Over the course of the many weeks of on-again, off-again MicroHoo madness, I did a fair bit of pontificating and speculating of my own about the would-be deal. After all, it was THE Bay Area topic of conversation (for one brief moment we all put our Facebook speculation on hold -- I am so pleased that we can get back to speculating about Facebook now and, better yet, speculating about MicroBook, or is it FaceSoft?).

Many of the MicroHoo conversations I had centered around the combined assets of Microsoft and Yahoo. What could the two companies, in combination, bring to bear upon the Internet landscape? And while the press largely liked to discuss the impact a Microsoft/Yahoo merger would have on the search market, to my mind that was not the biggest advantage of the combination. From where I sit, the greatest combined asset of Microsoft and Yahoo would be their vast social graph data. Farmed properly, MicroHoo could have enabled a stunningly powerful social network using nothing more than the fumes of their existing services.

To see the power of Microsoft's and Yahoo's social data, one need look no further than the first visit to virtually every social service. The first thing you are asked to do in the registration process is to give your login data for Yahoo Mail, Hotmail, etc. Why? Because each new social experience on the Web needs to recreate your social graph and the best way to jump start that process is to use the social graph data you already have stored in your existing communications services.

What if MicroHoo were to simply farm the social data contained in all of its current social services? Step one, implement a unified login across all MicroHoo services. I must say that this is one thing that Yahoo has gotten right from the very beginning (and Google has been a fast follower). Since its inception, Yahoo has viewed the customer experience as a unified one across all of its properties. And with each of its acquisitions, job number one has been to unify the login experience. Thus, Yahoo knows that "davidhornik" on Yahoo Mail is the same as "davidhornik" on Flickr is the same as "davidhornik" on MyYahoo. What if MicroHoo also knew that it was the same as "davidhornik" on Microsoft Messenger and as "davidhornik" on Hotmail? In fact, MicroHoo could know that I am the same "davidhornik" on:

Yahoo Mail

Yahoo Messenger

Flickr

Delicious

Upcoming

Hotmail

Windows Live Messenger

Xbox Live

etc.

Every one of these services contains data from which MicroHoo could have created a social graph an order of magnitude larger than MySpace or Facebook. Add on top of that social data compelling personalized experiences drawn from the likes of MyYahoo, Yahoo Finance, Zune.net, etc. and you've got the makings of a pretty powerful social experience.

So why haven't Yahoo and Microsoft done this on their own, let alone in combination? That's a great question. If I were in charge, it is where I would start. As all experiences on the Web increasingly are informed by social relationships, the long term winners will be the players who can bring the most social data to bear on their services. What's more, as can be seen in the recent announcements by MySpace, Facebook and Google, the ability to own that social graph and make it available for use by third-party services will prove invaluable. While Google has relatively little to offer in terms of existing social data, both Yahoo and Microsoft sit on treasure troves of data (as does AOL for that matter) that would allow them to legitimately compete with MySpace and Facebook as the Social Graph of Record for the rest of the Web.

Not that it would be easy for Microsoft or Yahoo to create a social network from whole cloth. I know it wouldn't. (Just look at Yahoo 360.) But the prize is well worth the effort. Consider the millions of people who have yet to join any social network. While Yahoo and Microsoft may not be the likely starting point for Millennials, it strikes me as a very natural place for the rest of the Web to discover and embrace social networking. Similarly, Microsoft and/or Yahoo seem the natural repositories of the social graph of record for the rest of the Web. If MicroHoo is ever reborn, the big opportunity for the combined companies is to create the social network for everyone else (and the social graph for everything else). In the mean time, Jerry and Steve, if you are listening, you probably should get working on it independently. My guess is that your future in the Web depends upon it.

When I first started talking to my now-partners about joining August Capital, I was stunned at the slow pace of the conversation. I couldn't imagine how it could take months to make a decision about whether or not to invite me to join the partnership. Admittedly, I wasn't coming from the most conventional background to enter the venture industry. But over the course of months, the August partners had more than enough time to talk with pretty much everyone I'd ever met in my professional life (plus a few choice grade school teachers while they were at it). In the end, after four months of grilling, I was invited to join August Capital.

