After living overseas for several years, Mr. Li, who requested anonymity, returned to China with the goal of establishing an Internet company.

Within a year, his company has grown so rapidly that Li is already planning to refinance.

"I obtained a loan from overseas friends to establish the company, and it is now time to take the next step-seeking venture capital (VC) investment," Li said.

There are many entrepreneurs like Li, including both local Chinese and overseas returnees. However, unlike Li, many of them did not turn to relatives and friends first when seeking financing, but approached VCs directly with their business proposals.

"For enterprises in their initial stage, angel investors should be the first consideration for financing," said Fang Xingdong, President of Chinalabs, who described angel investors as "smart fools."

It is these "fools" who have helped many startups overcome the toughest period of their development. The startup period of a company is the most hazardous and the key is to find VC investment to help the company survive through the first six to 12 months.

Chen Youzhong, General Manager and Partner of iD TechVenture, commented, "Angel investors appear at the most dangerous and vulnerable times."

How does a startup enterprise attract angel investments? How does an angel investor who is not a professional investor choose investment projects? Industry, team and market prospects are all primary factors that need to be researched.

Making foreign turf familiar

Although angel investors are non-professional investors, they avoid investing in areas in which they are not familiar.

"We do not do anything that we are not familiar with," Fang said. "No one knows everything, but one always has a group of friends who are specialized in different areas, so friends can work together."

According to Fang, the team is the key factor to be considered during investment project evaluation.

"The team is our primary consideration," Fang said. "You might have heard the saying, 'When an investor is looking for a project, three conditions are vital: people, people and people.' If the business direction is wrong, but the team has the right people, then the direction can be changed or adjusted. If technology is inadequate, it can be purchased or developed, but with a team without the right people there is nothing you can do."

Ni Zhengdong, Chairman and CEO of Zero2IPO, believes that there are three questions that need to be addressed when evaluating projects:

· Is it a fast growing market?

· What is the position of the target company? Ideally within the top three;

· Is it an excellent team with good communication and cooperation that is able to realize a dream?

"The best means of evaluating a team is to communicate with them to ascertain their background and previous experience," Ni said.

Zero2IPO raised $20 million from angel investors in the first half of 2006 to support startup enterprises, most of which were digital media companies. According to Ni, Zero2IPO has invested in three companies up to this point and is planning to invest in another three by the end of this year.

"The three companies we invested in were tianyaclub.com, welan.com and DORM99.com," Ni said. "Tianyaclub.com is a well-known community website and is believed to have become the most popular online community in China within a short period of just a few years. Welan.com ranked the third among B2C (business to consumer) online bookstores, and DORM99.com is a university community website. On average, each of the three companies received approximately $500,000 in angel investments."

Ni continued, "We plan to invest in 10 companies each year. Companies that receive our angel investments may find suitable VCs through our consulting services when they need to refinance."

Where do companies go to find angel investors?

Ni said with a smile, "If you are an entrepreneur, you should meet with us and we will come to a decision within half an hour."

He added that it does not take long to decide on an investment.

"Normally it takes two to three weeks for us to make a decision after the initial contact," Ni said. "We immediately send experts to perform due diligence and then we make the final decision on whether or not to invest."

(Xinhua Finance)

DISCLAIMER: The information contained herein is based on sources we believe to be reliable, but is provided for informational purposes only, and no representation is made that it is accurate or complete. This briefing should not be construed as legal, tax, investment, financial or other advice, and is not a recommendation, offer or solicitation to buy or sell any securities whatsoever.