For Environmental Balance, Pick Up a Rifle Essay

In the article â€Å"For Environmental Balance, Pick up a Rifle† by Nicholas Kristof, the author informs the reader about the importance of hunting, arguing that hunting needs to be brought back in the United States to control the deer population. He talks about the negative impact deer have caused in death of people by car accidents and with the destruction of the ecosystem with their overpopulation. The majority of deer have had a profoundly unnatural effect in certain parts of New York and New Jersey. Kristof notes that these days many people view hunting as a cruel and brutal and are opting for other methods for deer control due to their sympathy for deer. He states that it is a waste of time and money for liberals and conservatives to be using birth control and condoms; to prevent pregnancy to the deer. With the decline in hunting practices in North America, further environmental imbalance continues, which makes hunting an ecological necessity. If hunting were to increase in the coming years, individuals would be able to participate in the outdoors and enjoy nature. However, Kristof is an unreliable source in the knowledge of animal control and uses ineffective persuasion on this controversial topic. When it comes to experts on animal control, environmentalists spend an excruciating amount of time examining animals that have had a habitat interference with the ecosystem. Nicholas Kristof is not a reliable source of information; he has based his article off of an outsider’s point of view. While a column piece points out issues associated within our society, Kristof has yet to have the appropriate background and information to support his claim. Growing up on a farm in Oregon, studying law, and working as a columnist in The New York Times, gives some insight as to why Kristof wrote the article in the first place. This is because his audience includes a wide range of people; from highly educated to hardly any education. He is  writing in a city where hunting is a foreign concept, which leads Kristof to writing a commentary piece that relates to other topics individuals know about rather than the information of the deer in general. For example, he states â€Å"It’s s till true that in a typical year, an American is less likely to be killed by Osama bin Laden than by Bambi† giving the reader irrelevant material that has nothing to do with the topic of deer control. The author often states statistics that are in his favor, so his point is substantiated. In an article, â€Å"Journal of Wildlife Management† by Clinton Faas talks about how people generalize all deer as something harmful without considering the different types of deer. Not many people know about the axis and white-tailed deer that have had a negative impact throughout the environment. While in the article Kristof’s states that â€Å"The New Jersey Audubon Society this year advocated deer hunting as an ecological necessity.† (Kristof, 13) Yet while researching the Audubon Society it states that the white-tail deer made resources scarce in the ecosystem and it shows no sign of resorting to the concept of hunting. Nicholas Kristof takes the word deer throughout his article and made an assumption that all deer are harmful to society. The idea that hunting deer should be encouraged for the benefit of society and that it connects people with nature is remarkably repugnant in Nicholas Kristof’s â€Å"For the Environmental Balance, Pick up a Rifle.à ¢â‚¬  Many animal activists, such as the People for the Ethical Treatment of Animals (PETA) would agree that animals are not ours to use for food, clothing, experimentation, or entertainment. The reason that it is important to treat other living things with dignity and respect is because they have the capacity to suffer as people do. We are told that it is wrong to hurt other people, physically and mentally. Although in the article Kristof becomes indulged in the fact that animals are the problem in society and should be put down for it. For instance he quotes â€Å"So it’s time to reestablish a balance in the natural world, by accepting the idea that hunting is as natural as bird watching.† (Kristof, 18) Yet the majority of the environments issues are caused by human actions. For example, misguided construction, irrigation and mining can deface the natural landscape and disrupt important ecological processes. Aggressive fishing and hunting can deplete entire stocks of species. Human migration can introduce alien competitors to native food chains. While reading Nicholas Kristof’s article,  I analyzed and exposed the unreliable information he provide d. He stated statics that were vague and unspecific, misguiding the reader with irrelevant facts on other topics, and did not have the appropriate background to be considered an expert on the problem of animal control. Overall, hunting is not the way to control the deer population nor has the author convinced his reader.