At the time, I remember thinking to myself "how could it possibly take four months to decide?" It seemed like an absurdly long process. Yet, having now been in the venture business for some time, and having been on the other side of that process, it is amazing to me that it didn't take longer. Why is that? Two things in particular strike me.

The first is that partnerships are small, delicate creatures. At August, there were only four partners when I joined. That's not very many people. And partners spend a lot of time together. We make collective decisions about nearly all things in the partnership -- from investment decisions, to personnel decisions, to culinary decisions. And we each serve as a reality check for the rest of our partners. So keeping a partnership functional, let alone collegial, is tricky business. Rest assured, adding a new partner can throw off that balance really easily.

The second challenge is that adding a partner is a much bigger economic decision than making an investment in a company. I don't mean it is an economic decision in the sense of sharing the economics of the partnership. But rather, it is an economic decision because each new partner will be responsible for making a set of investments out of the partnership. If you make the right decision, your new partner will make investment choices that accrete large returns back to the partnership. But if you make the wrong decision, your new partner could easily invest tens of millions of dollars in companies that ultimately fail, hamstringing the overall fund returns. So adding a partner is a bit like making an indirect bet on a bunch of companies -- getting it wrong will have a widespread impact on your fund performance.

Given all that, the decks are stacked against anyone joining a venture capital partnership. It is just too easy to find reasons to say "no." Which is why it absolutely thrills me to welcome Howard Hartenbaum to the August Capital partnership. Howard has successfully run the gauntlet and come out the other side, and we are already enjoying the benefits of Howard's perspective and approach. Howard is simply a fantastic guy, and we are lucky to have him join us.

For those of you who don't know Howard, here are a few quick thoughts on why he's such a great fit for us at August.

First and foremost, Howard is a geek. After graduating from MIT, Howard didn't join an investment bank; he joined Honda Motor Company where he served as an ergonomics engineer. He got to build awesome products like the NSX. If there is one thing we like to do at partners meetings while eating lunch, it is talk about cars. Cars and email. Cars, email and digital photography. Cars, email, digital photography and high speed wireless. Cars, email, digital photography, high speed wireless and smart phones. Cars, email, digital photography . . . you get the point. Howard is a welcomed addition to the conversation.

Second, Howard firmly believes that the most important thing in a start-up are the founders. Howard has a great track record of working with entrepreneurs to help them bring their vision to fruition. As a result, entrepreneurs love Howard because he is helpful without being overbearing. What's more, Howard was an entrepreneur before becoming an investor. So he's been on both sides of the table and can bring that perspective not only to his portfolio companies, but also to our investment decisions.

And third, Howard is a great investor. Prior to joining us at August Capital, Howard was a General Partner with Draper Richards. He has invested in dozens of interesting technology companies. Notably, Howard was the very first investor in Skype and got involved in the business on the company building side (Howard was active in Skype's global business development efforts and served as the GM of Skype's US business). Howard was also an investor in Photobucket and Bebo, among many others. Howard's track record is impressive and it hasn't gone unnoticed -- he was named to the Forbes Midas List in 2007.

Given all that, it only took us a few months to invite Howard to join us at August. After all, we had to find time to talk with Howard's EE professors and his chess team coach :) We consider ourselves very lucky to have Howard as part of August Capital. He is a fantastic investor, a geek at heart, and a great guy to hang out with. What more could one ask for?

I was having breakfast this morning with Salil Deshpande from Bay Partners. Salil and I were talking about assessing company progress and how best to measure that progress. Salil invests in super early-stage deals and has his companies report to him on their progress on a frequent basis. He said that he had one CEO who would report on his progress in such florid language that eventually Salil had to forbid his use of adjectives in his progress reports. Salil said that he didn't want to hear that things were going great. He wanted to hear precisely how things were going.

I nearly jumped out of my seat. Salil had articulated one of my biggest pet peeves when it comes to company pitches (and board meetings for that matter). I hate adjectives. I don't want to hear that one of the company founders is a "fantastic sales exec." I want to hear that she was Presidents Club the last twelve years running. I don't want to hear that the product is "revolutionary and paradigm-shifting." I want to hear about the specific features of the product that are differentiated and how. I don't want to hear that the company has "massive market traction." I want to see a graph of progressive quarterly sales and a giant sales pipeline.

