange for the

The Industrialization of American West and its Impact to the East Term Paper

The Industrialization of American West and its Impact to the East - Term Paper Example Yet skeptics were proven wrong as this ‘wilderness’ gradually expanded and metamorphosed into a booming industrial sphere and provided a promise that would last a lifetime. True enough, wherever opportunity springs, people swarm. This catapulted the growth of population in the US West and prompted the creation of more industries in the area, affecting not only the other side of the country but also some parts of the world. Evidence The construction of the transportation systems that link the nation’s East to West saw the dawn of great migrations within neighboring states. The Cumberland Road (1811) and the Erie Canal (1825) paved the way for people to explore far-flung areas in the West. This made people, especially those from the East who saw the level of opportunity in the area insufficient, realize that the vast land only waited for their attention and promised them an unspeakable prize. The California Gold Rush of 1849 â€Å"attracted people from all over the world to venture on the mining industry† (â€Å"The California Gold†). As time went by, however, gold deposits in California depleted, so expedient merchants immediately looked for other resources. Some of them ventured into another business while others still believed in the promise of mining. The gold mines in Colorado (1858), South Carolina (1860) and Dakota (1874) rewarded the faith of numerous miners. Several of them explored other natural resources of the West such as coal, copper, ore, and iron. Then the quest for precious minerals began and struck the entire nation with awe and fervor. Decades ago before these, the invention of the cotton gin also revolutionized the industry of farming in the United States during that time. Production of the crop increased and offered a competitive advantage for farmers. The area became a large-scale and respected supplier to the world. Not only that this yielded satisfactory income to workers and immense profits for businesspe rsons, but also contributed much in the revival of a feeble domestic economy. Accordingly, machines and tools were already invented to support industrial productions, especially in textiles and light metals that contributed to the export capability and competitiveness of the country. Generally, the agriculture, mining and construction industries actively facilitated the boost into the economy of the US since this era. The Americans of the East, the West, the natives, and even the immigrants saw these as an amazing turn-of-events. This period of American history, according to the academic Frederick Jackson Turner speaks about the â€Å"virtue of discovery, the courageous determination to trail new paths and an objection to the dogma that because an institution or condition exists, so it must remain† (Turner 35).  

Questiona and Answer Essay Example | Topics and Well Written Essays - 500 words

Questiona and Answer - Essay Example Illustrators also often resort to research in the early stages of the illustrative process. They usually do background research of the elements involved in the story and deeply understand them in order to better tell the story in picture. The next procedure would be the storyboards, design and layout, where the illustrator arranges the sequence and the blending of the text and the illustrations in order to have the most potent story-telling effect and to highlight and emphasize certain parts where highlighting is needed. Ansty & Bull (2000) noted that the illustrative process is rather full of interaction from many people along the way, and not only isolated to the illustrator. He consults among many individuals and are also critiqued and constructively evaluated by others before the final output is done. This step is essential especially with the involvement of an editor wherein he knows what might be good or what might be detrimental in the ultimate goal of the story, which is to sell. Going back to the illustrator, it is important to consider how he views and is aware of his target audience for the illustrations. He must be sensitive to the orientation of the readers and on how he portrays them or how he expresses it to them in a manner appropriate. 1. The illustrative process is likened to the writing process because of the way it does not follow strict guidelines and sequences of stages in order to make the desired outcome, but they nonetheless adhere to the same overall process. Writing is the ability to articulate to share and influence the thoughts with others (The Writing Process, 2007), in like manner, illustrating is not so far off in that concept. 2. In writing a story board, first, one needs to consider the message that is the overall concept in the story. In this case, in the story of Cinderalla, it’s about

Flight Research Paper Example | Topics and Well Written Essays - 1500 words

Flight - Research Paper Example The disappointment leads to few people being trained as pilots and even some changing their pilot careers. This paper will discuss the factors that lead to a shortage in the number of pilots in the airline industry. The paper will also offer probable measures that would rectify the solution if implemented. The main reason why  everyone  works is because they want to get salaries. Salaries are the motivation factor for people to work or to desire to join a certain career. The pilot career is among the best white color jobs, but the salaries offered are quite disappointing (Bachman 1). One expects that being in the pilot career; they will receive the best salaries as compared to being in other careers. The technicality in the job also calls for attractive salaries. However, the starting salaries of pilots are very low. Although the salaries may differ depending on the airline, on average, the starting salaries are very low. The educational efforts that one inputs do not match the salary that is provided. This fact keeps away the people who would be willing to train as pilots. Other careers that are in the same level as the pilot career such as medicine and architecture are well paying. The bright students will opt to study medicine and architecture rather that piloting since they expect to have better salaries from the start. Most airlines have failed to address the problem claiming that raising the salaries will lead to increasing travel costs for passengers. However, failing to address one problem has caused bigger problems such as delayed flights that chase away customers (Bachman 1). Most customers would prefer paying more rather than having delays. It is, therefore, necessary that airline managers should address the problem since it will have a double gain. Customer’s loyalty will be build and at the same time, the issue of pilot shortage will be curbed. Their salaries determine the lifestyles that people of a certain

Sonnet Poetry Essay Example | Topics and Well Written Essays - 750 words - 1

Sonnet Poetry - Essay Example The poem has fourteen rhymed lines. Each of the lines consists of ten syllables. Per se, this is the basic form of the sonnet. It also has a variety of rhymes that count to seven pair’s altogether (Raymond & Alden). The poem is printed as an unbroken fourteen-liner rather than two sections of the eight lines and six lines. However, it is still possible to observe an octave and a sestet in the poem with a definite turn between them. The main introductory word between them is the word ‘but’. Sonnet 18 follows the structure of many English poems where it is divided lines of roughly ten syllables with five stresses (Raymond & Alden). The sonnet is also written in iambic form. It is observable that there are lines of poetry that repeatedly use an unstressed syllable followed by a stressed syllable. Shakespeare utilized rhythm in his works. The rhythm often conditions the manner in which the reader reads the poem. Per se, it also shapes the meaning within which, a reader deduces from the poem. Sonnet 18 has three ways it can be red, an octave, a sestet and also a three quatrains. Three quatrains mean three units of four lines followed by a closing couplet of two rhymed lines (Raymond & Alden). Sonnet 18 makes an immediate comparison between the poet’s friend and the beauty of a summer’s day. The poet uses the simile technique of comparing items. There are other lines that make use of metaphor to bring out the meaning such s line five. In line five, the sun becomes the eye of heaven (Raymond & Alden). The metaphor is also extended to line six where the sun becomes a human face with a good complexion. He also talks about summer and says that it is not going to fade away. ‘But thy eternal summer shall not fade. Comparing summer with youth is a perfect method of depicting optimism. It should be noted that winter is considered as a bad weather in which the sky is bleak; the wind is cold while summers are its

Vocal Folds Essay Example | Topics and Well Written Essays - 500 words

Vocal Folds - Essay Example With their corresponding properties, Hirano classifies the layers of the vocal folds into five minute layers (as cited in Altman, n.d.). The outer protective layer is the squamos epithelium, which is responsible for sustaining the form of the vocal fold and its hydration. The next layer is the superficial lamina propia (SLP) which is composed of loose fibrous and elastic components that possess mechanical properties due to its cushion-like assets. The intermediate lamina propia (ILP) on the other hand, is generally composed of elastic fibers, which therefore adds to the elasticity of the vocal folds. Then there is the deep lamina propia (DLP), the vocal fold layer that consists of collagenous fibers that is responsible for the durability of the vocal fold. The fifth layer is the vocalis muscle. It as a muscle and therefore has active (contractile) properties that helps in controlling the stiffness of the vocal folds when it is vibrating, contracting or at rest. These layers vary in t erms of stiffness and therefore were grouped further accordingly. The cover layer or mucosa is composed of epithelium and SLP, while the vocal ligament is composed of the ILP and DLP.

Pentecostalism Essay Example | Topics and Well Written Essays - 2000 words

Pentecostalism - Essay Example Truly, many evangelical and fundamentalist Christians can be very disapproving of Pentecostal doctrine. Regrettably, numerous atheists equate "Christian Privilege" with "fundamentalism" and it is an outcome of customary Methodism. The dualistic principles which most describe Pentecostal churches and distinguish them from other Protestant factions are the conviction in the Baptism of the Holy Spirit in addition the follow-onto charismata (The Gifts of the Spirit are like talking in tongues). The conviction in charismata and Gifts of the Holy Spirit is centred on the book of Acts chapter 2 when the Holy Spirit visited the apostles (Maxwell 1998, 319). In the Pentecostal movement, the Holiness groups stressed what they termed as the â€Å"second blessing" bequeathed on those who experienced a jubilant conversion encounter. Some manifestations of this sanctification were via Gifts of the Holy Spirit, such as prophesies and glossalia. Others viewed such deeds, as unorthodoxy and this is point where Pentecostals deviated from the Holiness and Methodist churches (although initially many desired to remain members of their prime churches) (Walsh 2003, 54). Nowadays, strange ways like faith curing, talking in tongues and euphoric experiences are a feature of Pentecostal services. Pentecostalism emphasize upon the significance of individual devout experiences instead of specific principles — certainly, there is less accord amongst Pentecostals with respects to many of Christian canons apart from those of charismata and Baptism of the Spirit. Pentecostal philosophies commenced in the Bethel Bible College established by Parham, Charles F. in Kansas in 1900, are frequently considered as an extension of the theology and teachings encouraged by Parham and other with like mind Protestants of the time. Conferring to Parham's own recounts, on 1st January 1901, the first of his scholars started to display the "Gifts of Spirit" by talking in tongues (Mills 2007, 23). In the subsequent days more and more scholars started to act the same, attracting escalated attention to the college and Parham's philosophies. As an upshot, Parham brought into being what developed to be known as the "Apostolic Faith Movement," a communion of diverse churches which encompassed thousands of followers (Wilkinson 2009, 39). Another primary foundation of Pentecostal principles is the Azusa Street resurgence (1906) steered by William J. Seymour. Seymour was an apprentice of Parham's from another college that Parham had launched in Texas. Large multitudes showed up at Seymour's Azusa Street ministry in Los Angeles, branded by astounding healings and high devout gusto. Newscast reports then pronounce astonishment at the "lamentation’s of the believers" and â€Å"shocking â€Å"frolics of the services at night. Fundamental aspects of services at Pentecostal could be dated even earlier; for instance, a prayer mass in 1831 in London ensued in congregation speaking in tong ues and prophesising (Paul and Susan 1996, 10). Even if Pentecostalism is viewed as a current way of Protestantism, certain in individuals think that Pentecostalism ought to be regarded as separate from customary Protestantism. Protestantism was created as distinction from Catholicism on the foundation that the Bible only ought to be the basis of devout authority, instead of customary customs or the chain of command of church establishments (Mills 2007, 22). Pentecostal churches step beyond this through reliance not merely on the Bible, but furthermore upon personal and direct divine revelations that cannot merely enhancement Bible instructions, but still replace them. It is no wonder that Pentecostals are repeatedly held at close by customary Protest