Marketing Cars Effectively By Knowing Your Customers Well

Brand new cars are usually attractive to a certain demographic market: better income generating men and women with urban lifestyles and parents, especially fathers. People purchase products or services for three basic reasons: to satisfy basic needs, to solve problems and to make them selves feel good (Guille, 2007). One of the basic needs that a car would be able to answer is of course is the necessity of transportation. Another need it answers is the need to belong which is an intrinsic motivation to affiliate with others and be socially accepted. (Van Wagner, 2007) If one would surf the pages of the website of Toyota, this basic need is met by the selling points that car manufacturers give. â€Å"Buy a Camry Hybrid now, and you may be eligible for Federal Tax Benefits. Plus, several states now allow single-occupant use of the carpool lane for Camry Hybrid.† (Toyota Motors Sales, 2007) is Toyota’s way of showing that if one purchases a Camry, he or she will be socially accepted enough to have tax benefits and permission to use the carpool lane. People with disability have a great need to be socially accepted and General Motors addresses this issue by providing the GM Mobility Reimbursement Program that says, â€Å"General Motors is committed to helping persons with disabilities equip their vehicles for easier and safer travel† (General Motors Corporation, 2007). Targeting the male population is what Volvo does best by showing how the Volvo Your Concept car was conceptualized: â€Å"If you meet the expectations of women, you exceed the expectations of me. – Marti Barletta, Gender Trend specialist.   (Volvo Car Corporation, 2007). People, especially parents, are always concerned about safety and car manufacturers recognize this need with the establishment of certain accessories to their products. Some of Toyota’s safety features for the Camry are airbags, Front and rear crumple zones and side-impact door beams and Vehicle Stability Control (VSC) [20] with Traction Control (TRAC) that ensures less danger when the roads are slippery. General Motors   has the OnStar facility that provides a built in phone that a driver can use hands free. Also, when the airbags are deployed, these send signals to GMC so that if the driver cannot call emergency, OnStar staff would be able to detect where the accident happened and rescue will thus be sent. Volvo’s Safety Concept Car has Cue transparent window pillars, infra-red night vision and seats, controls and pedals that move to ensure the driver is at the best possible position. Toyota has been able to avoid nuances of forgetting to turn off interior lights by a battery-saver that deactivates these after 20 minutes. General Motors has the remote door unlock, wherein people who have mistakenly left the car keys inside their automatic locking cars can be helped. Car manufacturers are great in showing how owning their cars can be a source of pride. Toyota uses phrases like â€Å"comfortable interior modifies to your changing life,† and â€Å"Bigger. Wider. More powerful† to coax a customer’s self-esteem. General Motors on the other hand, offers GM:OnStar vehicle diagnostics which makes the owner feel like a boss by getting instant and regular reports on how to maintain the car. Volvo is the best among them in fueling pride by putting very comfortable accessories like a trunk containing chilled and heated compartment and the ability to connect to your entertainment library at home. Car manufacturers like Toyota, General Motors and Volvo have done their marketing assignments well by completely fulfilling the needs of their target markets and this ensures their leading positions in their industry. References General Motors Corporation. (2007). Driving Confidence with OnStar. Retrieved May 23, 2007 from http://www.gm.com/ Guille, M. (2007). How To Find And Sell To Your Target Market. Retrieved May 25, 2007, from http://sbinfocanada.about.com/cs/marketing/a/targetmarket_2.htm Toyota Motor Sales U.S.A. (2007). Camry ’07. Retrieved May 23, 2007. Van Wagner, K. (2007). Need to Belong. Retrieved May 25, 2007, from Volvo Car Corporation. (2007). Volvo Concept Cars. Retrieved May 23, 2007, from http://www.volvocars.com/All-Cars/conceptcars/            

