S.F. firm gets China investor - ZT

From MercuryNews.com

Venture capital flowing from Silicon Valley to China is old news. What's new are the investment dollars trickling back from China's fast-growing economy.

In a deal announced today, Tencent Holdings, the operator of one of China's top Internet portal and instant messaging services, led an $11 million investment for San Francisco-based Outspark, a company that operates a "virtual playground" for online gamers.

"It's the start of a new trend, and we're glad to be ahead of the curve," said David Chao, managing partner of DCM, a valley venture firm with several investments in China. DCM and Altos Ventures, Outspark's seed investors, joined Tencent in the investment round.

Chinese companies, Chao noted, are increasingly investing in U.S. companies, including such major deals as Lenovo's acquisition of IBM's personal computer business. In 2005, a Chinese petroleum giant dropped its bid to buy Unocal amid intense scrutiny by federal authorities.

More recently, billions have flowed from the state-controlled Chinese Investment Corp. to American financial giants, including $5 billion for a nearly 10 percent stake in Morgan Stanley. Earlier, Chinese Investment Corp. bought a stake in the private equity firm Blackstone for $3 billion, and state-controlled Citic Securities Co.and Bear Stearns collaborated in a $1 billion deal.

"Now I think (Chinese companies) are coming into Silicon Valley," Chao said. "We're starting to see it."

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