Founders, investors urged to agree to targets from start

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