Neolithic development Essay

Neolithic development is characterized by the first agricultural revolution, when people moved from hunting – gathering to agriculture and settlement. They developed tools for farming, pottery, spinning, and weaving. 2. The Hebrew is chosen by their God to go to the Promised Land. The Hebrew covenant with their god is characterized by the Ten Commandments that they have to follow throughout their lives. The Talmud is a set of discussions regarding Jewish laws, ethics, customs and history and is held important in Rabbinic Judaism. The Hebrews came to Palestine because some parts of it were defined as part of the Promised Land or Canaan. 3. It was Ahmose I who reunified Egypt in the 8th century by conquest and expulsion of the Hykos and reassertion of Egypt’s power over Nubia and Canaan. 4. It was the Sumerian people who invented taxation in order to make taxation easier. Sumerian scribes are record keepers, which are usually for the records of taxation. Mesopotamia was generally polytheistic, or the belief in many gods. These gods are the ones which provided them whatever they needed to survive. With the harsh environment of the Middle East, these people adapted laws that would punish offenders severely so as to avoid repetition of crimes. Egyptian and Mesopotamian religions differ with the gods they rule and the characteristics of these gods. 5. After Solomon’s death, the Hebrew state became separated, as the ten northern tribes revolted and successfully seceded to create their own kingdoms. 6. The Battle of Kadesh marked the first international peace treaty ever made, and it was between Egyptians and the Hittites. 7. Assyrians maintained political cohesion and military preparedness because they all followed only one rule, and that is of their King. 8. The Magi is a group of people from Media who were known for their religious and funerary practices of the people of ancient Persia. Zend-avesta refers to the interpretation of the Avesta or the primary collection of sacred texts of Zoroastrianism in the Avestan language. Zoroaster taught religion and philosophy, about the universe and the struggle between truths and lies. Ahriman is basically the demon in Zoroastrianism and Ahura Mazda is the god. Satraps are the governors of Median and Persian empires. 9. The weaknesses of the human condition can be overcome by not overindulging or by following a simple life. Attachment and craving can be ceased by following the eightfold path. Nirvana is the state of being of a person wherein he is free from suffering and the cycle of being reborn. Human beings, like all things are impermanent, and there is no constant self. Human existence can be associated with suffering. 10. Jains preach that by cultivating a person’s own personal wisdom and control, he can achieve spiritual development. According to the Bhagavad Gita, the human condition is temporary and can still transcend to a supreme being. Dharma is the duty of a person that he must fulfill. Upanishads teach about the universal spirit and the individual soul and how both asserts an identity in an individual. Here, ascetism is characterized by doing away with wants and desires and following a life away from human indulgence. 11. Zhou China boasted of an organized medical system wherein physicians have specialties. Zhou was different in the aspect of government because it became feudal. Mandate of heaven means that the rulers are legitimately blessed by the heavens, and if the heaven would be displeased, the mandate would be revoked. 12. Yao, Shun, and Yu are the holy and virtuous mythical rulers of China who divided it into its regions. According to Confucius, the family is the basic unit of the society. A just and peaceful society would be obtained if people follow the rules. Mutual obligation would only be evident in the family, of parent and child and of husband and wife. 13. Yin and yang are the two opposing forces in any phenomenon. They are at the same time complimentary, and this is the basis of the system of correspondence in the Chinese philosophy and study of science. Daoism teaches reverence for nature, as it is a way of life. Han Feizi taught Legalism, wherein the ruler should be the one that controls the state. This is based on the concepts of his position of power, certain techniques and laws. Sima quan is a scribe of emperor Wu who made detailed biographies of Royal affairs. Tang is known as the period of golden age for arts and literature, as they called for perfection in one’s skills if they ever wished to pass the examinations of the empire. 14. Geography affected the development of Greece because it is surrounded by other areas. This made Greece a melting pot of intellectuals though this made them vulnerable to the advances of invaders. Hoplites are the soldiers of Ancient Greek, while Polis is the city state itself. Agora on the other hand, is an open place of assembly for the Greeks. Women in Athens are revered and treated highly while women in Sparta are treated inferior to the males. Messenian helots were mistreated and humiliated, and a Spartan can do anything he desire without fear of punishment to a Messenian helot. Greek’s defeat of Persia boosted their confidence and has set forward to more conquests. 15. Sophists taught philosophy and rhetoric. Socrates taught using the Socratic Method wherein you have to ask a series of questions in order to learn. He taught politics, philosophy, ethics, and many more. Socrates was executed because of his pursuit of virtue and truth, and he has praised Sparta which is the rival of Athens. Women were given more importance in the public affairs in the Hellenistic society. Solon was the founding father of the Athenian polis. Greek drama originated from Greek tragedy, wherein performances were made in various festivities. Epicurus advocated for a life without pain and with the pursuit of pleasure. 16. Mystery religion restricted to those who underwent certain secret rites or process. Greek religion is highly based on what the current ruler believes in, and the people would just follow suit. Philip II unified Greek by conquering the lands and using a great destructive army to threaten enemies to submission. The consequence of Alexander’s conquest of Macedonia is that many people aspired for his power, and when he died, the empire was divided. 17. The Bactrian camel was important because it was the only means of travel that could withstand the long arduous trade route for the Chinese. Hans used advance technologies, like cast iron and steel. Han cities were advanced with efficient agriculture and iron industry. In order to solve the poverty among peasantry, some rich Han people were stripped of their land and was given to the peasants for them to work on. The Hans invent Hydraulic powered hammer for agriculture and iron sector and winnowing machine for agriculture. Emperor Wu expanded the Chinese territory, nearly doubling its size. Buddhism in these countries aimed to resolve the problems in a simpler way of life. Korean Buddhism made variations to it because of its inconsistencies. Shinto is a Japanese religion that was native of the country and was considered once as the state religion of Japan.