Adjectives are not convincing. Facts are convincing. I may not agree with the conclusions a company draws from those facts. But I will at least be in a position to appropriately assess those conclusions. Whereas adjectives are all about conclusions without the underlying facts. As an entrepreneur, you are far better off having me determine that your market is "massive," your founders are "brilliant," and your product is "elegant," than to tell me that your company has "an elegant solution serving a massive market designed by brilliant founders." So reread your pitch and remove all of the adjectives. It will go massively, monumentally, gargantuanly. colossally better that way.

A little over five years ago, Andrew Anker and I started chatting about blogging. There was plenty of blogging going on already for sure. But no one in the Sand Hill crowd was thinking about it. At the time there was still a prevailing sense that venture investing was a black box and any view into the box was a bad idea. Andrew and I talked about the fact that we didn't buy that. We thought there were all sorts of things VCs could talk about that would be interesting and valuable to entrepreneurs. Andrew proposed we start VentureBlog and came up with the tagline "A Random Walk Down Sand Hill Road" -- we laughed and VentureBlog was born.

Five years ago (technically, five years ago tomorrow), Andrew posted our "Hello, World." Andrew wrote that we would chat about what we do as early stage venture investors and concluded, "Mostly, we'll figure it out as we go along. No idea if this is a sustainable idea or not, but we're going to give it a go. Enjoy!" Since that first post there have been a few different folks come and go on VentureBlog, but, for better or worse, I have stuck around and kept on writing. I have tried my best to give a view into the black box and bring a little humor to it in the process. It has been a blast.

One thing has changed for sure since we started VentureBlog. There are now dozens of VC bloggers. From Sand Hill Road (Jeremy Liew, Susan Wu, etc.) to New York City (Fred Wilson, Ed Sim, etc.) to Colorado (Brad Feld, Ryan McIntyre, etc.) to Boston (Mike Hirshland, Jeff Bussgang, etc.) to Philadelphia (Josh Kopelman, Chris Fralic, etc.?). The problem entrepreneurs have is no longer finding information, it is sorting through it. So much has been written and so much more will be written about startups and entrepreneurship and Venture Capital. And I learn a pile from all of you every day. So thank you.

As for the question of whether or not VentureBlog is a sustainable idea, I guess the answer is "yes" and "no." I have been writing with varying degrees of frequency over these past five years. It is great to have a venue to share my thoughts when something jumps out at me. And I hope to continue writing for the foreseeable future. On the other hand, in the face of superhuman VC bloggers like Fred Wilson and Brad Feld, I feel deeply inadequate. How they manage to write day in and day out while finding time to do anything else is truly beyond me. My hat's off to them. And my apologies to those of you who feel that VentureBlog is too infrequently written to be relevant. I will try harder.

I greatly appreciate the conversations we've had here at VentureBlog. And I am thrilled to see the massive ecosystem of VC bloggers that has emerged. Many thanks to those of you who continue to read, link and comment. It has been a monumental education and a great privilege. And a huge thanks to Andrew for getting this whole thing started. Here's to the next five years.

An interesting debate has broken out between Glenn Kelman and Mike Arrington. Glenn is the CEO of Redfin, a Seattle-based startup that is trying to modernize the process of buying and selling homes. Glenn's a smart guy and a great entrepreneur. And he has always struck me as quite thoughtful. Which is why I was surprised to read his recent blog post entitled, "How Green Was My Valley." In that post, Glenn extolls the virtues of Seattle, while attacking Silicon Valley:

"the Valley's monomania is really just a kind of pubescence. What else could account for the Valley's self-righteousness, its congregations of frustrated dudes, its all-nighters, idealism, delusions of grandeur, mood-swings, longings, dramas, hero-worship and pranks? Anywhere else by contrast seems all grown-up."

Wow. Those are strong words. And the rest of his post is equally provocative. Glenn doesn't just praise Seattle. He berates the Bay Area.

