mature companies with established cus- tomer bases, revenues and profits – versus early stage financing. Working for merchant banks, I al-
ways looked for firms with a track record of success. Of course, trusting the man- agement was critical. But if the invest- ment faltered, there were always assets that could be leveraged to protect the investors. Tis consequently resulted in a myriad of checks, balances, and paper- work to ensure that there was some legal recourse for the investors. As an entrepreneur launching a start-
up, the relationship with investors seems markedly more substantial. Startups rare- ly have assets that offer much recourse for the investor if the deal goes south. In fact, in most cases, the entrepreneurs are the only real asset – investments are made in the man rather than the machine. I’ve noticed that seed-level investors
are very diligent in getting to know the entrepreneur at a deeper level than one might expect with a private equity deal. Details such as the entrepreneur’s past experience, the stability of his family life, and the extent to which he is aware of his strengths and weaknesses are scrutinized
FOCUS: The entrepreneur is more important than the product
before any financial commitment is made. As a result, there is far less legal pa-
perwork: Since there must be genuine trust between investor and entrepreneur, the red tape is less relevant. And this, in- deed, is a refreshing way to do business.
Tus far, the shift from investor to
investee has been exciting, eye-opening, and auspicious. I suspect that the next chapter of my life, riding the entrepre- neurial wave in China, will bring many more stories of its own.
China Economic Review • May 2011
27
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