Selling Executives on Project Management Assignment

Selling Executives on Project Management - Assignment Example Decreasing the possibility of failure without involving the project manager is a good way to sell the project. In a project management, one needs to know what the senior management mostly needs from ones Project Management Organization. It mostly depends on the organization arrangement and it difficult to sell it to the manager if it less project zed and more functional. In the buying scenario, the project manager is the initiator of project needs. To sell the project, the manager needs to raise risk alarms where needed, make plans and track them down, call meetings with the organization stakeholders and provide appropriate data to the administration in order to have an easy penetration to the company management. The project manager needs to focus on the demand of customers for new services and product when making their projects. To improve on the delivery of the project, the project manager can focus on a customer who is having problems delivering a particular feature or is unable to deliver it (Wysocki, 2011). This will get the attention of the chief operating officer who has a problem that needs to be addressed urgently. The next step is to focus on addressing the problem the customer is in by drawing out objectives, the improvement to be expected and the duration to be taken which should not be more than six months. Explain to the executives that you want to get validity from their industry to establish what is most required for its improvement. The process that one uses should show the practical experiences one has in delivering projects, what can be achieved at particular time and should match with the organization culture. Executive project managers fail to listen to their employees for using poor delivery techniques of their project. Most managers have a practical experience in their work and lack confident in their employees to deliver their project. The

Target Corporation Supply Chain Managment Research Paper

Target Corporation Supply Chain Managment - Research Paper Example This merchandise is transferred to the regional offices through rail or trucks. The regional offices are responsible for providing merchandise to more than 1700 stores of the company located in different states of US. The effective of Target supply chain is responsible to meet the customers demand, and the company has complete control of its merchandise immediate after the arrival of its shipment (Tirschwell, 2008). Product and Service Specification Product Specification Target being a highest discount retailer is spread in a wide range of products in the utility section. From house hold goods to dry items, from food items to cosmetics there is a big variety of products which Target offers (Target, 2012). Service Specifications Target Corporation being a merger with Associated Merchandising Corporation (AMC) has globalized its service network in discount retail section. In the retail section, Target is divided in three categories of services Target Greatland (shoes and clothing), Tar get stores (utility services) and Super Target (marts). With conventional product line and with advanced value adding methods, Target has retrieved maximum sales potential by such efficient service administration (Target Corporation , 2012). The company has spread in branches where each branch is working as a separate service unit for effective and substantial service management (Target Corporation , 2012). Order Processing and Management Target’s corporation has advanced order processing methods. CMMS (computerized maintenance management system) is applied in distribution and order processing sections. Maximo is the system which identifies orders on CMMS to send them to different vendors. This is how Target connects from one supply chain function (distribution center) to another (vendors) in a cost effective manner. Maximo carries general order information and order notifications to distribution centers to provide real time service to the customer (Target Corporation , 2012) . Value Delivery Options Target being the highest discount retailer is famous on discounts price offers. With valuable discount offerings, Target is able to win customer’s perception in quite extensive manner, as customers get both things quality and service in high discount rates from Target stores. All such open value delivery options for Target Corporation and make its products and services a top priority in the customer’s perception (Target Corporation , 2012). Procurement Procurement is the starting function of a supply chain process. The larger the company is like Target, the broad is its circle of procurement and vendors (Blanchard, 2010). With the application of EDI software on procurement, Target connects with other merchandisers in a cost effective manner. This is to control and management procurement function and to bring right vendors at the right time of reception. Associations like National Minority Supplier Development Council, National Veteran Owned Bus iness Association or US Hispanic Chamber of Commerce supports target to achieve its diversified supplier and procurement goals. This is how Target settles in vendors system of procurement (Target Corporation, 2012). Inventory Management Inventory management comes at the fifth position of

Personality Development Essay Example | Topics and Well Written Essays - 1500 words

Personality Development - Essay Example While some psychologists believe that cognition is the only way to explain or predict personality differences within people, others believe that our personalities develop in differing ways. Whichever theorist you side with, however, it remains that cognition does play a part in the development of the personality, how big a part depends on your views. Cognition, being the mental process of knowing, and dealing with such things as awareness, perception, and reasoning, among others, is an important part of who we are and how we develop. Our personalities come from this perception of our world, what we think, what we feel, how we cope; it all stems from our awareness and how we put this awareness to use. Environmental factors, such as where you live, what you eat, the quality of the air that you breathe, etc, and biological factors, such as your genetic makeup and your pre-natal development play a part in how you process your environment and therefore play a part in the makeup of your personality development. If you happen to have been born prematurely, for example, and your parents both carried a lot of recessive genes and they were passed on to you, and you lived in an area of town close to smokestacks or a lot of overhead wires, your development, and that of your personality would differ from someone born at full term, with no genetic problems, living out in the fresh country air. How you are raised and where you are raised, and your genetic blueprint all have a bearing on how you perceive your world, and hence, how your personality has formed. Evolutionary, biological and environmental factors can result in the development of an aggressive personality. In the study of evolutionary psychology, we learn that it is a combination of a lot of