When I first read Glenn's post, I almost took the bait. But I thought better of it. Mike Arrington, on the other hand, did not. Mike couldn't have Glenn badmouth the Bay Area as a "heartless amnesiac" without pointing out to Glenn that the Bay Area knows better than to waste its time focusing on the past. Mike couldn't let Glenn get away with praising the Seattle lifestyle without pointing out that it is just that, a lifestyle; the Bay Area has better things to do than worry about lifestyle. Mike couldn't let Glenn get away with baldly suggesting that Bay Area businesses are trendy and Seattle businesses focus on "what works" without giving a single concrete example; the Bay Area is all about specific examples, not baseless accusations. Mike couldn't let Glenn get away with any of it. That's just not something Mike can do.

I don't raise this to join in the rumble against Glenn. I am a fan of Seattle. My partners at August Capital have funded some great companies in Seattle, not the least of which is Microsoft. But I do want to take issue with one of Glenn's criticisms of the Bay Area. Glenn refers in a number of different ways to the obsessiveness of the Bay Area and suggests that the Bay Area's "monomania" is somehow a detriment to company building. I have to disagree. I love the obsessiveness of the Bay Area. It is the drug that fuels the Bay Area's startup economy. And it is the drug that fuels my every day as a tech investor. I love the fact that I can talk about entrepreneurship at AYSO. I love the fact that I can have conference calls with my CEO's at 1am. I love the fact that wildly successful entrepreneurs who could retire for life dive into their next venture within six months of leaving their last. I love the fact that Palo Alto's newest yogurt shop is a hotbed of tech recruiting. I love the fact that I funded a company after bumping into them at a local coffee shop. I love the fact that school auctions include items like "a tour of Facebook" and "10 hours with a trademark attorney" and "company logo design." Is it obsessive? You bet. Is it good for business? You bet.

To tell you the truth, I don't actually think that the obsessiveness of successful startups in the Bay Area is any different from that of successful startups in Seattle. I happen to know that Glenn himself is completely obsessed with entrepreneurship and building Redfin into the next great company. What is unique about the Bay Area is the pervasiveness of that obsession. It is everywhere you go. And I don't think that's a bug. I think it's a feature.

I am definitely late to the party in praising Marc Andreessen's incredibly great Blog. That said, my failure to extoll the virtues of Marc and his dead-on insights is not the result of me personally arriving late at the lovefest. I have been thrilled to read Marc's uniformly interesting and well-reasoned insights since blog post #1. I just haven't had the right opportunity to suck up to Marc and tell him how much I care. Thankfully, that moment has come!

If you are as big a Techmeme addict as am I, you have probably noticed this little discussion going on in the blog world about the would-be Microsoft/Yahoo merger. I have never seen a single issue take over Techmeme so completely. And the discussion about MicroHoo! or YahooSoft! has been pretty overwhelmingly damning of Microsoft and its proposal in general. A friend of mine recently referred to Microsoft as the Big Bad Wolf, which I think pretty much sums up what tech commentators have to say about the deal. But out of the increasingly loud chants of "Burn the Witch" came a voice of dissent (reason?) -- Marc Andreessen self-titled "contrarian view" (the full title is "Silicon Valley after a Microsoft/Yahoo merger: a contrarian view") poses, well, a contrarian view.

In six broad points, Marc argues that with or without the MicroHoo! deal, nothing has changed in Silicon Valley. There are lots of startups out there. There are lots of acquirers out there. But, more importantly, there are millions of steps between the two and a preoccupation with the contraction or expansion of the potential pool of acquirers distracts from the real job at hand, which is building meaningful companies. I am tempted to quote Marc in his entirety on this point (you should definitely go read it all) but I think this chunk sums it up well -- Marc writes:

Building your startup with a goal of getting acquired is foolishness anyway, in my opinion. Smart people disagree with me on this, but I'll make my case in two points:

* Big companies don't want to buy startups that want to get bought. Instead, big companies buy startups that have built something of value that they decide is important to them.

* You can't possibly guess what things of value big companies are going to want to own in one or two or three years. The world is changing too fast -- witness the Microsoft hostile bid for Yahoo itself! -- and besides, big companies are Moby Dick and you can't understand the reasoning behind their decisions anyway.