UFO Presence In The Universe Essay Example for Free

UFO Presence In The Universe Essay For fifty years, the unexplained aircraft wreckage found outside Roswell, New Mexico, has been in the centre of on-going speculation about alien life forms and US Government and Military cover-ups. It is my personal belief that extraterrestrial bodies are present in this Universe and have landed on earth. There is evidence pointing to the fact that there are aliens present in the universe. Retired military officials will admit to there being extraterrestrials being present on earth. An excellent example of this is what happened in Roswell, New Mexico, in 1947. When the US Government and Military first found the wreckage of an unidentified aircraft, they issued a press release stating that they had come into possession of an Unidentified Flying Object. The present US Government have passed the Roswell incident off as a closed case their investigations declared the incident to be nothing more than a crashed weather balloon from the top secret Project Mogul and the alien bodies merely to be crash test dummies. There is other life in the Universe and that the crash landing at Roswell in 1947, was an alien spacecraft and not a weather balloon. Leading up to the Roswell Incident UFOs were spotted all over New Mexico and the mid-western coastline. On July 1 of 1947, an unidentified Flying Object appeared on the radar screens of surrounding air force bases. People also saw these objects in the skies that night and the next. On July 4 Independence Day radar screens showed an object pulsate then explode. Some archaeologists in the area were watching the sky and saw the aerial display, as did a large number of the people living in the town. The archaeologists set out the next morning to look for the wreckage they saw fall to ground after the explosion. They reached the crash site about 10am and found wreckage scattered over a site three quarters of a mile long and two to three hundred feet wide. The archaeology team alerted authorities then peered into the rubble to find the bodies of five aliens (the number of aliens is debatable), four of them already dead but one still alive with a severe wound to the thigh. The witnesses are sure they saw aliens in the space ship, not crash dummies, and the wreckage was too advanced to be human technology. A number of witnesses who saw the crash site before the US  Government intervened were interviewed and all gave comprehensive descriptions of the aliens and their flying craft. All descriptions were very similar and if a number of people can give the same detailed evidence, something must have occurred. Many army retirees have come forward to tell their stories concerning the truth of what happened at Roswell. The US Government will probably continue changing their stories of what they say happened (the crashed weather balloon). Only when new witnesses come forward and share their information will the truth eventually be exposed. For months after the incident, thousands of hopeful alien enthusiasts flocked to the alleged crash site to view the most famous alien crash site to date. So much attention was placed on the site that the few residents of Roswell, New Mexico, claimed that they feared the aliens would return and invade. Witnesses claim to have received death threats from the military; they were also told to deny all knowledge of what they had seen. The pieces of the alien spacecraft were taken to Groom Lake Air force Base, also known as Area 51. Area 51 is a top secret military installation designed to house many of the governments secret details concerning alien aircraft. Substantial amounts of money were spent to protect the citizens of the world from receiving the truth about Area 51 and the alien presence among us. Recent developments have occurred when the US government that adjoins the Groom Lake Air force Base, purchased 3,900 more acres. This land was purchased to house what could be up to four hundred newly found pieces from alien aircraft (as shown in documents retrieved from the internet). Now, over fifty years since the uncovering of perhaps the strongest single piece of evidence to support the theory that aliens are present in the Universe, the American Government will still not admit involvement in covering-up the event that took place on July 8th, 1947, in Roswell, New Mexico. Nearly every piece of information points towards the probability that aliens did crash at Roswell and more importantly that aliens do exist. The only argument that does not support the fact that aliens are present is the American Government and military denying it at numerous press  conferences. The American Government and militarys argument are refuted by the numbers of retired military and government personnels testimony. The American Government should not be able to refute the evidence that there is intelligent life on other planets in the Universe because we have a right to know. Bibliography Internet: www.pressreleasenetwork.com www.ufomind.com/area51 Book: I WAS THERE Author: Robert J Shirkey

