Capital gains

"The problem is that they don't do any proper analysis and they often pay too much for their

investments which means valuations for everyone else become too high."

Zhang at ACE says such amateur operations do not fully understand the very concept of venture capital or private equity.

"If you are a venture capitalist you are an LP - a limited partner of a pooled investment - and are not hands on. They want to be GPs (general partners), however, and want to take power and control. They are always heavily involved in each deal. That is not how it is supposed to work," he says.

The difference between venture capital and private equity is often difficult to define. Venture capital invariably tends to be early stage finance, often for start-up businesses.

Nick Luckock, director of financial services at Actis. [Geng Feifei / China Daily]

Private equity, or PE, as it is known, often kicks in at the $50m threshold and can involve quite substantial sums.

It is usually invested in established businesses that are ambitious and want to grow fast and the private equity investor is looking to exit at a profit after three to five years by either an IPO on one of China's stock exchanges or a trade sale to another company. Some private equity companies also seek longer-term investments of up to 10 years.

In Hong Kong, Richard Zhang, partner and the head of the Greater China office for London-based private equity company Apax Partners, says a company such as his is only interested in the bigger deals.

"The minimum deal for a global equity house such as ourselves would be more likely than not $100 million and above cheque size," he says.

"We are a very patient, long-term investor and tend to stick with a portfolio of companies for a very long time. There is always going to be an exit and that can be anything from three to five years to seven to 10 years."

Apax opened an office in Hong Kong in 2005 and in Shanghai two years ago and has been involved in a number of high profile deals.

It took a stake in SouFun.com, China's largest real estate information website, and saw its shares jump more than 70 percent when it listed on the NYSE recently.

Last month it advised private equity funds to buy Golden Jaguar, the fast growing China restaurant chain which is located mainly in many of China's larger shopping centers.

Zhang says it is part of the company's strategy to make investments in businesses such as these that are likely to benefit from ever-rising consumer spending in China.

"I would say there is no typical deal for us but generally speaking, our investments in China are very much tied to the rising domestic consumption trends underpinned by continued economic development and urbanization in China," he says.