The genetic and environmental origins of learning abilities and Essay

The genetic and environmental origins of learning abilities and disabilities in the early school years - Essay Example Examining each of these factors allows educators to approach learning disabilities from different angles. There is a connection between speech difficulties and reading difficulties (DeThorne, et al., 2006; Spinath, et al., 2004; Feagans and Appelbaum, 1986). In early elementary years, students sound out words; if they cannot use verbal language well, reading comprehension suffers. Recognition of letter names is an indicator of future reading ability, along with the child’s ability to write his or her name (Share, 1984). Three levels of language use work in young children: syntactic (the general construction of written or verbal language); semantic (the meanings of words and their relationships which arrive at sense from the written or verbal); and discursive (how syntax and semantics go together to form a narrative) (Feagans and Appelbaum, 1986). Narrative is the transmission of information using words and sentences, and may be the most important (and most difficult) item to measure. Identifying children who are not developing normal speech patterns is the first step to seeing a problem with language. Once the child is identified, it is helpful to know if the problem is genetic or if environmental factors are at work. Researchers look at large populations of similar children and gather information through assessment mechanisms. In the articles examined for this essay, different assessment mechanisms are used by researchers. Share, et al. (1984) point out that assessments are often poorly validated or poorly designed, and the time it takes to administer long questionnaires reduces the size of the population measured. Teacher assessments might seem like a good way to find out about learning disabilities, but teachers possess varying skill levels in recognizing learning problems (Kenny and Chekaluk, 1993). Parent questionnaires must be worded carefully, and can also be highly inaccurate (Share, et al., 1984; DeThorne, et al., 2006). Standardized

Volunteer report Essay Example | Topics and Well Written Essays - 500 words

Volunteer report - Essay Example I made sure that the activities were adequate so that they did not feel exhausted at the end of the workout. I assisted them in the form of groups and visited the place thrice a week i.e. Monday, Wednesday and Friday. My tenure ended on April 10, 2014. The only difficulty which I had to face was communicating with the people as two of the group members had listening problem. It is true that elderly people are like new babies who require a lot of attention and care. I allocated sufficient time and efforts during the whole volunteer period so that I could provide them a marvelous experience of their life. There were about six people in my group and I had to make sure that I address the demands of each person appropriately. One person spoke at such a low volume that I had to listen to her talk with complete attention. I even made sure that I gave time to each individual so that they could share their feelings and thoughts effectively. I even asked them open ended questions to have clarity about their requests so that their queries were resolved. I even did physiotherapy of a person on his request as his legs were hurting and I asked him to guide me so that I could perform the exercise effectively. I definitely feel that the helping skills have to be used according to the situation and they should be in alignment with the instance so that the desired results are attained. I believe that my clients were contended with my behavior and they appreciated my efforts. One of the clients even mentioned that she feels relaxed after talking to me. Also, other person was satisfied with my helping actions as he stated that I have the ability of proactively responding to other individual’s requests efficiently. Despite all these points, I think that I have to develop an understanding about people’s psychology so that I can assess their demands from the body language and assist them in resolving their

Definition of Market Leader Essay Example | Topics and Well Written Essays - 500 words

Definition of Market Leader - Essay Example There are three major types of Market Leaders. Market leaders that are concentrated highly on operational brilliance comes under the first category. Wal-Mart is the best example of a company that focuses more on its operational excellance. It is a company devoted to provide low to reasonable prices with high class services. Corporations that zilch in on product leadership comes under the second category of Market Leaders. Firms like Intel, Microsoft, and Nike deals with the finest products in their target markets and continue to improvise their originality to keep themselves on top of their competitors every year (Delery, Doty, 1996, 802). Customer intimacy is another tool to attain a top ranking in the market. Firms that emphasize on customer intimacy works exhaustly to provide best possible solutions to their customers on. Nordstrom is a worthy example of a company whose business works over the concept of customer intimacy. Market leaders gets many advantages due to their huge mark et share that their competitors can only dream of. They generally get premium price for their products due to their brand strength. They enjoy lower product costs, longer product cycle and smaller sales cycle due to market responsiveness to their product lines. On the other side, All customers do not have high purchasing power, therefore market leaders’ product lines faces increased amount of market threats. Makrket leaders have to update their products on frequent basis to counter with piracy and their competitors.

