Why Can’t Foreign Firms Hold Onto Chinese Dealmakers?

As the Chinese VC/PE markets continue to mature, one of the emerging trends is an inability of foreign firms to hold onto their China-based talent. Among those to have lost senior Chinese dealmakers are Sequoia Capital, Kleiner Perkins and TPG Capital.

The question, of course, is why? So I asked Ludvig Nilsson, managing director of China-focused fund-of-funds Jade Invest. Here was his reply:

“Normally I think it tends to be a question of pure economics. The Chinese guys have been creating all the value, finding the deals, closing the deals, adding value, exiting the deals — that whole process.

Most of the value is actually created by those individuals, whereas they may feel that they’re only capturing a very small part of the value. So most of the carried interests so that the upside sharing of those funds may stay, you know, some are from very away; be it the U.S. or other parts of the world. So the Chinese are willing to a lesser and lesser extent willing to just stay as employees and work for, you know, a foreign big brand. Most of them see it as a way of, you know, to train, to get good background and understanding of how this industry works, and then do it themselves. And that’s also one of our investment themes; to back some of these managers.”