Founders, investors urged to agree to targets from start

As a struggle rages over the management of the Chongqing-based NVC Lighting Technology Corp, experts are saying that entrepreneurs and equity investment firms should come to mutual understandings before trying to work together.

They also say it is important that private equity and venture capital firms seek returns in the short run from the companies they invest in, and that they offer needed services without interfering greatly in how businesses are run.

Their comments come about a month after employees and distributors with NVC Lighting organized strikes in the company's headquarters in Chongqing and manufacturing bases in Chongqing and Guangdong province.

The unrest was in part an attempt to secure the return to the company of Wu Changjiang, the founder and former chairman of NVC Lighting, who some believe was forced out by NVC's board.

"The conflict at NVC Lighting Technology Corp has greatly damaged the company's business and is not good for the interests of entrepreneurs and investors," said Yi Jigang, president of Orient Jiyi Investment, a Beijing-based private equity firm, and the former chairman of the liquor maker Guizhou Dongjiu Co Ltd.

"Investors, before making investments, should have the same views as entrepreneurs about operations and development goals."

Yan Yan, a managing director at the Asian private equity firm SAIF Partners and current chairman of NVC Lighting Technology's board, has been questioned about whether Wu was removed from the company.

Wu, for his part, has been quoted by China Business News as saying that he wants to return to the board and is concerned that the company's business performance has deteriorated sharply during his absence.

Yi said Chinese entrepreneurs have developed their way of doing business amid strong competition in the domestic market. Yi also said investors and venture capital and private equity firms should have respect for the experiences of businesspeople and avoid disregarding entrepreneurs' opinions when they adopt reforms.

"In my 20 years of managing companies, I have rarely seen companies that continue to be operated well once their senior management teams have been replaced by new ones," said Yi.

Wu is still the largest stakeholder in the company, having a 19.53 percent share.

SAIF Partners, for its part, invested $22 million in NVC Lighting in 2006 and another $10 million in 2008, giving it a 18.48 percent share. And Schneider Electric holds a 9.21 percent share, according to information from the Hong Kong Stock Exchange's website.

If Wu does return to the company's board of directors, Yi said, he will have to find a way to work with SAIF Partners and reward his supporters in the company while he struggles to maintain his controlling position on NVC's board.

Shan Qiwu, a partner at Hejun Consulting Group, one of the largest consultancies in China, said Wu is typical of Chinese entrepreneurs of his generation.

Shan said such businesspeople are capable of making their companies stand out among competitors.

"They are very decisive about matters related to their companies and don't easily take orders from others, even when they know their abilities are limited in certain ways," Shan said.

"So if equity investors have decided to work with a particular company, they should help the managers there ensure the company is run well, rather than weakening them and attempting to replace them.

"This is actually a problem that will be resolved with time. After 10 to 20 years, when the next generation of entrepreneurs start to take over companies, they will be more willing to let others have controlling shares and take leading roles."

Conflicts between entrepreneurs and investors have not been uncommon in China.

Last year, Li Yang, founder of Redbaby Information Technology Co Ltd, one of the largest Chinese online retailers of baby-care products, had a row with investors and eventually lost his position on the company's board of directors.

Since 2004, Redbaby has received investments from the venture capital firms Northern Light Venture Capital, New Enterprise Associate, Kleiner Perkins Caufield & Byers.

Zhang Lan, founder and chairwoman of South Beauty, a chain of Sichuan restaurants in China, has said one of the company's biggest mistakes was to receive capital from the investment firm CDH Investments. She said CDH put up relatively little money and yet managed to acquire a large number of the company's shares.

In 2008, CDH invested 200 million yuan ($31.4 million) in South Beauty, giving it a 10 percent stake in the company. Zhang vowed then to set up 100 restaurants by 2009, 50 of them in foreign countries. So far, though, South Beauty has managed to open only about half that many and CDH has expressed dissatisfaction with South Beauty's performance.

Zhang found it difficult to produce the returns CDH expected to see and has expressed a desire to terminate the two company's agreement. Meanwhile, instances of mutually beneficial cooperation have not been entirely absent.

Sky Network Technology Co, the largest mobile application store in China, was founded in 2005 and was listed on the NASDAQ in 2010. Between those years, the US-based venture capital firm Sequoia Capital LLP invested $3.5 million in Sky Network and now holds a 28.1 percent share in the company.

"I believe entrepreneurs prefer investors who provide capital and value-added services but don't get excessively involved in a company's business and stir up trouble," said Song Tao, chief executive officer of Sky Network Technology.

"Entrepreneurs are good at selling products, but they may find it difficult to further develop a company once it has grown to a certain size," said Wu Kezhong, president of the private equity firm PreIPO and a shareholder in NVC Lighting.

"Companies and investors should seek common ground and overcome their differences," said Zhou Wei, a partner at the venture capital firm Kleiner Perkins Caufield & Byers.

caixiao@chinadaily.com.cn

(China Daily 08/07/2012 page14)