Monoamine Oxidase (Warrior Gene) and Maori Behaviour

Monoamine Oxidase (Warrior Gene) and Maori Behaviour Monoamine Oxidase (Warrior Gene) and  Its Relation to Maori Behaviour Roberto S. Recto Jr. Abstract This essay tackled primarily on the significant link between Monoamine Oxidase (Warrior Gene) and Maori behaviour. Specifically, this may determine the possible causes of the aggressiveness of the Maori population group as observed by other researchers and scientists as explained on their arguments. The study discussed the census of the population and conviction rate of Maori population with other population group. This study also correlates the specific behaviour of an individual to other factors such as parenting and environmental factors, not solely to the warrior gene. Irregularities in Monoamine Oxidase’s level in the body have negative effects that were also discussed on this paper. Domestic violence during childhood was also explained briefly and its negative effects to behaviour of an adult person. Negative behaviours that developed may be controlled and managed especially here in New Zealand with the help of the legislation. Introduction Maori population is 682,200 out of the total New Zealand population of 4,433,000 as of 30 June 2012 according to New Zealand’s latest statistics. Maori make up 15.4 percent of the total population here in New Zealand. Despite a few number of Maori people lives in New Zealand, they commit more crimes and are punished in prison than any other population group. Reasons for this apparent fact have not yet been fully discovered or defended (Statistics New Zealand, 2012). 8,618 is the total count of prisoners in New Zealand, 51 percent (4,391) of which are Maori, 33 percent (2,835) are Europeans and 12 percent (1,006) are Pacific people (Statistics New Zealand, 2012). Some studies may blame domestic violence or poverty as the cause of Maoris committing crime. Others may also blame it way back on their ethnicity and culture. David Rankin, a Ngapuhi elder once said that they have come from a warrior race but because of colonization, they have no more battles to fight and they have too much time on hand so that their inner violent energy is not used up (Dinsdale, 2012). But what is the real cause of this? If nature, culture or ethnic origins are the not the cause of this Maori behaviour, what else? Just this decade, a new controversial idea was offered that became an issue both on scientific and political commentators. Dr. Rod Lea, a researcher from New Zealand and his contemporaries proposed that Maoris carry a â€Å"warrior gene† (Monoamine Oxidase) that makes them more prone to aggressive behaviour that may lead to violence, risky behaviours and criminal acts. He also said that it obviously means that they will be violent or may do risky behaviours but that doesn’t mean that once you are a carrier of this gene, it won’t automatically make you a criminal (Lea, R., Chambers, G. 2007). There may be some other factors at play that may affect their behaviours such as lifestyle, upbringing-related exposures and others. This specific gene was also associated to high rates of alcoholism, smoking and gambling in the said population group (Once were warriors: gene linked to Maori violence, 2006). Monoamine oxidase as the warrior gene Monoamine oxidase aka the warrior gene was coined by a scientific anthropologist Ann Gibson on an Annual Meeting of the American Association of Physical Anthropologists. (Gibbons, 2004). These enzymes are are involved in the breakdown and synthesis of neurotransmitters. Examples of which are serotonin and dopamine which controls emotions and moods. Being part of the breakdown, Monoamine oxidase (MAO) is capable of manipulating and influencing the person’s mood, emotion, feelings and behavior. Levels of monoamine oxidase (MAO) in the brain conclude how fast metabolism of these neurotransmitters occurs. Variations in level of MAO’s in the brain can affect the individual from panic attacks and anxiety disorders to violence and aggression (Anonymous, 2004). The Argument As stated on the introduction Dr. Rod Lea is a researcher from New Zealand. He and his contemporaries proposed that Maoris carry a â€Å"warrior gene† (monoamine oxidase) that makes them more prone to aggressive behaviour. The â€Å"warrior gene† has been linked to criminal acts and associated with risk taking, plus gambling, drug dependence and aggressiveness. Though this gene has been linked to different aggressive and risk taking behaviours, there is no concrete proof that this is the cause of such behaviours. Dr. Nicola Poa a research fellow at Christchurch School of Medicine negated Dr. Rod Lea’s idea. She said it is unheard or unlikely to link a behavior to its said host. Dr. Nicola also said there is a huge ethical behavior behind every action of Maori people. She also stated that it would be a big leap to conclude and connect that this gene would affect the behavior of an individual. She suggested that psychologists and psychiatrists should be involved in this kind of study. Genes are just the basic building blocks of a human being (Stokes, J., 2006). On the other hand, Dr Sam Hancox, a doctor in Otago Universitys at Dunedin Multidisciplinary Area, proposed that the connection between genes and human behavior should also take into consideration environmental factors. He said that a single gene can’t explain everything. It will always be a mixture of different factors (putting emphasis on environmental influences). I quote Dr. Sam Hancox: There is no specific gene for making a great rugby participant, but then if you have the wrong player or participant, no amount of coaching and teaching is going to guarantee he will be an All Black team player. You have to have the perfect set of genes and the perfect set of coaching and teaching. (Stokes, J., 2006). Another research was conducted in 2002. The Otago-based unit researched the results of changes and variation of the Monoamine Oxidase on maltreated and abused children. This research proved that one of the greatest factors of human behavior is his environment and experience. Researchers found some of the population group that they conducted their research on developed antisocial behaviors with high levels of Monoamine Oxidase, despite being maltreated. However 85 per cent of those who are severely maltreated and abused with low levels of the â€Å"warrior gene† also developed antisocial behaviors (Stokes, J., 2006). Another scientist emerged and contradicted Dr.Lea’s research and hypothesis. Dr. Gary Hooks point of view challenges the idea and concept that Maori’s are genetically wired to be aggressive, wild and commit acts of violence. Dr. Hook said there was an obvious flaw on Dr. Lea’s hypothesis especially in their scientific reasoning. Not only was the science criticized, but the ethics of claiming that genes are to blame in Maoris behavior is also questioned. He agreed that conviction rates for domestic violence of Maoris are more compared to other population groups in New Zealand but there is no indication that this is because of Monoamine Oxidase gene that are present in their bodies. This gene has nothing to do with their behavior. Maori nature was not the reason for high criminality rates, he said. Maybe the cause of such behaviors is due to the fact that Maoris are colonized for 160 years by a â€Å"Eurocentric† justice system. (Chapman, K., 2009) Dr. Rod Lea’s argument has been usually weak and unsupported because other factors may affect the behaviour of an individual such as the way they are brought up, social status, economic status and other lifestyle factors. (Stokes, J., 2006). Behavioural effects of MAO irregularities Accepting the argument that the â€Å"warrior gene† is related to Maori’s behaviour and traits is weak. There is no proof of exact evidence that this gene underlies a behavioural variation in man. Was the hypothesis made by the scientists and researches are way too impossible? Or was it a reasonable explanation for violent behaviours? MAOs are extremely vital for proper functioning of the brain as they inactivate or activate neurotransmitters. When this genes are in great quantity, there will also be great inactivation of these neurotransmitters. Depression, criminal deeds, phobias, dependence, addiction and other Neurological disorders can occur. (Batts, S., 2006). Abnormal Monoaminase Oxidase levels may manifest negative behaviors such as the following but not limited to Anxiety, personality disorders, antisocial behaviors, violence and risk taking, aggressive behavior, impulsive aggression, mental disorders, obesity, impulsivity, depression and suicidality impaired impulse control, mental retardation (such as autism, seizures, sleep disturbances) and panic disorders (Raumati Hook G. 2009).This might be the reason why scientists are associating this gene to Maori Behaviors. It seems like these scientists are placing the Maori culture under the category of mental health that being a Maori is a disease. They should also put into consideration that behavioural abnormalities cannot and should not only be isolated as to genetics. Environmental conditions should also be in the picture. The warrior gene versus Childhood experiences versus Maori self determination Concluding or proposing that the gene is to blame on Maori behaviour is the same as categorizing Maori behaviour as psychopath, with borderline psychosis or with psychological problem. Yes there are a huge number of diseases and ailments that may be associated with Monoamine Oxidase deficiency, but for the majority of people it functions quite well and consistently. Though conviction counts for domestic violence of this population group exceed those of other group, there is still no definite indication that the genes carried by Maoris functions differently from other ethnic groups and certainly has no evidence that it has something to do with having an aggressive or negative behaviour. (Stokes, 2006) Unpleasant childhood experiences negatively influence adulthood and how a man sees life, as seen on a recent study. The study was conducted by the Centers for Disease Control (CDC). According to the study, one out of four young adults was relentlessly maltreated during their childhood days and approximately half of adults in England have suffered an unpleasant childhood experience. Approximately one out of ten adults has experienced four or more undesirable experience during their childhood.There are different kinds and forms of childhood adversity; it may range from physical abuse to emotional neglect and stress. Examples of these forms of experiences are sexual abuse, emotional abuse, emotional neglect, physical abuse, physical neglect, substance abuse in home, mental illness in home, incarceration of family member, parenteral separation or divorce and witnessing against mother (McDonald, K. 2014). Tino Rangatiratanga or Principle of Self-determination is the sovereignty, independence, self-control and self-determination of the Maori people. The idea of Tino Rangatiratanga reinforces and allowing MÄ ori to take control of their own culture, fate, destiny and fortune (Smith, G.,1990). This may also be a factor in Maori behavior wherein they believe that they are the man for themselves. They control what they can. And Maori parents may or may not carry this behavior during their parenting that may affect the upbringing of their child. This may lead to negative behaviors as supported by the previous arguments. Despite of all the criticisms to Maori population group, they still have good traits in their hearts and culture. Manaakitanga is defined as being hospitable. They take a great pride in entertaining and hosting visitors to their land. Manuhiri on the other hand means the highest honour and respect are given by these people to visitors. Kaitiakitanga means guardianship (New Zealand Trade and Enterprise, n.d.). In relation to our study, Maori people are stewards and guardians of their own land. They are keeping it sacred and healthy for their â€Å"children† and â€Å"grandchildren† to inherit. Conclusion As a conclusion of this paper, Genes are not to blame on how people would behave in a society. Genes may be a factor, but it is still not concrete enough to prove everything. Environmental factors should also be taken into consideration especially on Maori’s parenting preference. Parenting has always been an issue not only in Maori’s population group but in every culture on how children would grow up. As I have learned on Values Education during my grade school days, a child’s mind is a clean paper wherein parents are the authors of what the content would be. I also believe that unpleasant childhood experiences will negatively influence adulthood that may lead to aggressiveness and negative behaviours. Every culture and population group have their own positive and negative charaecteristics that other culture may notice. Being aggressive and observed as being violent does not and should not only pertain to Maori’s population group. Putting the spotlight on this population group regarding aggressiveness is quite biased, to think that other population groups are way more aggressive to the point that they are killing and mutilating body parts of their own people. So for me, choice is the biggest factor of what you would become; a choice of who you want to be and what you want to be, combined with environmental and other factors. And if ever negative behaviour arises, it can be managed with the help of good support systems such as our family, friends, government or private institutions and others. Management of Domestic Violence As we discuss this research, domestic violence became a highlight. New Zealand has a law regarding rehabilitation and management of this matter. Domestic violence can never be prevented because it is a choice, but we can manage the outcome it has done with the person involved. Managing the outcome may prevent negative effects that domestic violence has done to an individual. The Domestic Violence Act of 1995 provides rehabilitation programme for those who are victims of domestic violence with protection orders. The Court contracts with other approved organizations and specialized individuals to offer programmes and rehabilitation. These said programmes contribute to the law’s principal goal of providing better protection for the victims of domestic violence. When the court decides that there should be a Protection Order, the person involved may request a programme that may provide information, support (whether psychological, emotional, physical etc.) and education that is related to domestic violence. This request can be made until the third year of the release of the Protection order.( Cram, F., Pihama, L., Jenkins, K., Karehana, M., 2002). Word Count: 2363 words â€Å"References Anonymous (2004). Progress in monoamine oxidase (MAO) research in relation to genetic engineering. Retrieved from http://www.ncbi.nlm.nih.gov/pubmed/14697876 Anonymous (2006). Once were warriors: gene linked to Maori violence. The Sydney Morning Herald. Retrieved from http://www.smh.com.au/news/world/once-were-warriors-gene-linked-to-maori-violence/2006/08/08/1154802890439.html Batts, S. (2006). The Maori, MAO Inhibitors, and the â€Å"Warrior Gene†. Retrospectacle: A Neuroscsience Blog. Retrieved from http://scienceblogs.com/retrospectacle/2006/08/10/the-maori-mao-inhibitors-and-t/ Chapman, K. (2009). Maori â€Å"warrior gene† Research Slammed. Retrieved from http://www.stuff.co.nz/national/2855426/Maori-warrior-gene-research-slammed Cram, F., Pihama, L., Jenkins, K., Karehana, M. (2002). Evaluation of Programmes for Mà ¤ori Adult Protected Persons under the Domestic Violence Act 1995. Ministry of Justice. Retrieved from http://www.kaupapamaori.com/assets/evaulations_programmes.pdf Dinsdale, M. (2012). Maori a violent people Rankin. The Northern Advocate. Retrieved from http://www.nzherald.co.nz/northern-advocate/news/article.cfm?c_id=1503450objectid=11051172 Gibbons, A. (2004). American Association of Physical Anthropologists meeting: tracking the evolutionary history of a â€Å"warrior† gene. Retrieved from http://www.sciencemag.org/cgi/content/summary/304/5672/818a Keller, T. E., Cusick, G. R., & Courtney, M. E. (2007). Approaching the transition to adulthood: Distinctive profiles of adolescents aging out of the child welfare system. Social Services Review, 81, 453-484. Lea, R., Chambers, G. (2007). Monoamine oxidase, addiction, and the â€Å"warrior† gene hypothesis. Journal of the New Zealand Medical Association, 120(1250). Retrieved June 12, 2008, from http://www.nzma.org.nz/journal/120-1250/2441/. McDonald, K. (2014). Adverse Childhood Experiences Affect Adult Behaviors.Psych Central. Retrieved on January 26, 2015, from http://psychcentral.com/blog/archives/2014/06/28/adverse-childhood-experiences-affect-adult-behaviors/ New Zealand Trade and Enterprise (n.d.) MANAAKITANGA, KAITIAKITANGA HOSPITALITY, GUARDIANSHIP. new zealand trade and enterprise retrieved from https://www.nzte.govt.nz/en/how-nzte-can-help/te-kete-tikanga-maori-cultural-kit/manaakitanga-kaitiakitanga-hospitality-guardianship/ Raumati Hook G. (2009). â€Å"Warrior genes† and the disease of being MÄ ori. MAI Review. Retrieved from http://www.review.mai.ac.nz/index.php/MR/article/viewFile/222/243 Smith, G. H. (1990) Research Issues Related to Maori Education. Retrieved from http://www.rangahau.co.nz/research-idea/27/ Statistics New Zealand (2008). Retrieved from http://www.stats.govt.nz/default.htm Statistics New Zealand (2012). Retrieved from http://www.stats.govt.nz/tools_and_services/media-centre/additional-releases/maori-population-estimates-15-nov-2012.aspx Stokes, J. (2006). Maori warrior gene claims appalling, says geneticist. The New Zealand Herald. Retrieved from http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1objectid=10395491 â€Å"