Combine those two points with the fact that no big company buys that many startups each year anyway, and it's easy to see that the odds of you successfully anticipating something that a big company is going to want in the future and then actually selling your company to them -- as your strategy -- is a very risky proposition that is highly prone to failure.

Precisely! Not only is this the right answer to concerns about a Microsoft/Yahoo! merger, this has also been my answer to concerns about a recession. Startups have too many things to worry about along the path to creating a meaningful business for these macro trends to be more than a distraction. They may have an impact on timing -- when you may or may not get bought or go public -- but they rarely if ever have an impact on your ultimate success.

Marc's "contrarian" view concludes, "Your job is exactly the same as before: build something people want, scale it up, make sure it's defensible, and make sure you can make money with it. Build a company you are proud of." Right on, Marc. That's a great summary of how I view my job every day. That should be my VC credo: to find, fund and build companies to be proud of! And nothing about MicroHoo! or the subprime debt crisis is going to change how I go about that. So carry on Silicon Valley. We've got a lot of hard work to do building great companies. Everything else is just a distraction.

Driving home from the city yesterday I was listening to a very interesting interview of Madeline Albright on NPR. Albright made a range of insightful observations about diplomacy, world affairs and the Presidency. During the course of the interview, one statement in particular jumped out at me. Albright said that she would rather have a President who was confident than a President who was certain. She noted that a confident President could take principled positions and stand for things that mattered, but would still have the good sense to listen to those around him and take counsel from a range of brilliant advisors. In contrast, a certain President would have no need for advisors because the appropriate course would be "clear" to him.

Madeline Albright's comments reminded me of a talk I heard Paul Graham give at Foo Camp a couple summers ago. Paul was discussing the attributes of successful enterpreneurs, and he argued that the best entrepreneurs were open minded and had good judgment. He contrasted that with failed entrepreneurs who were stubborn and had bad judgment. Paul stated that while having bad judgment could be a handicap for an entrepreneur, if you had both bad judgment and were stubborn, you would necessarily fail. I suppose in Graham's parlance, the President that Madeline Albright is looking for would be confident but open minded.

I am in complete agreement with Madeline Albright and Paul Graham. Startup success requires confidence but not certainty. I have worked with startup CEOs in the past who spent more time at board meetings defending their positions than listening to the board's feedback. Sure, some of the time those CEOs were right and some of the time the Board was wrong. But board meetings shouldn't be about certainty. The should be about confidence. The confidence to hear what other smart people have to say. The confidence to listen. The confidence to stand firm on things you believe are critical to the success of your company. And the confidence to change your position when clearer minds prevail. Like great Presidents, the best CEOs will have the character and the confidence to lead while listening. It isn't easy. But it can mean the difference between success and failure.

When I first started writing VentureBlog, I used to talk a lot about entrepreneurship. At the time, not a lot had been written about pitching VCs or the Venture Capital process, so there was lots of virgin territory. Since that time, dozens of VCs have started blogging and much has been said about what it takes to get a VC down the isle. Bits and pieces here and there -- a good Google archeologist can pull it all together. But having spent the week pontificating about PowerPoint and the likes, I've decided to take one more swing through the basics of pitching a VC.

As I thought about the process of pitching a business, it struck me that no matter what the stage, the information was essentially the same. A good elevator pitch contains the same content as a good executive summary contains the same content as a good PowerPoint contains the same content as a good business plan. The distinction among these business descriptions is not the substance, it is the degree to which the essential elements are fleshed out. Each document contains slightly more detail than the preceding.

Elevator Pitch --> Executive Summary --> PowerPoint --> Business Plan

This makes good intuitive sense. There is no reason that the things that are most compelling about your business would change based upon the nature of the business description. Nor would an investor be interested in different things by virtue of the form that description takes.

What, then, are the essential elements that make up a good PowerPoint, a persuasive elevator pitch, a compelling executive summary? I have no doubt that VCs will differ somewhat on the precise list, as well as the order and the emphasis. But at its core, I believe that a successful business description should include the following elements:

1. Introduction
2. Team
3. Product
4. Market
5. Business Model
6. Competition
7. Financials
8. Conclusion

If you are pitching a VC, start with these 8 slides. If you are writing an executive summary, start with these 8 headings.

