KP crosses into China chasm

Kleiner Perkins Caufield & Byers has partnered with a team of experienced Chinese investors from TDF Capital and Softbank Asia Infrastructure Fund to launch a $360 million Chinese investment fund, a move it hopes will give it exposure to one of the fastest growing markets in the world.

Kleiner’s Ellen Pao and Ted Schlein engineered the partnership, announced last week, after two years of planning, says Pao, who traveled to China 11 times to cement the agreement. “It’s something we’ve been thinking about for a while. We really wanted to find the right team and we were willing to wait for the right folks to work with,” she told PE Week.

There’s no question Kleiner Perkins got the pick of China’s best investors. Tina Ju, a founding managing partner of TDF Capital, invested in business-to-business marketing site Alibaba, which was sold to Yahoo in a deal that valued the company at $4 billion; search engine Baidu (Nasdaq: BIDU), which went public in 2005 and rose more than 350% in its first day of trading; and advertising company Focus Media (Nasdaq: FMCN), which has increased in value more than 330% since its 2005 IPO.

The firm also picked up David Su and Forrest Zhong from TDF Capital. Su backed AAC Acoustic, Baidu and P-Cube, which Cisco Systems bought in 2004 for $200 million. Zhong backed China Wireless, China GrenTech and Fiberxon.

Joe Zhou joined the team from Softbank and backed casual gaming company Shanda Interactive Entertainment (Nasdaq: SNDA), which launched a $152 million IPO in 2004.

The move by Kleiner Perkins to buy established talent instead of trying to build a team gives the firm instant access to China. “To know you’ve got the culture and the dynamics and that they work well alleviates a lot of the risk,” Pao says of the China team. “They can hit the ground running. The chemistry here is pretty hardened and it matches ours.”

Pao is quick to point out that the new partners will be equals to the rest of the firm, although she would not discuss details of compensation or benefits that might accrue to the U.S. partners for launching the new fund. “We’re not just franchising the brand,” she says.

Other VCs seem almost envious of the firm’s ability to attract talent. “They’ve been able to get the pick of the litter,” says Scott Bonham, founder and managing partner of Granite Global Ventures. Granite invests about half of its fund in Chinese companies and has been working in China since 2000, when it briefly shared offices with the investors of TDF. “When we started this in 2000 there were no teams there,” he says. “We did a lot of deals together and grew up together in China.”

Kleiner Perkins has been investing in China for years, Pao says. It has three Chinese portfolio companies, including a stealth company; digital mapping company AutoNavi, which raised $30 million in a Series A in September 2006, according to Thomson Financial (publisher of PE Week); and shirt maker YES PPG. The new fund will focus on high-growth opportunities across industries, Pao says.