Analysis on Current Venture Capital Market in China

Analysis on Current Venture Capital Market in China Introduction The huge consumer market potential and booming economy in China attract enormous foreign direct investments to capitalize this unprecedented opportunity. Foreign venture capital is not exceptional from this trend. They, however, still have to face constant challenges from regulations, market practices and business cultures in China. To be successful in this marketplace totally different from their origin, foreign venture capitals need to adapt their previous strategies and experiences and test it through trial and error. This report is to get overall picture about current venture capital market in China. Then it will focus on the market position of foreign venture capitals. The report is followed by the analyses and summary on investment and exit strategies used by foreign venture capitals. Finally, the report will discuss the potential trend in China venture capital market. Key Objectives To get in-depth analysis on current venture capital market in China and foreign venture capitals market position in China. To analyze and summarize the investment strategies and exit strategies used by foreign venture capital in China. To make prediction on future market trend, especially foreign venture capital. Key Chapters General introduction on venture capital Historical development and current venture capital market in China Detail market position analysis on foreign venture capital in China Investment strategies of foreign venture capital in China Exit strategies of foreign venture capital in China Future trends in China venture capital market Introduction on Venture Capital Venture capital is source of funds to small firms that cannot establish credit relationships with bank or other financial institutions. As Gompers (2001) states: Companies that lack substantial tangible assets and have uncertain prospects are unlikely to receive significant bank loans. These firms face many years of negative earnings and are unable to make interest payments on debt obligations. Start-up high tech firms are exactly the type of firms that banks are least likely to lend to because of poor information availability and lack of tangible assets or assets that can be readily evaluated. Firms developing software or new technology for the communications or biotech industries are largely investing in human capital. In a nutshell, the VC firm is a relative small financial services professional organization that functions primarily to: (a) assess business opportunities; (b) provide capital; and (c) monitor, advise and assist the firms in its portfolio. By investing, the venture capitalists accept substantial tranche of illiquid equity that converts their status to something like partners to the entrepreneur. The goal of the venture capitalist is not only to increase the value of that equity but also to eventually monetize the investment through a liquidity event such as an initial public offering or sale to other investors. The other way of reaping the reward is liquidation due to the firm failure and bankruptcy. In all of these scenarios, the venture capitalist exits their investment to complete the VC process. The venture capital cycle is briefly visualized in below chart. Chart 1 Fund flow of Venture Capital Cycle Source: National Venture Capital Association Yearbook 2008 The National Venture Capital Association in the United States defines venture capital as money provided by professionals who invest alongside management in young, rapidly growing companies that have potential to develop into significant economic contributors. There are a number of key attributes associated with VC that distinguish it from other equity capital investments. Venture capital normally focuses on small firms that have great growth potential. These firms usually are not mature enough to be traded in public equity markets. Compared with public equity investment, venture capital investment has poorer liquidity with more severe information asymmetry and higher investment risks. Venture capital investment is also different from angel capital. Managers of angel capital use their personal money to invest. In contrast, investments professionals who raise money from other investors manage venture capital. Angle capital invests more often in the seed stage of the start up firms than venture capital does. Finally, venture capital is different from non-venture private equity investments (such as buyouts, restructure, and mezzanine funds). Firms backed by venture capital usually have considerable growth potential. For these firms, the cash flow generated from operations is usually insufficient to support finance growth and debt financing is usually not available. In contrast, private equity funds target more mature firms that have stable cash flows and limited growth potential. The Table 1 below summarizes the investment stages and types of funding for different investment styles. Table 1. Types of Funding and Investment Stage Source: A Guild To Venture Capital (3rd edition) by Irish Venture Capital Association There are five stages (BVCAPWC, 1998) in the development of venture-backed companies, which can be defined as: 1. Seed 2. Start-up 3. Other early stages (exploration) 4. Expansion 5. Maturity (exit). The definition of the company stage is different with the definition of the financing round. The negotiation of a VC investment is a time-consuming and economically costly process for all parties. Neither the VCs nor the portfolio firms want to repeat the process very often. Therefore VCs have to balance the cost of negotiation and potential risks from one time investment. Typically, a VC will try to provide sufficient financing for a company to reach some natural milestone, such as the development of a prototype product, the acquisition of a major customer, or a cash flow breakeven. Each financing event is known as a round. So the first time a company receives financing is known as the first round (or Series A), the next time the second round (or Series B), and so on and so forth. With each well-defined milestone, the parties can return to the negotiating table with some new information. These milestones differ across industries and depend on market conditions. A company might receive several rounds of investment at any stage, or it might receive sufficient investment in one round to bypass multiple stages. One special situation is the down round. It is when the company does not meet milestones and the VC still needs to invest but at a lower valuation than prior round of financing. Venture Capital in China Why invest in China? There are four major popular arguments behind for the investment rush to east. Reason 1: High Rate of Economic Growth Chinas impressive economic growth for the past 30 years, averaging between 8% to 10% real growth per year, has been the envy of the developing world. The size of Chinese economy by the end of 2006 reached US$2.62 trillion, 13 times larger than that in 1978 when measured in constant RMB (MasterCard Worldwide Insight, 2007). According to Goldman Sachs China economic research (2003), per capita GDP expect to grow from less than $5,000 at that time to more than $30,000 in 2050 (refer to Chart 2). China will have a middle class of more than 500 million by 2025 larger than the entire population of the United States. It represents a huge emerging demand for everything from integrated circuits to cars. 500M mobile users, 130M Internet users, 104M broadband users and 4.5M college graduates every year could all transfer into huge business opportunity (represented in Chart 3). Based on the estimation (Chart 4) from Mckinsey, there will be sustainable market growth to 2025 in every business that related with peoples life and daily consumption. Huge opportunities for venture capital are Internet (B2B, B2C, C2C, online gaming, website portal and web 2.0), semiconductors, technologies (clean energy, medical, biotech and traditional manufacturing), and consumer businesses (food, clothes, shopping and other entertainments). Chart 2 China GDP Growth Forecast (2000-2050) Source: Goldman Sachs 2003 Chart 3 China Energy/Material supply imbalance (2010) Source: Goldman Sachs 2003 Chart 4 Urban Chinese Consumers Demand Forecast (2004-2025) Source: National Bureau of Statistics of China; Mckinsey Global Institute Analysis Reason 2: Inefficient Capital Market In the United States and Europe, private and public capital markets compete as sources of capital. However, China does not yet have an equity culture despite the adoption of market-oriented policies. In China, the public equity market lists inefficient and unappealing state owned enterprises (SOE) most of the times. And government holds roughly 60-70% of share capital of most listed companies. Few private firms are listed in the stock market due to legal and policy hurdle. Chinas bond market is similarly underdeveloped. Chinese corporate bonds account for less than 2% of corporate financing. Thin trading between banks and investors makes issuing bonds unattractive for fundraising or investing. Insurers and fund managers therefore have few fixed-income securities to hedge against mid- and long-term risks. The corporate bond market just started to function in late 2007 by allowing public listed firms to issue corporate debts. Around 95% of financing for Chinese companies now is still provided by bank loans. The domestic banks, however, have tendency to provide loans to stated owned company rather than private firms, especially small and medium businesses (SMB). With the poor functioning financial markets and policy discrimination, venture capital and private equity become important sources of growth capital for private firms. It is one of the key reasons that venture capital is so popular among private firms in China across different industries even including traditional industries like food, hotel and travel etc. Reason 3: Creative Solutions/Early Adopting Consumers One of the most unexpected attributes of the emerging Chinese market economy is how consumer-savvy its entrepreneurs are. Even after decades of centralized economic planning, the Chinese remain consummate creators and marketers of interesting products. Definitely the creativity and innovations are only limited in certain business for talents availability and their professional capabilities. Online gaming, wireless instant messaging, and wireless value added services are just three markets that the Chinese more or less created out of thin air. Each of these businesses has growing customer bases (and have spawned successful public companies like Shanda, Netease, Tencent, and Linktone). But none of them has significant participants yet in the United States. Different consumer behaviors contribute to this phenomenon as well. In below case study on Tencent, it provides a great example on how to innovate the Internet product offerings to cater the needs of online generation. Case study: QQ of Tencent (Adapted from www.tencent.com) Tencent (listed in HK stock exchange) is the #1 Instant Messaging (IM) service provider in China. Tencents IM community counts over 270 million active accounts and is said to be covering 95% of Chinese Internet users and 70% of Chinas IM market (MSN/Yahoo account for the rest market). QQ is the brand for its IM. Same as other IMs, QQ is a free tool to use. Tencent, however, came up the idea to generate revenue stream by allowing users to buy and exchange virtual items (clothes and background image) online to decorate his or her QQ head icon. Tencent even created its own cyber currency called Q Bi and 1 Q Bi = 1RMB (0.14 USD) to facilitate the transaction and reduce barrier of online purchasing. The estimated revenue generated from those Internet value added services in 2007 is around USD$360M. Reason 4: Risk-taking, Innovative Culture In the last fifteen years, the privatization reform is one of the critical forces in stimulating China economy growth. This privatization wave also generated tens of thousands entrepreneurs. The business culture is naturally comfortable with risks and with developing innovative ways to solve problems and create wealth both for individuals and for society at large. The successful stories of VC backed entrepreneurs further promote the risk taking culture in China and the awareness and popularity of venture capital. The Focus Media case below illustrates the power of business model innovation by its unprecedented expansion speed ever in Chinas business history. There is