Technology Replacing Human Contact Essay Example for Free

Technology Replacing Human Contact Essay In my personal opinion, yes, technology is replacing human contact. I have many friends that are high school teachers and they are being trained on how to teach online courses. While this makes sense for college students, I don’t think online courses are the proper way to go with high school students. In college people need the flexibility for work, families, etc. In high school, students do not need the flexibility, high school teaches more than just knowledge, you get social skills, meet people, have to work with other people and physical activity. I think this changes society in a big way, social skills are extremely important in many different aspects of life. I think that businesses should be allowed to use technology freely, if it is able to help improve their work flow and their productivity, they should be allowed to use it. People need to be careful with keeping up on technology so as businesses further their practices with it, people are able to keep up. I think there should be more training options out there to help people especially when more technically advanced employees are more likely to get hired/promoted versus ones that may not have those skills. I think that the government should not have control over what is posted on the internet, people should know how to tell whether the information is good information or not. While this does make it hard, trusted sources are easy to come by and the government should not be able to decide what information the citizens get access to and what information they don’t. It makes it harder for them to hide things happening in the world from us like they sometimes do but at the same time, the internet helps them catch a lot of criminals that they wouldn’t have caught in another way.

Effects of Computerized Cognitive Training

Effects of Computerized Cognitive Training CHAPTER FIVE: DISCUSSION This chapter will discuss†¦ it will also discuss its public health significance†¦ and also report strengths and limitations of the review. 5.1  Summary and discussion of the evidence: 5.1.1  To what extent was the intervention effective? The overall aim of this study was to investigate the effects of computerized cognitive training aimed at improving cognitive function in individuals at a high risk of developing dementia. The ten trials that have been included in this study are spread widely across different countries. They vary enormously even within each subdomain analysed in terms of sample size, intervention characteristics (overall length of duration, number of training sessions and their frequency) and outcome measures used. Participants were assessed on a number of cognitive outcome measures that were unrelated to the trained tasks, this was necessary to show that cognitive improvement was not task specific as suggested by previous studies (Ball et al. 2002). The results from these ten studies suggest that computerized cognitive training is a promising approach for improving cognitive performance in persons with mild cognitive impairment. Participants showed improvements over a wide variety of neurocognitive o utcome measures, such as memory, attention, executive function, working memory, visuospatial ability, general cognition and speed of processing. Among these cognitive domains the most consistent improvements across all studies were observed in visual and verbal memory, attention, and executive function. Improvements in cognitive outcome measures suggests that individuals with MCI, despite cognitive deficit retain significant amount of neuroplasticity (Rosen et al. 2011) which makes them responsive to cognitive training. These findings are consistent with previous studies that demonstrate positive effects of cognitive training on cognitive performance in individuals with MCI (Brum et al. 2009; Ball et al. 2002; Rapp et al. 2002). Previously it has been suggested that training gains are influenced by the frequency and duration of the intervention (Gates et al. 2011), however, findings show no difference in training effects among studies with longer duration of intervention and those with smaller duration (Rozzini et al. 2007). The inability to conduct a meta-analysis due to heterogeneity of diagnostic criteria, intervention characteristics and outcomes measured made it difficult to precisely identify which cognitive domains benefited the most from the training. It has been pointed out several times over the years that unless accompanied by behavioural, psychological or other changes, changes in cognition let alone are not sufficient to justify a cognitive intervention (Woods, 2006). Out of the ten studies included, five studies assessed behavioural, psychological and everyday functional symptoms apart from neurocognitive outcome measures (Gaitan et al. 2013; Gagnon and Belleville, 2012; Finn and McDonald, 2011; Rozzini et al. 2007; Galante et al. 2007). The findings revealed positive effect of the intervention on some aspects of subjective measures of memory. Depressive symptom scores decreased most consistently. This was followed by reduction in anxiety levels. However, no significant improvements were observed in self-reported activities of daily living or everyday functioning memory. This could be explained by the fact that as individuals were carefully screened out in order to meet criteria for MCI, the participants were not impaired in everyday functional abilities and hence, it was difficult to assess the effect of training in terms of transferability to real world outcomes. No changes in well-being were reported. This is in contrast to the findings by Belleville et al. (2006) which reported positive impact of computerized cognitive training on the participant’s feelings of well-being. This can perhaps be explained by the inclusion of pre-training sessions on stress, self-esteem and imagery that were part of the intervention in their study. Despite the importance of quality of life to patients and caregivers, none of the studies measured quality of life. According to Rozzini et al. (2007) although use of cholinesterase inhibitors has also been associated with reduced depressive symptoms, but computerized cognitive training supersedes pharmacological therapy as no negative or adverse effects of training have been found in participants, contrary to adverse effects and high dropout rates reported in drug tri als in MCI (Clare et al. 2003). 