Obviously some businesses will require additional information that is outside the scope of these basics. I am not suggesting for a second that you should always pigeonhole your business into these categories alone. But they are a great starting point from which to build a persuasive description of your business.

I was recently reading some old posts on Venture Blog and couldn't believe how short they were. One might call them pithy. Or one might also call them lazy. Either way, they were short. I should really try that again.

I have been teaching a class at Harvard Law School this winter semester called Venture Capital and the Technology Start-up with John Palfrey, the Executive Director of the Berkman Center. It is really fun to be back at the law school and working with John. I have been blown away by the energy that the law students are bringing to the topic of Entrepreneurship and Venture Capital. Sadly, I never had a VC or Entrepreneurship class in law school. Lets see, I had torts, contracts, criminal law, federal courts, administrative law, property, intellectual property, corporations, securities regulation, constitutional law . . . but no entrepreneurship. Then again, I don't know that I would have had the sense to actually take a VC or Entrepreneurship class back then. So its presence would have been wasted on me.

Today my students had to actually pitch business ideas to real live VCs from the Boston area. And they did a great job. As I was discussing with them how to think about company building and pitching, it struck me that much like the law, building great companies is all about applying precedent. Only, instead of the applicable precedent being case law in this instance, the applicable precedent is a business case. Pitching your business is all about finding the right business analogs and describing how they apply to the company you're building (e.g., "we're the Amazon.com of funeral supplies."). That isn't so different from finding the right case analogs and describing how they apply to the lawsuit you're defending. So there may be hope that we lawyers are able to figure out this entrepreneurship stuff yet.

For the last several years there has been a lot of talk on Sand Hill Road about investing in China. To a certain degree there has been a lot of talk about all the BRIC countries -- Brazil, Russia, India and China. But the most excitement is clearly around China. (Interestingly, while India is a relatively close second, I have yet to hear of a single Bay Area VC exploring investment in either Brazil or Russia). Drawn by huge markets and a rapidly expanding economy, American VC's are heading to China to stake their claims. Go East young VC's. Go East.

Venture Capital investment in China has not, however, been a headlong dive. Bay Area VC's seem to be sending over exploratory parties. By way of example, David Chao from Doll Capital has been in and out of China for some time. Now a number of his partners are getting in on the act as well. Paul Koontz from Foundation Capital spent a year in China exploring the market. And perhaps the best indicator that the Chinese market is hot is Dick Kramlich's pilgrimage to China this year. Kramlich is one of the founding fathers of Sand Hill Road -- a 25 year veteran of the venture capital business. Not one to miss out on a big opportunity, Kramlich has headed over to China for 2008 to catch the wave of entrepreneurship and, perhaps, some of the Beijing olympics. Chow, Koontz and Kramlich are not the only US VC's headed to China by any stretch of the imagination. But these high profile forays into the Chinese market are excellent indicators of the level of interest in the market.

It is hard not to be intrigued by the Chinese market. With 1.3 Billion people, you don't need a huge amount of penetration to hit big numbers. One percent of the Chinese market is 13 million people. As they say, if you are "one in a million" in China, there are thirteen-hundred people just like you. What's more, the Chinese government anticipates that approximately 300 Million people will move from the countryside to urban centers in the next decade -- that's the same number as the entire population of the United States. The combination of massive aggregate numbers, rapid urban migration (and the commensurate increase in wages) and relatively low concentrations of modernized business processes, suggest a market ripe for investment. And that is precisely the conclusion many of my brethren on Sand Hill Road have drawn.

Given all that, I was anxious to check out China for myself. And right before the new year, I had the good fortune to do just that -- I accompanied a group of Stanford Business School students on a ten day study trip to China. We met with senior executives from companies like China Telecom, Alibaba, GM China and Bao Steel, as well as senior government officials and party leaders (yes, it is still a Communist country). But the most interesting discussions, to my mind, were with the leading private investors in China. (Because my meetings with these private investors took place as part of a study trip, there was no expectation that I would blog about the content of our conversations -- thus, I have decided to exclude the names of the specific investors so as not to violate any confidences they may have reasonable expected.) These investors gave a surprisingly candid view of venture capital throughout the country -- the good, the bad and the ugly.

