4. Venture capital in China: high technology investing in an emerging economy*

Investing in new projects and technologies by mature firms is a challenging endeavour that often fails to create lasting significant growth for firms (Jensen, 1993). Investments in entrepreneurial ventures by outsiders such as venture capitalists that often rely on new technology can, however, be even more challenging (Christensen, 2000). Venture capitalists have found ways to reduce the risk associated with new venture investment by reducing the non-systematic risk involved in investing, though much risk remains (Christensen, 2000). They do this by careful due diligence, providing management and personnel assistance, careful monitoring of the investment, and well planned exit strategies. Venture capital is well established in the developed economies, such as in North America, Western Europe, Israel and parts of East Asia where the rule of law is well established and venture capitalists are able to carry out these activities (Bruton, Ahlstrom & Yeh, 2004). It is less well established in emerging markets where a lack of property rights and an enforceable rule of law reduce the systematic market risk and may add to the complexity of the venture capital process (Bruton & Ahlstrom, 2003).