no doubt that foreign VCs played an important role in this story to make Focus Media successful. Case study: Focus Media China (Adapted from www.focus.com) Founded in 2003, Focus Media is Chinas largest Digital Media Group in China now. The founder, Mr. Jiang Nanchun, came up with an innovative approach in operating out-of-home advertising network using audiovisual digital displays. Basically, the idea was to display the LCD near or in the elevators in commercial centers (like office buildings and shopping malls). While waiting for or in the elevators, people would watch the contents advertised in those LCDs. By selecting and contracting with high quality commercial buildings, Focus Media was able to quickly build up its network scale and attract many advertising contracts. Tow foreign VC firms, Soft Bank and UCI, invested in the first round. And another five VCs, CDH, TDF, DFJ, WI Harper and Milestone, invested in the second round. Two years after operation, Focus Media was listed on Nasdaq with USD$172M IPO and now it is part of Nasdaq 100 index. Historical development Infancy stage: 1984 1995 In 1984, the Research Center of Science and Technology Development of the State Science Technology Commission (SSTC) (now the Ministry of Science Technology or MOST) cooperated with British experts to study how to develop high-tech in China. The British experts proposed that venture capital should be developed if China wanted to foster high technology. In 1985, the Central Commission of the Chinese Communist Party and the State Council pointed out in the Decision of Science-Technology System Reform that venture capital could be set up to support the work of developing high-tech with quick change and high risk. It was the first time that the concept of venture capital appeared in an official Chinese Government document. With the government decision to develop high technology industries, the Central Government and some local governments financed and set-up series of investment institutions that intended to pursue the venture capital business from 1985 to 1995. Examples are China New Technology Venture Capital Company, Shenyang Science-Technology Venture Development Risk Center, Shanxi Head Office of Science-Technology Fund Development, Guangdong Science-Technology Venture Capital Company, Shanghai Science-Technology Venture Capital Company, and the Science-Technology Venture Capita Company of Zhejiang Province. Moreover, venture centers (i.e., high tech incubators) were set-up in the majority of national high-tech parks. Simultaneously, some overseas investment banks, funds and venture capital institutions also started to expand their business into China. For example, the Pacific Technology Venture Capital Fund subordinate to IDG entered China in 1992. It cooperated with science-technology commissions in Beijing, Shanghai and Guangdong, and set-up a number of venture capital companies focused on investing in technology companies. Also, some foreign capital or joint stock investment institutions established venture capital businesses. Asia Venture Capital Journal (AVCJ, 2001) shows that $16 million was raised for venture capital investments in 1991. In 1992, the total funds raised jumped to $583million, a thirty-fold increase compared with the $16 million in 1991. The first wave reached its peak in 1995, with $678 million in investment (AVCJ, 2001).The first wave of venture capital investments was brought by international venture capitalists. The international venture capital firms accounted for more than 95% of the total fund raised in the early and mid 1990s. The absolute dominance of international venture capital funds in China in the early and mid 1990s was mainly due to Chinas strict regulations against fund-raising and the general lack of awareness of venture capital in China. Private fund-raising by individuals or private firms without government approval was strictly prohibited in China. This strict regulation essentially removed the possibility for venture capitalists to raise funds within China. It meant that only international venture capital funds and state owned enterprises (SOE) venture capital funds could operate. International venture capital funds could bypass the regulation because they were incorporated and they raised funds outside of China. SOE funds relied on government appropriation as funding sources and did not have this fund raising problem either. Early Growth: 1996 2001 From the mid-1990s, the perception of venture capital shifted from being a type of government funding to being a commercial activity necessary to support the commercialization of new technology. As there were still no laws or regulations about setting up foreign venture capital institutions in China, many overseas investment institutions established their branches in Hong Kong, aiming to invest in the mainland. They had also located representative offices in some major cities, primarily Beijing and Shanghai. Most of the VCs active in China in the early 90s were American firms. The VC industry in the U.S. had matured and attracted a significant amount of funds. Shortly after 1995 a sharp increase from US$5 billion to US$110 billion in funds raised created the phenomenon of money chases deals (Gompers Lerner, 1999). A cadre of experienced American VCs started searching the world for investment opportunities, attempting to replicate the Silicon Valley model. Since 1998, there had been a discernible recognition of the critical success factors necessary to create an environment in which venture capital could operate smoothly and flourish. Specifically, the Governments official decision to support the development of venture capital was the key factor that had allowed Chinas venture capital industry to come into being in a new and more positive environment. In Beijing, alone, there were about 30 independent venture capital institutions, whose capital amounted to an estimated $450 million. In Shenzhen, there were at least 20 independent venture capital institutions with capital amounted to over $500 million. After 2000, China also experienced hard landing in its young VC industry due to dotcom bubble burst and came with huge casualties. It took the VC community 3 years to recover. Fast Growth: 2002 present Although initial government-backed investment operations generally failed, there has been resurgence in venture capital activity since Chinas admission to the WTO (Kenny, Han and Tanaka 2002). Capital available for investment in Mainland China keeps a steady growth trend from 2002. The capital size was increased to US$21.32B by 2007 from US$10.50B in 2002. The average compound annual growth rate (CAGR) reaches 15.2%. Venture capital investment grew rapidly from $480 million in 2002 to more than $3,247 million in 2007, invested in 440 China mainland or mainland-related enterprises (Zero2IPO 2007). According to Zero2IPO report, USD$4B VC funds were raised each year in 2005 and 2006 for China investment. But Chinas annual consumption was no more than $2B. The money chasing deal phenomenon started to emerge in China. Many foreign VC funds, especially first-time funds raised after 2005, had the pressure to pour out investment quickly to avoid US dollar depreciation against RMB and to get better deals under fierce competition. While the funding supply multiplied, quality deal flows did not increase at the same pace. Under the simple supply and demand mechanism, valuations of the China deal kept at relative high level. However, considering the fact that a big portion of funding was focusing on local value-add service segments (i.e. internet, web2.0 and broadband etc.), the issue of funds over-supply was sector specific. To get higher return under the competition, VC firms started to invest in traditional business models such as hotels, travels and fast food chains beyond their core activities such as TMT (Technology, Media and Telecom) or Internet related businesses. It was the special phenomenon happened in China now that VCs were more like PE. Legal and Regulations According to Megginson (2004), the differences in the design and the degree of development of the PE/VC industry are due to institutional factors, with the countrys legal system being paramount. Two major factors are paramount in evaluating legal system: contract law enforcement and protection of shareholder rights through effective corporate governance. Cumming and Macintosh (2002) observed that PE/VC managers in high enforcement countries had a greater tendency to invest in high-tech SMBs, exit through IPOs rather than buybacks and obtain higher returns. Cumming et al. (2004) further examined legal system effects on governance structure. Under better legal systems: the faster the origination and screening of deals; the higher the probability of syndication; less frequently funds of the same organization used to invest in a given company; the easier the board representation of investors; the lower the probability that investors required periodic cash flows prior to exit; and the higher the probability of investment in high-tech companies. Lerner and Schoar (2005) show that in a bad legal environment, PE/VC managers tend to buy controlling stakes, leaving the entrepreneurial team with weaker incentives. Interestingly, valuations tend be positively correlated with the quality of the legal environment. Kaplan et al. (2003) go deeper into the contractual aspects and found that rights over cash flows, liquidation and control, as well as board participation vary according to the quality of the legal system, the accounting standards and investor protection across countries. However, more sophisticated PE/VC managers tend to operate in the U.S. style irrespective of local institutional concerns. The authors show that managers operating with convertible preferred stocks are less prone to failure (as measured by survivorship rate). The results suggest that the U.S. contractual style can be efficient in different institutional environments. Bottazzi et al. (2005) corroborate some of the previous results and obtain further evidence on the home-country effect (PE/VC managers operating abroad tend to maintain the investment style used at home). This is observed in managers based in both good and bad legal environments. The Chinese regulations governing foreign venture capital investment are chaotic and rapidly changing. In 2005, Chinese authorities issued new guidelines (effective in 2006) intending to foster domestic venture capital firms. There is no specific regulation to monitor and stimulate the VC activities in China. The new guidelines recommended that local governments provide financing assistance, favorable tax treatment, and direct investment in Chinese venture capital firms. They also provide less stringent capitalization, investment amount, investor qualification and regulatory requirements than those applicable to FICVEs (Guerrera, Yee and Yeh, 2005). FIVCEs instead are governed by 2003 regulations that include high investment and qualification thresholds, government approval requirements, and strict foreign exchange limitations on the ability to remit profits and dividends back to the investor (Hoo, et al 2005a). Substantial legal and de facto restraints on the ability of FIVCEs to access the stock markets in China and overseas for IPO listings make exit strategies extremely difficult. For these reasons, foreign venture capital firms investing in China usually do not use FIVCEs but rely on offshore holding companies created to receive their investments. Foreign venture capital firms (most of which are U.S. based) investing in China generally have done so through the restructuring of Chinese companies into offshore investment vehicles. These enable an easier exit from investments either by selling shares on international stock markets or through a trade sale to another foreign buyer. In January of 2005, Chinese authorities brought these transactions to a virtual standstill, however, with the issuance of new regulations preventing any onshore resident from establishing, controlling or owning shares in an offshore company without the approval of the Government, either directly or indirectly. The regulations were intended to stop managers of SOEs receiving venture capital investments from stripping state assets and selling them cheaply to overseas companies, and to preclude domestic companies from using the overseas vehicles to gain foreign investor tax exemption status. However, they choked off legitimate transactions as well. There were no government approvals of offshore