To the mind of the Chinese investing community, the market dynamics described above well outweigh the risks of investing in the current environment. Huge markets with lots of business white space provides for numerous opportunities for economic gain. While American investors are busy debating the degree to which the US startup market is saturated, Chinese investors are having trouble keeping up with the inflow of opportunities. The opportunities in China seem unbounded, making foreign investors starry-eyed. But despite the glories of the Chinese market -- and there is no denying that the demographic trends in China are glorious -- I heard more than enough from Chinese investors to scare me away from the market.

As an initial matter, the biggest challenge that investors find in building Chinese startups is identifying great entrepreneurs. Because there has been all but no startup culture prior to a handful of years ago, there are essentially no seasoned entrepreneurs. A few native Chinese business expats are returning from abroad to take advantage of China's increasingly open economy. But those numbers are de minimis and do nothing to staff the rest of the enterprise. Meanwhile, Chinese executives have been trained to function in a business culture of bureaucracy and Party connections -- not the fast-paced, fluid environment of the startup world. The investors with whom I met lamented the lack of qualified executives and warned about the significant challenges of doing diligence on Chinese entrepreneurs.

The second challenge with entrepreneurship in China is grounded in the laws of China. The legal structures needed to support a vibrant startup economy are, at best, embryonic. Neither entrepreneurs nor investors are particularly well protected by the Chinese legal system. One investor with who I met on my trip described a recent situation in which he funded an entrepreneur, only to have that entrepreneur turn around and leave for business school months later. The entrepreneur assured the investor that he would be better situated to make the business a success after the two years of school. The investor had no recourse as his money left the country with the entrepreneur. In another instance, an investor backed an entrepreneur in a business that thereafter appeared to be failing. However, a couple years later when the same company started thriving, the entrepreneur informed the investor that it was not the company he had backed. The investor was incredulous. He told the entrepreneur that it was the very same company with the same team and even the same name. The entrepreneur assured the investor that it was, in fact, a different company and that he had not invested in this successful company, his investment was in the previous failed venture. Despite the obvious deception, the investor told me that he again had no legal recourse.

In many ways, venture capital in China is like the wild west. There are big opportunities, but they are not well defined and capturing their full value may well require manipulating the law to your own devices. One investor with whom I met described entrepreneurship in the United States like a zoo and entrepreneurship in China like a jungle. In the United States, he said, while there is always a lion next to you with sharp claws, driven by self-interest, there is a cage between you and the lion to keep you safe. You can count on the cage to protect you from unreasonable or illegal behavior. In China, on the other hand, there is no cage between you and the Lion -- if you don't take great pains to protect yourself from the self-interested behavior of the lion, you are going to get bitten. Case in point, one Chinese executive with whom I met on my trip described how he was able to leverage his dominant market position to force his competitors to sell at a discount. What's more, the entrepreneur described with pride that once he had bought up all of his competition, he was able to raise his prices three-fold.

Yet another significant challenge for United States VC's seeking to invest in China is the government itself. While China appears to be making huge market-driven strides in its economy, there remains a significant wild-card in all business transactions -- the Communist government. On my trip it was repeatedly pointed out to us that government officials don't make laws, Party leaders do. The government officials are tasked with managing the bureaucracies of their localities, but the party leaders are tasked with making the decisions. The Communist Party single-handedly makes all of the rules in China. For example, by mandate of the Party, no Chinese financial institution may be majority-owned by foreign investors. Thus, the fasted growing segment of the Chinese market is off-limits to foreign investment. What is to stop the Chinese government from making similar mandates in other market segments? This lack of predictability of the fundament legal underpinnings of business in China is sufficient in and of itself to make me take pause.

I thoroughly enjoyed my visit to China. The shear scale of Beijing and Shanghai was absolutely stunning, as was the velocity of the growth in both cities. And the extraordinarily candid conversations we had with Chinese business leaders and Party officials was both surprising and invaluable. But rather than leaving China emboldened to invest in their great economy, I returned to the United States surprised that my fellow VC's could accept the risks inherent in investing in China. I could not. And I don't anticipate that changing any time soon.