5 questions with Feng Deng

This week, Feng Deng, founding managing director for Northern Light Venture Capital, is scheduled to speak in Palo Alto, Calif., at Zero2IPO’s third annual forum for Silicon Valley VCs who invest in China. Deng should have plenty to talk about.

Northern Light, the collaborative effort between New Enterprise Associates and Greylock Partners, recently closed a $350 million second fund targeted at China. It dwarfs the $125 million previous fund closed in December 2005.

Deng spoke with PE Week Senior Writer Alexander Haislip to discuss his firm’s latest early stage investment vehicle.

Q: When Northern Light launched, it announced a partnership with U.S.-based Greylock, but the two firms have yet to do a deal together. Meanwhile, you’ve partnered with NEA half a dozen times. Why is that?A: We’re helping [Greylock] to build their China strategy and their China presence. Their current thinking is that they need to hire someone in China and maybe share an office with us. I’m expecting we’ll co-invest with them soon.

One of the reasons that we’ve done more deals with NEA is that they have an office in China. [The two firms are currently sharing an office in Beijing. NEA co-founder Dick Kramlich will be working from Shanghai].

Q: Why partner with these established funds? Was it to get access to limited partners?A: The main purpose is not to use their name to help raise fund. The main purpose was to help us learn to be VCs. We also helped them to give their limited partners an opportunity to invest in China.

Q: Some U.S. firms have invested in China from abroad. Others have partnered or syndicated to work with local investors. Can you talk about your strategy?A: We came here a couple of years ago as a group of returnees, but we hired a bunch of people. They may not understand English or U.S. culture. If you do an affiliate fund and neither side understands each other, what’s the long term strategy there?

Both strategies have their pros and cons. At the end of the day, it depends on who the team is and how they execute the strategy. The strategy itself won’t matter as much. I know that as an entrepreneur. It’s all about the team and the partnership.

Q: What’s changed from your first fund?A: Our strategy of the last two years has been to get more and more local. We came in late, two years ago. Some of our peers in China have been here for five to 10 years. We have more cross-boarder experience, but we need to be more local.

Q: Is the venture market in China headed for a correction?A: For U.S. VCs who do not have a China office and only have one or two junior people in China, they are going to have some problems. How are those firms going to retain their people? As those junior people mature, they’ll look for other options.

The biggest challenge is how you’re going to find experienced people in China who can communicate well with U.S. GPs. Hiring the right people is the hardest part.