investment transactions in 2005. With only limited exceptions for transactions in process, foreign venture capital financing through offshore investment vehicles screeched to a halt in 2005 (Borrell and Jerry, 2005). Then, in November of 2005, the Chinese authorities issued superseding regulations. These require registration of offshore investment vehicles with the State Administration of Foreign Exchange (SAFE), but do not require the agencys approval of the transaction. They also require repatriation of all distributions of income from the investment within a fixed time frame. Like the previous regulations, the new ones do not describe specifically the registration process, the procedures involved, the scope of review nor the time required for completion, creating substantial uncertainty for foreign venture capital investors (Hoo, et al 2005b). Despite this changing regulatory landscape, many U.S. based venture capital firms have active plans for substantial investments in 2006 spurred by Chinas high growth potential, the success of recent venture-backed startups on the NASDAQ including Baidu.com and China Medical Technologies and by pent up demand after the 2005 halt in new investments (Borrell, Jerry and Aragon 2005). Hidden risk and solutions Lagging legislation and inexplicit policies in China created many uncertainties and entry barriers for foreign VCs. Below are summary of the critical problems: Chinas lawmaking on VC investment remains stagnant Existing laws such as Corporation Law, Joint Venture Law, Patent Law, etc., in many aspects even contradict VC investment. Does VC investment count as foreign investment? What status and treatment should it enjoy? The concerned authorities cannot provide clear answers to these questions. Its not clear that the amount of shares that foreign venture capital is allowed to hold when partnering with Chinese enterprises, and the way foreigners to remit in/out of foreign exchange are poorly defined. There are three available approaches for foreign venture capital firms to enter China venture capital market legally. Establishing offshore venture capital fund focusing on China Establishing a foreign invested VC firm in China (Joint VC with local player/Wholly Owned Foreign firm) as a legal person entity Establishing a foreign invested VC firm in China (Joint VC with local player/Wholly Owned Foreign firm) as a non-legal person entity To avoid the legal and regulation barriers, foreign venture capital funds usually takes the offshore investment route. Foreign VCs will use offshore USD fund to invest into China deals offshore holding entities with all equity activities happening outside of Chinese jurisdiction. The distinction of USD offshore holding investment and RMB local entity investment is a particular phenomenon in China. Offshore holding arrangement is a preferred structure for Chinese entrepreneurs and VCs as it provides a feasible and practical route for funding, divestment and all equity events. Its advantage and attractiveness to Chinese entrepreneurs and VC communities: Go away from laws and regulations in China. Many of them are not friendly to venture activities, such as lack of preferred shares, stock options limitation, double tax etc. Bypassing capital account control on foreign exchange. More flexible and usually profitable divestment options by overseas IPO, MA or trade sales. Offshore route investment involves the following steps: The Chinese founders set up an offshore holding company in Cayman Island or BVI with the shareholding structure and management control mirroring those of their local company in China. With kind of swap scheme, transferring the equity they hold in the Chinese local company to the offshore holding. This will typically convert the local company into a WFOE (Wholly Foreign Owned Enterprise). The offshore holding company will then be the vehicle seeking VC investment, future funding as well as for listing or be merged. All equity events happen in offshore. Companies funding and IPO proceeds will be kept offshore, and remit into China as and when operation required. Chinese founders assets, rights and proceeds stay offshore. The whole exercise is carried out essentially with an IPO at an overseas stock exchange, such as NASTAQ or Hong Kong Stock Exchange in vision. (The concept and process is visualized in chart 5.) Chart 5 Foreign VC Offshore Investment Process Source: A legal perspective on Chinas venture capital rush, Mar 2006 Restrictions in Chinas corporate regulations and limitations at the domestic capital markets explain foreign VCs preference in taking offshore route to organize their China investment. VC investors rely normally on preferred stocks or convertible preferred stock to secure a preferential return. Chinese corporate regulations allow only one class of common stock for a FIVCE with investment in a Chinese portfolio company. Notably, local VC firms would have the possibility to arrange preferred stock scheme with their investee company according to a newly issued charter regulation applicable to domestic VC firms. This gives rise to concern on the principle of national treatment under WTO law. Moreover, China domestic stock market does not provide a ready access for venture-backed companies. The conditions for listing at Shanghai or Shenzhen main-board market are too stringent for high-tech start-up companies. Even if listing conditions could be met, the queue in the pipeline waiting for a listing window is at the moment frustrating. In fact, the two domestic stock exchanges have halted the IPO since two years in the call for addressing the notorious overhang of nontransferable legal person shares. The undergoing endeavor is focusing on floating all stock legal person shares. Since the value of stock legal person shares is roughly twice of those trading in the stock exchange, full floating of legal person shares at stock is imposing acute challenge on the market place. This would mean that the suspension on IPO of new shares would be expected for a rather extended term. By leveraging on an offshore holding structure, foreign VCs could take advantage of the corporate governance in a jurisdiction where they feel most comfortable and bypass the restrictions under Chinese corporate law. VCs could take the Analysis on Current Venture Capital Market in China Analysis on Current Venture Capital Market in China Introduction The huge consumer market potential and booming economy in China attract enormous foreign direct investments to capitalize this unprecedented opportunity. Foreign venture capital is not exceptional from this trend. They, however, still have to face constant challenges from regulations, market practices and business cultures in China. To be successful in this marketplace totally different from their origin, foreign venture capitals need to adapt their previous strategies and experiences and test it through trial and error. This report is to get overall picture about current venture capital market in China. Then it will focus on the market position of foreign venture capitals. The report is followed by the analyses and summary on investment and exit strategies used by foreign venture capitals. Finally, the report will discuss the potential trend in China venture capital market. Key Objectives To get in-depth analysis on current venture capital market in China and foreign venture capitals market position in China. To analyze and summarize the investment strategies and exit strategies used by foreign venture capital in China. To make prediction on future market trend, especially foreign venture capital. Key Chapters General introduction on venture capital Historical development and current venture capital market in China Detail market position analysis on foreign venture capital in China Investment strategies of foreign venture capital in China Exit strategies of foreign venture capital in China Future trends in China venture capital market Introduction on Venture Capital Venture capital is source of funds to small firms that cannot establish credit relationships with bank or other financial institutions. As Gompers (2001) states: Companies that lack substantial tangible assets and have uncertain prospects are unlikely to receive significant bank loans. These firms face many years of negative earnings and are unable to make interest payments on debt obligations. Start-up high tech firms are exactly the type of firms that banks are least likely to lend to because of poor information availability and lack of tangible assets or assets that can be readily evaluated. Firms developing software or new technology for the communications or biotech industries are largely investing in human capital. In a nutshell, the VC firm is a relative small financial services professional organization that functions primarily to: (a) assess business opportunities; (b) provide capital; and (c) monitor, advise and assist the firms in its portfolio. By investing, the venture capitalists accept substantial tranche of illiquid equity that converts their status to something like partners to the entrepreneur. The goal of the venture capitalist is not only to increase the value of that equity but also to eventually monetize the investment through a liquidity event such as an initial public offering or sale to other investors. The other way of reaping the reward is liquidation due to the firm failure and bankruptcy. In all of these scenarios, the venture capitalist exits their investment to complete the VC process. The venture capital cycle is briefly visualized in below chart. Chart 1 Fund flow of Venture Capital Cycle Source: National Venture Capital Association Yearbook 2008 The National Venture Capital Association in the United States defines venture capital as money provided by professionals who invest alongside management in young, rapidly growing companies that have potential to develop into significant economic contributors. There are a number of key attributes associated with VC that distinguish it from other equity capital investments. Venture capital normally focuses on small firms that have great growth potential. These firms usually are not mature enough to be traded in public equity markets. Compared with public equity investment, venture capital investment has poorer liquidity with more severe information asymmetry and higher investment risks. Venture capital investment is also different from angel capital. Managers of angel capital use their personal money to invest. In contrast, investments professionals who raise money from other investors manage venture capital. Angle capital invests more often in the seed stage of the start up firms than venture capital does. Finally, venture capital is different from non-venture private equity investments (such as buyouts, restructure, and mezzanine funds). Firms backed by venture capital usually have considerable growth potential. For these firms, the cash flow generated from operations is usually insufficient to support finance growth and debt financing is usually not available. In contrast, private equity funds target more mature firms that have stable cash flows and limited growth potential. The Table 1 below summarizes the investment stages and types of funding for different investment styles. Table 1. Types of Funding and Investment Stage Source: A Guild To Venture Capital (3rd edition) by Irish Venture Capital Association There are five stages (BVCAPWC, 1998) in the development of venture-backed companies, which can be defined as: 1. Seed 2. Start-up 3. Other early stages (exploration) 4. Expansion 5. Maturity (exit). The definition of the company stage is different with the definition of the financing round. The negotiation of a VC investment is a time-consuming and economically costly process for all parties. Neither the VCs nor the portfolio firms want to repeat the process very often. Therefore VCs have to balance the cost of negotiation and potential risks from one time investment. Typically, a VC will try to provide sufficient financing for a company to reach some natural milestone, such as the development of a prototype product, the acquisition of a major customer, or a cash flow breakeven. Each financing event is known as a round. So the first time a company receives financing is known as the first round (or Series A), the next time the second round (or Series B), and so on and so forth. With each well-defined milestone, the parties can return to the negotiating table with some new information. These milestones differ across industries and depend on market