05:00 AM

GOOG's Kai-Fu Lee Becomes China's Archangel Investor

Last week I got a chance to speak with the former head of Google China, Kai-Fu Lee about why he left the search giant and what he will be doing. Mr Lee joined Google in 2005 from Microsoft, to become president of Google China. His mission was to increase Google's reach in China against the domestic competitor Baidu.

Microsoft tried to stop Google from hiring Mr Lee but Google won the legal tug of war. At the time, Mr Lee wrote: "I need to follow my heart." [Kai Fu Lee: I need to follow my heart ZDNet.com]

Similarly, leaving Google, Mr Lee told me that he needed to follow his heart and take on a role where he can create a tremendous amount of value.

He is setting up an investment fund, Innovation Works that will make very early investments in Chinese startups. The fund will also provide the young companies with back-office support and other services so that the entrepreneurs can concentrate on developing technologies and services. The size of the fund is initially set at $115 million.

Here are some notes from our conversation:

- There is a large amount of capital in China waiting in the wings ready to invest in later stage financing for startups. But there is very little seed or angel investments.

- My goal is to provide those angel investments, and to quickly get companies up and running. Within 9 to 12 months those companies can attract later stage investments.

- The angel community in China is very different. It is very inexperienced and it often has ridiculous expectations. For instance, angels will sometimes insist on being repaid their money if a startup fails, trying to say it was a loan when the investment documents show otherwise.

- Angel investors are a very rare breed, they are self-selected, they have to learn how to do what they do and to network. I hope to be able to train others and to create a community of angel investors.

- There is a tremendous amount of enthusiasm and talent among Chinese entrepreneurs.

- Silicon Valley has managed to create a culture of openness to ideas and also to capital. In that way, ideas and capital can often find each other. China does not yet have this type of culture.

- There is some advantages to companies that are Chinese. This is especially true in the area of media such as search and social networks. These can be ideological areas and often require a license. We will be making investments in these areas as well as other sectors.

- Chinese startups are generally a lot more humble and understated and that can help.

- I will also be investing my own money.

- I'm not sure if Chinese entrepreneurs or developers from Silicon Valley will be drawn back to China because of this venture. If they are, there will be less need for my help.

- The timing is right for my move.

- Because of my roles at Microsoft and Google people trust me. I hope to become a matchmaker for talented entrepreneurs and capital.