LET A THOUSAND IPOs BLOOM
A venture-capitalist CFO reaps rewards from China's new consumer class.
By Abe De Ramos

Linktone, a US$17-million-a-year Chinese mobile content provider, found its way onto Nasdaq on March 4, representing the end of a journey for the young US venture capitalists who founded it, and casting promise on their newer bound-for-the-market enterprises. The Linktone debut was cause to celebrate. It was one of the first Chinese companies to list on the tech-heavy US board in three years, and the US$14 price per American depositary share ratcheted up 36 percent on the first day. Derek Sulger, 32, who founded the company along with partner Patrick Benzie, and acted as its CFO in the starting phases (See "Right Place Right Time", November 2001) dubs the offering "a positive experience."

Sulger and Benzie, who together comprise venture-capital firm Lunar Group, deviated from the traditional private-equity model of hunting for viable start-ups and injecting them with seed capital by founding the business themselves. Flush with their own funds as well as investments from friends in Wall Street and London, the two Americans came to China in 1999. They were especially interested in the country's emerging middle class, with particular focus on the exponential growth of mobile phone users.

The result was Intrinsic Technology, which ended up splitting into three standalone businesses. Linktone provides text-based services to mobile phone users such as horoscopes, ring tones and games; Intrinsic runs the software through which these contents flow between providers, operators and users; and Sumit is a payment system that lets users add credit to their mobile phone usage accounts. While building up funds for these ventures, Sulger acted as group CFO. Intrinsic and Sumit are now on the road to their own IPOs. In light of their success with the Linktone offering, the prospects look good.

Sumit (pronounced 'summit') may have a lot of promise. Currently, the company only processes purchases of mobile usage credits - users send a text-based instruction to Sumit, and Sumit automatically debits the users' bank accounts. Sulger says this capability can be scaled to payments for other consumer goods and services. Whereas industrial countries have a variety of payment systems - from credit cards to online banking to automated teller machines - none of these are as pervasive in China.

Sumit's technology, says Sulger, fills a gap that exists due to a lack of sophistication of Chinese banking systems. "It's not revolutionary," Sulger adds, "but in an area of consumer financial services which is a hugely untapped industry, especially in China where people are still not comfortable with handing out credit cards, and where so many more people have regular access to a mobile phone than a PC."

It's also consistent with Lunar's faith in China's growing rich and young urban professionals. The private equity firm's latest venture, Legend Media, buys advertising spaces in some of the most unusual places - such as those 5-gallon, upside-down bottles in office water coolers. An entertainment start-up, LOV Entertainment, takes minority stakes in movie houses, fast-food chains, and the like.

These ventures are Lunar's first without direct management roles for Sulger. Sulger has already relinquished his group CFO post at Linktone, Intrinsic and Sumit by hiring outside managers for each business.

"Now that I've moved from being a founding investor to a director, it will make the management teams even more accountable," says Sulger. "In a way (the IPO) makes me sleep easy at night."

He adds, "I like the fact that there's a new group of people there who will be breathing down management's necks."