conditions. A company might receive several rounds of investment at any stage, or it might receive sufficient investment in one round to bypass multiple stages. One special situation is the down round. It is when the company does not meet milestones and the VC still needs to invest but at a lower valuation than prior round of financing. Venture Capital in China Why invest in China? There are four major popular arguments behind for the investment rush to east. Reason 1: High Rate of Economic Growth Chinas impressive economic growth for the past 30 years, averaging between 8% to 10% real growth per year, has been the envy of the developing world. The size of Chinese economy by the end of 2006 reached US$2.62 trillion, 13 times larger than that in 1978 when measured in constant RMB (MasterCard Worldwide Insight, 2007). According to Goldman Sachs China economic research (2003), per capita GDP expect to grow from less than $5,000 at that time to more than $30,000 in 2050 (refer to Chart 2). China will have a middle class of more than 500 million by 2025 larger than the entire population of the United States. It represents a huge emerging demand for everything from integrated circuits to cars. 500M mobile users, 130M Internet users, 104M broadband users and 4.5M college graduates every year could all transfer into huge business opportunity (represented in Chart 3). Based on the estimation (Chart 4) from Mckinsey, there will be sustainable market growth to 2025 in every business that related with peoples life and daily consumption. Huge opportunities for venture capital are Internet (B2B, B2C, C2C, online gaming, website portal and web 2.0), semiconductors, technologies (clean energy, medical, biotech and traditional manufacturing), and consumer businesses (food, clothes, shopping and other entertainments). Chart 2 China GDP Growth Forecast (2000-2050) Source: Goldman Sachs 2003 Chart 3 China Energy/Material supply imbalance (2010) Source: Goldman Sachs 2003 Chart 4 Urban Chinese Consumers Demand Forecast (2004-2025) Source: National Bureau of Statistics of China; Mckinsey Global Institute Analysis Reason 2: Inefficient Capital Market In the United States and Europe, private and public capital markets compete as sources of capital. However, China does not yet have an equity culture despite the adoption of market-oriented policies. In China, the public equity market lists inefficient and unappealing state owned enterprises (SOE) most of the times. And government holds roughly 60-70% of share capital of most listed companies. Few private firms are listed in the stock market due to legal and policy hurdle. Chinas bond market is similarly underdeveloped. Chinese corporate bonds account for less than 2% of corporate financing. Thin trading between banks and investors makes issuing bonds unattractive for fundraising or investing. Insurers and fund managers therefore have few fixed-income securities to hedge against mid- and long-term risks. The corporate bond market just started to function in late 2007 by allowing public listed firms to issue corporate debts. Around 95% of financing for Chinese companies now is still provided by bank loans. The domestic banks, however, have tendency to provide loans to stated owned company rather than private firms, especially small and medium businesses (SMB). With the poor functioning financial markets and policy discrimination, venture capital and private equity become important sources of growth capital for private firms. It is one of the key reasons that venture capital is so popular among private firms in China across different industries even including traditional industries like food, hotel and travel etc. Reason 3: Creative Solutions/Early Adopting Consumers One of the most unexpected attributes of the emerging Chinese market economy is how consumer-savvy its entrepreneurs are. Even after decades of centralized economic planning, the Chinese remain consummate creators and marketers of interesting products. Definitely the creativity and innovations are only limited in certain business for talents availability and their professional capabilities. Online gaming, wireless instant messaging, and wireless value added services are just three markets that the Chinese more or less created out of thin air. Each of these businesses has growing customer bases (and have spawned successful public companies like Shanda, Netease, Tencent, and Linktone). But none of them has significant participants yet in the United States. Different consumer behaviors contribute to this phenomenon as well. In below case study on Tencent, it provides a great example on how to innovate the Internet product offerings to cater the needs of online generation. Case study: QQ of Tencent (Adapted from www.tencent.com) Tencent (listed in HK stock exchange) is the #1 Instant Messaging (IM) service provider in China. Tencents IM community counts over 270 million active accounts and is said to be covering 95% of Chinese Internet users and 70% of Chinas IM market (MSN/Yahoo account for the rest market). QQ is the brand for its IM. Same as other IMs, QQ is a free tool to use. Tencent, however, came up the idea to generate revenue stream by allowing users to buy and exchange virtual items (clothes and background image) online to decorate his or her QQ head icon. Tencent even created its own cyber currency called Q Bi and 1 Q Bi = 1RMB (0.14 USD) to facilitate the transaction and reduce barrier of online purchasing. The estimated revenue generated from those Internet value added services in 2007 is around USD$360M. Reason 4: Risk-taking, Innovative Culture In the last fifteen years, the privatization reform is one of the critical forces in stimulating China economy growth. This privatization wave also generated tens of thousands entrepreneurs. The business culture is naturally comfortable with risks and with developing innovative ways to solve problems and create wealth both for individuals and for society at large. The successful stories of VC backed entrepreneurs further promote the risk taking culture in China and the awareness and popularity of venture capital. The Focus Media case below illustrates the power of business model innovation by its unprecedented expansion speed ever in Chinas business history. There is no doubt that foreign VCs played an important role in this story to make Focus Media successful. Case study: Focus Media China (Adapted from www.focus.com) Founded in 2003, Focus Media is Chinas largest Digital Media Group in China now. The founder, Mr. Jiang Nanchun, came up with an innovative approach in operating out-of-home advertising network using audiovisual digital displays. Basically, the idea was to display the LCD near or in the elevators in commercial centers (like office buildings and shopping malls). While waiting for or in the elevators, people would watch the contents advertised in those LCDs. By selecting and contracting with high quality commercial buildings, Focus Media was able to quickly build up its network scale and attract many advertising contracts. Tow foreign VC firms, Soft Bank and UCI, invested in the first round. And another five VCs, CDH, TDF, DFJ, WI Harper and Milestone, invested in the second round. Two years after operation, Focus Media was listed on Nasdaq with USD$172M IPO and now it is part of Nasdaq 100 index. Historical development Infancy stage: 1984 1995 In 1984, the Research Center of Science and Technology Development of the State Science Technology Commission (SSTC) (now the Ministry of Science Technology or MOST) cooperated with British experts to study how to develop high-tech in China. The British experts proposed that venture capital should be developed if China wanted to foster high technology. In 1985, the Central Commission of the Chinese Communist Party and the State Council pointed out in the Decision of Science-Technology System Reform that venture capital could be set up to support the work of developing high-tech with quick change and high risk. It was the first time that the concept of venture capital appeared in an official Chinese Government document. With the government decision to develop high technology industries, the Central Government and some local governments financed and set-up series of investment institutions that intended to pursue the venture capital business from 1985 to 1995. Examples are China New Technology Venture Capital Company, Shenyang Science-Technology Venture Development Risk Center, Shanxi Head Office of Science-Technology Fund Development, Guangdong Science-Technology Venture Capital Company, Shanghai Science-Technology Venture Capital Company, and the Science-Technology Venture Capita Company of Zhejiang Province. Moreover, venture centers (i.e., high tech incubators) were set-up in the majority of national high-tech parks. Simultaneously, some overseas investment banks, funds and venture capital institutions also started to expand their business into China. For example, the Pacific Technology Venture Capital Fund subordinate to IDG entered China in 1992. It cooperated with science-technology commissions in Beijing, Shanghai and Guangdong, and set-up a number of venture capital companies focused on investing in technology companies. Also, some foreign capital or joint stock investment institutions established venture capital businesses. Asia Venture Capital Journal (AVCJ, 2001) shows that $16 million was raised for venture capital investments in 1991. In 1992, the total funds raised jumped to $583million, a thirty-fold increase compared with the $16 million in 1991. The first wave reached its peak in 1995, with $678 million in investment (AVCJ, 2001).The first wave of venture capital investments was brought by international venture capitalists. The international venture capital firms accounted for more than 95% of the total fund raised in the early and mid 1990s. The absolute dominance of international venture capital funds in China in the early and mid 1990s was mainly due to Chinas strict regulations against fund-raising and the general lack of awareness of venture capital in China. Private fund-raising by individuals or private firms without government approval was strictly prohibited in China. This strict regulation essentially removed the possibility for venture capitalists to raise funds within China. It meant that only international venture capital funds and state owned enterprises (SOE) venture capital funds could operate. International venture capital funds could bypass the regulation because they were incorporated and they raised funds outside of China. SOE funds relied on government appropriation as funding sources and did not have this fund raising problem either. Early Growth: 1996 2001 From the mid-1990s, the perception of venture capital shifted from being a type of government funding to being a commercial activity necessary to support the commercialization of new technology. As there were still no laws or regulations about setting up foreign venture capital institutions in China, many overseas investment institutions established their branches in Hong Kong, aiming to invest in the mainland. They had also located representative offices in some major cities, primarily Beijing and Shanghai. Most of the VCs active in China in the early 90s were American firms. The VC industry in the U.S. had matured and attracted a significant amount of funds. Shortly after 1995 a sharp increase from US$5 billion to US$110 billion in funds raised created the phenomenon of money chases deals (Gompers Lerner, 1999). A cadre of experienced American VCs started searching the world for investment opportunities, attempting to replicate the Silicon Valley model. Since 1998, there had been a discernible recognition of the critical success factors necessary to create an environment in which venture capital could operate smoothly and flourish. Specifically, the Governments official decision to support the development of venture capital was the key factor that had allowed Chinas venture capital industry to come into being in a new and more positive environment. In Beijing, alone, there were about 30 independent venture capital institutions, whose capital amounted to an estimated $450 million. In Shenzhen, there were at least 20 independent venture capital institutions with capital amounted to over $500 million. After 2000, China also experienced hard landing in its young VC industry due to dotcom bubble burst and came with huge casualties. It took the VC community 3 years to recover. Fast Growth: 2002 present Although initial