5.1.2  To what extent were the effects maintained after the intervention? Four studies included a follow up assessment ranging between 3 months to a period of 12 months (Gaitan et al. 2013; Herrera et al. 2012; Galante et al. 2007; Rozzini et al. 2007) and one study used a longitudinal design (Valdes et al. 2012) to ascertain if the training gains lasted longer, showed stability over time and hence, could possibly contribute to preventing future cognitive decline. General cognitive function remained stable up to 9 months post training (Galante et al. 2007); recognition, attention and recall improvements were maintained at 6 months (Herrera et al. 2012); executive function (Gaitan et al. 2013), episodic memory and abstract reasoning (Rozzini et al. 2007) showed improvement trends at 12 month follow up; and effects on speed of processing were maintained at 5 years after the end of the training programme (Valdes et al. 2012). Two studies showed reduction in behavioural disturbances such as depression and anxiety (Gaitan et al. 2013; Rozzini et al. 2007) at a 12 month follow up. Evidence suggests that computerized cognitive training is at least effective in slowing or delaying the progression of cognitive decline and onset of dementia. Moreover, it also suggests that if computerized cognitive training show cognitive gains, these improvements are likely to be preserved at follow up. In summary, computerized cognitive training justifies Swaab’s (1991) phrase â€Å"use it or lose it† used to explain the relationship between declining neuronal activity and neurodegeneration. Overall, these results show findings similar to a recent meta-analysis by Li et al. (2011) that showed improved overall cognition, domain specific cognitive improvements and positive training effects on follow up in the intervention group after receiving traditional cognitive training. According to literature, computerized cognitive training has shown to be more effective than traditional cognitive training (Kueider et al. 2012), the results from this study suggest that structured computerized cognitive training produce significantly greater benefits in individuals with MCI as compared to those engaged in cognitively stimulating activities only. Evidence reveals that individuals with MCI that were randomized to intervention group showed larger cognitive gains as compared to active control groups. 5.2  Public health Significance: With the elderly population of the world increasing rapidly, the numbers of older adults suffering from dementia are bound to rise. With 1 in 3 people above 65 years developing dementia, the number of individuals with dementia are projected to be as high as 135.46 million in 2050 (Alzheimer’s Disease International, 2013). Dementia has several devastating consequences. The economic impact of dementia globally is quite alarming. This has diverted attention not only towards the treatment of dementia itself but also towards preventive therapies specifically aimed at individuals with MCI. In 2007, the average cost of care for a patient with Alzheimer’s disease in the United Kingdom was estimated to be around  £29,746 (Alzheimer’s Society, 2008). This makes the principles of disease prevention and health promotion particularly relevant to dementia (Geda, Negash and Petersen, 2011). The prevention of a disease involves the identification of groups that are at high ris k; MCI indeed, is a high risk state for dementia particularly of the Alzheimer’s type (Alzheimer’s Disease International, 2013). Individuals with MCI are identified as high risk groups as they are 3 to 5 times more at risk of developing dementia than those without MCI (Alzheimer’s Society, 2014). As findings from this study reveal that many of the cognitive domains retain effects from as low as 6 months up to 5 years post computerized cognitive training and demonstrate delay in the progression of cognitive impairment. This can have positive implications for public health. This is because according to the Alzheimer’s Society (2007) delaying the progression of cognitive decline and hence onset of dementia merely by 5 years would halve the number of deaths that are directly attributable to dementia. It would also reduce the huge economic costs associated with dementia care borne by the carers and the government. In addition, it would also cut down the costs borne by individuals or their carers as computerized approach itself is a cost effective approach as explained earlier. Growing evidence on the positive effects of computerized cognitive makes it a strong candidate to be on the priority agenda for policy making on tackling dementia in coming years. As demonstrated, much evidence in literature exists highlighting the positive impact of cognitive training on cognitive performance. NICE guidelines (2011) recommend the use of structured cognitively stimulating programmes for individuals with mild to moderate dementia irrespective of the drugs prescribed for the treatment of cognitive symptoms of dementia. Results from this study indicating the potential of computerized cognitive training and other relevant evidence in literature advocates that the use of computerised cognitive training for MCI patients can be included in the clinical practice guidelines. However, for that to be practically useful, there needs to be developed a structured computerised cognitive training service which can be commissioned when needed. Such service should identify in particul ar the software to be used, the duration and frequency of training sessions and sequencing of training sessions. Kueider et al. (2012) highlighted that older adults did not need to be tech savvy in order to complete and benefit from the intervention. Moreover, these findings could have positive implications as contrary to the old belief that older adults may not welcome the idea of using technology; research suggests that older adults in many cases are the fastest growing users of computer and internet technology (Wagner et al. 2010). Moreover, as mentioned earlier, computerized cognitive training offer flexible and personalized approach as the difficulty level can be adjusted according to the user’s performance, hence, keeping it engaging and enjoyable for users. 