Companies in China and India are now attracting funding from renowned US-based venture capitalists, one of them is Sequoia Capital, a Silicon Valley stalwart known for backing Google, YouTube, and Cisco Systems. An interesting article entitled, “VC Investment on Track for $32B in 2006” points out Sequoia’s India deals included a $10-million investment by Sequoia Capital in Hyderabad-based software-testing specialist AppLabs Technologies and an investment in Mumbai-based travel service Travelguru.

Lets talk about India first, unsurprisingly India is a hot spot for venture capital. There are million of people in India working in the IT industry. Moreover, 75% of the world’s CMM (Capability Maturity Model) level 5 software development organizations are based in India. The software talent is available there, it seems that the limitation is solely the funding aspect, with the venture capitalists surround in India now, what the venture capitalists need to do is build the right business model for Indian companies that they have invested. One possibilities for the software and Web startups might be followed the Israeli model: Build around the U.S. market. However, with the India’s huge population market and average GDP growth of 9%, India has another alternative which is their own market. In my own observations, Sequoia Capital India invested in 28 companies in India, and one (1) went public, i.e. Royal Orchid Hotels. I personally feel Sequoia Capital has expertise in valuing IT company, they invested a lot of potential companies, one company I was quite impressed is guruji.com, the first search engine in India.

China, is the second largest venture capital recipient in Asia. The venture capital industry in China is booming now. I just finished reading ChinaDaily’s article that talked about China is considering a tax incentive policy to further encourage the booming venture capital industry. In fact, in the first eleven months of the year, venture capital of 1.7 billion U.S. dollars flooded into China, 57.5 percent more than last year, which information technology sector remains the most appealing sector, attracting 62 percent of the total. In the IT sector, I feel Sequoia Capital China is very selective in investing China companies. They have invested 23 companies and non of them went public yet. However, some Web startups they invested such as 51.com and dianping.com have a huge Web community in China, when I first saw dianping.com, it is comparable to Yelp.com in the U.S. These Web startups capitalized the localization strategy very well in China.

The bottom line is Sequoia Capital still has a long way to get back their money invested in China and India. In the U.S., Sequoia capital invested in 219 companies, some 120 have successfully went public. Will Sequoia Capital replicate their success story in China and India, it look like they can provided they successfully overcome whatever challenges that lie ahead.

Tagged as: Asia, China, India, Sequoia Capital, venture capital