government-backed investment operations generally failed, there has been resurgence in venture capital activity since Chinas admission to the WTO (Kenny, Han and Tanaka 2002). Capital available for investment in Mainland China keeps a steady growth trend from 2002. The capital size was increased to US$21.32B by 2007 from US$10.50B in 2002. The average compound annual growth rate (CAGR) reaches 15.2%. Venture capital investment grew rapidly from $480 million in 2002 to more than $3,247 million in 2007, invested in 440 China mainland or mainland-related enterprises (Zero2IPO 2007). According to Zero2IPO report, USD$4B VC funds were raised each year in 2005 and 2006 for China investment. But Chinas annual consumption was no more than $2B. The money chasing deal phenomenon started to emerge in China. Many foreign VC funds, especially first-time funds raised after 2005, had the pressure to pour out investment quickly to avoid US dollar depreciation against RMB and to get better deals under fierce competition. While the funding supply multiplied, quality deal flows did not increase at the same pace. Under the simple supply and demand mechanism, valuations of the China deal kept at relative high level. However, considering the fact that a big portion of funding was focusing on local value-add service segments (i.e. internet, web2.0 and broadband etc.), the issue of funds over-supply was sector specific. To get higher return under the competition, VC firms started to invest in traditional business models such as hotels, travels and fast food chains beyond their core activities such as TMT (Technology, Media and Telecom) or Internet related businesses. It was the special phenomenon happened in China now that VCs were more like PE. Legal and Regulations According to Megginson (2004), the differences in the design and the degree of development of the PE/VC industry are due to institutional factors, with the countrys legal system being paramount. Two major factors are paramount in evaluating legal system: contract law enforcement and protection of shareholder rights through effective corporate governance. Cumming and Macintosh (2002) observed that PE/VC managers in high enforcement countries had a greater tendency to invest in high-tech SMBs, exit through IPOs rather than buybacks and obtain higher returns. Cumming et al. (2004) further examined legal system effects on governance structure. Under better legal systems: the faster the origination and screening of deals; the higher the probability of syndication; less frequently funds of the same organization used to invest in a given company; the easier the board representation of investors; the lower the probability that investors required periodic cash flows prior to exit; and the higher the probability of investment in high-tech companies. Lerner and Schoar (2005) show that in a bad legal environment, PE/VC managers tend to buy controlling stakes, leaving the entrepreneurial team with weaker incentives. Interestingly, valuations tend be positively correlated with the quality of the legal environment. Kaplan et al. (2003) go deeper into the contractual aspects and found that rights over cash flows, liquidation and control, as well as board participation vary according to the quality of the legal system, the accounting standards and investor protection across countries. However, more sophisticated PE/VC managers tend to operate in the U.S. style irrespective of local institutional concerns. The authors show that managers operating with convertible preferred stocks are less prone to failure (as measured by survivorship rate). The results suggest that the U.S. contractual style can be efficient in different institutional environments. Bottazzi et al. (2005) corroborate some of the previous results and obtain further evidence on the home-country effect (PE/VC managers operating abroad tend to maintain the investment style used at home). This is observed in managers based in both good and bad legal environments. The Chinese regulations governing foreign venture capital investment are chaotic and rapidly changing. In 2005, Chinese authorities issued new guidelines (effective in 2006) intending to foster domestic venture capital firms. There is no specific regulation to monitor and stimulate the VC activities in China. The new guidelines recommended that local governments provide financing assistance, favorable tax treatment, and direct investment in Chinese venture capital firms. They also provide less stringent capitalization, investment amount, investor qualification and regulatory requirements than those applicable to FICVEs (Guerrera, Yee and Yeh, 2005). FIVCEs instead are governed by 2003 regulations that include high investment and qualification thresholds, government approval requirements, and strict foreign exchange limitations on the ability to remit profits and dividends back to the investor (Hoo, et al 2005a). Substantial legal and de facto restraints on the ability of FIVCEs to access the stock markets in China and overseas for IPO listings make exit strategies extremely difficult. For these reasons, foreign venture capital firms investing in China usually do not use FIVCEs but rely on offshore holding companies created to receive their investments. Foreign venture capital firms (most of which are U.S. based) investing in China generally have done so through the restructuring of Chinese companies into offshore investment vehicles. These enable an easier exit from investments either by selling shares on international stock markets or through a trade sale to another foreign buyer. In January of 2005, Chinese authorities brought these transactions to a virtual standstill, however, with the issuance of new regulations preventing any onshore resident from establishing, controlling or owning shares in an offshore company without the approval of the Government, either directly or indirectly. The regulations were intended to stop managers of SOEs receiving venture capital investments from stripping state assets and selling them cheaply to overseas companies, and to preclude domestic companies from using the overseas vehicles to gain foreign investor tax exemption status. However, they choked off legitimate transactions as well. There were no government approvals of offshore investment transactions in 2005. With only limited exceptions for transactions in process, foreign venture capital financing through offshore investment vehicles screeched to a halt in 2005 (Borrell and Jerry, 2005). Then, in November of 2005, the Chinese authorities issued superseding regulations. These require registration of offshore investment vehicles with the State Administration of Foreign Exchange (SAFE), but do not require the agencys approval of the transaction. They also require repatriation of all distributions of income from the investment within a fixed time frame. Like the previous regulations, the new ones do not describe specifically the registration process, the procedures involved, the scope of review nor the time required for completion, creating substantial uncertainty for foreign venture capital investors (Hoo, et al 2005b). Despite this changing regulatory landscape, many U.S. based venture capital firms have active plans for substantial investments in 2006 spurred by Chinas high growth potential, the success of recent venture-backed startups on the NASDAQ including Baidu.com and China Medical Technologies and by pent up demand after the 2005 halt in new investments (Borrell, Jerry and Aragon 2005). Hidden risk and solutions Lagging legislation and inexplicit policies in China created many uncertainties and entry barriers for foreign VCs. Below are summary of the critical problems: Chinas lawmaking on VC investment remains stagnant Existing laws such as Corporation Law, Joint Venture Law, Patent Law, etc., in many aspects even contradict VC investment. Does VC investment count as foreign investment? What status and treatment should it enjoy? The concerned authorities cannot provide clear answers to these questions. Its not clear that the amount of shares that foreign venture capital is allowed to hold when partnering with Chinese enterprises, and the way foreigners to remit in/out of foreign exchange are poorly defined. There are three available approaches for foreign venture capital firms to enter China venture capital market legally. Establishing offshore venture capital fund focusing on China Establishing a foreign invested VC firm in China (Joint VC with local player/Wholly Owned Foreign firm) as a legal person entity Establishing a foreign invested VC firm in China (Joint VC with local player/Wholly Owned Foreign firm) as a non-legal person entity To avoid the legal and regulation barriers, foreign venture capital funds usually takes the offshore investment route. Foreign VCs will use offshore USD fund to invest into China deals offshore holding entities with all equity activities happening outside of Chinese jurisdiction. The distinction of USD offshore holding investment and RMB local entity investment is a particular phenomenon in China. Offshore holding arrangement is a preferred structure for Chinese entrepreneurs and VCs as it provides a feasible and practical route for funding, divestment and all equity events. Its advantage and attractiveness to Chinese entrepreneurs and VC communities: Go away from laws and regulations in China. Many of them are not friendly to venture activities, such as lack of preferred shares, stock options limitation, double tax etc. Bypassing capital account control on foreign exchange. More flexible and usually profitable divestment options by overseas IPO, MA or trade sales. Offshore route investment involves the following steps: The Chinese founders set up an offshore holding company in Cayman Island or BVI with the shareholding structure and management control mirroring those of their local company in China. With kind of swap scheme, transferring the equity they hold in the Chinese local company to the offshore holding. This will typically convert the local company into a WFOE (Wholly Foreign Owned Enterprise). The offshore holding company will then be the vehicle seeking VC investment, future funding as well as for listing or be merged. All equity events happen in offshore. Companies funding and IPO proceeds will be kept offshore, and remit into China as and when operation required. Chinese founders assets, rights and proceeds stay offshore. The whole exercise is carried out essentially with an IPO at an overseas stock exchange, such as NASTAQ or Hong Kong Stock Exchange in vision. (The concept and process is visualized in chart 5.) Chart 5 Foreign VC Offshore Investment Process Source: A legal perspective on Chinas venture capital rush, Mar 2006 Restrictions in Chinas corporate regulations and limitations at the domestic capital markets explain foreign VCs preference in taking offshore route to organize their China investment. VC investors rely normally on preferred stocks or convertible preferred stock to secure a preferential return. Chinese corporate regulations allow only one class of common stock for a FIVCE with investment in a Chinese portfolio company. Notably, local VC firms would have the possibility to arrange preferred stock scheme with their investee company according to a newly issued charter regulation applicable to domestic VC firms. This gives rise to concern on the principle of national treatment under WTO law. Moreover, China domestic stock market does not provide a ready access for venture-backed companies. The conditions for listing at Shanghai or Shenzhen main-board market are too stringent for high-tech start-up companies. Even if listing conditions could be met, the queue in the pipeline waiting for a listing window is at the moment frustrating. In fact, the two domestic stock exchanges have halted the IPO since two years in the call for addressing the notorious overhang of nontransferable legal person shares. The undergoing endeavor is focusing on floating all stock legal person shares. Since the value of stock legal person shares is roughly twice of those trading in the stock exchange, full floating of legal person shares at stock is imposing acute challenge on the market place. This would mean that the suspension on IPO of new shares would be expected for a rather extended term. By leveraging on an offshore holding structure, foreign VCs could take advantage of the corporate governance in a jurisdiction where they feel most comfortable and bypass the restrictions under Chinese corporate law. VCs could take the