5.3  Strengths and limitations of the study: The review was undertaken after a thorough search of literature available around the research question. To the author’s knowledge this is the only systematic review to-date that has been conducted on this topic and includes up to date evidence. Another strength of this study is the strict inclusion criteria in terms of study design. Only randomised controlled trials were included in the review. Although there were other relevant studies available having other study designs but according to the Cochrane review guidelines (Higgins and Green, 2011), the author decided to limit the final studies to randomised controlled trials. This helped to decrease bias and increase the methodological quality of the overall review. The author intended to synthesize the results from best available evidence. Although efforts were made to ensure a transparent and reproducible review, a number of caveats need to be mentioned that might have influenced the results. 5.3.1  Time frame: The time frame to conduct a systematic review was extremely limited keeping in view that there was only one researcher carrying out the entire procedure. Maximum time was spent searching through different electronic databases and other sources and reading the abstracts of different articles in an attempt to identify relevant studies. There may be a possibility of selection bias as the selection and screening of studies was done solely by one reviewer. However, in order to minimise such bias, the search and screening of articles was done twice. 5.3.2  Methodological limitations: Across the literature on computerised cognitive training common but notable methodological limitations emerge. One of the general limitations of this systematic review was small sample sizes used in majority of the studies. The small sample sizes led to reduced statistical power which may have obscured the detection of potential differences between the groups. Larger groups could have allowed detecting smaller gains in performance. A second limitation was that several studies lacked an adequate active or placebo control group. Failure to include a proper control group may not only have had an impact on the results but also made interpretation of results difficult as attribution of cognitive benefits could have originated from other sources besides computerized cognitive training. These issues impact on the main aim of the study which was assessing how computerized approaches compare with traditional approaches. Only two studies used an active control group indulged in activities similar to traditional cognitive training (Gaitan et al. 2012; Herrera et al. 2012) making it difficult to directly compare both the approaches. The review supports findings from previous studies (Sitzer et al. 2006) that intervention groups show larger effect sizes when compared to waitlist instead of active control conditions. Several studies reported inclusion of participants receiving pharmacological therapy (Cholinesterase Inhibito rs) raising the possibility that the cognitive gains were not because of the training solely but were a result of the synergistic effect between pharmacological therapy and training. An important limitation of this study was the scarce availability of data for individuals with mild cognitive impairment despite the relatively large time span covered. Furthermore, although most studies used the Petersen’s criteria to diagnose and assess individuals with MCI but modifications in the exact application of this definition existed e.g. the use of MMSE- scores one of the included studies used MMSE scores > 24 () while one study used MMSE scores of 23 (). Additionally the heterogeneity of the outcomes measured across studies made cross-comparison difficult but at the same time highlighted the need of developing robust research designs for cognitive training intervention studies. According to the inclusion criteria, only studies that were randomised controlled trials were to be included. This led to the exclusion of many quasi-experimental studies that were related to the research question and that could have contributed to the results (Talassi et al. 2007; Belleville et al. 2006; Cipriani et al. 2006; Tarraga et al. 2006; Schreiber et al. 1999). 5.3.3 Dual vs Single person data extraction: The Cochrane Collaboration (Higgins and Green, 2011) expects each study included in the review to be data extracted by at least two independent researchers who are blind to the study authors and institution from which the study has been published. This however, was not possible owing to the time limitations and practicality of an MSc degree and therefore, data extraction was carried out by a single reviewer. According to Edwards et al. (2002) study screening and data extraction by two or more researchers increases the reliability and accuracy of the systematic review. 5.3.4  Language limitation: The requirement of studies being published in English language led to the exclusion of two studies deemed relevant by their abstract as the body of text was published in German and Spanish (Ott-Chervet et al. 1998; Fernà ¡ndez-Calvo et al. 2011). Summary: This chapter discussed on the results that were generated in the previous chapter. Computerized cognitive training had positive impact on multiple aspects of cognition, including behavioural and psychological symptoms. The effects of training on multiple outcome measures were retained for as less as 6 months to 5 years after the end of the training programme. This showed that the effects of training were not only immediate but also halted cognitive decline. These findings were extremely important from the public health.

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