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For the first time, the Chinese government has exempted a U.S. venture firm from having to pay a hefty 10 percent withholding tax for repatriating profits, in a major move that could spur another major wave of U.S. investment in China.

Patrick McGovern (pictured here), head of IDG Ventures, the venture arm of major publishing group International Data Group (IDG), disclosed the Chinese move in a recent interview with VentureBeat. He said the Chinese government made the exemption for his firm last month. It’s too early to tell whether the favor will be extended to other U.S. venture firms soon, he said. McGovern was favored, he said, because of his early commitment to China beginning more than a decade ago.

McGovern said the move is a big deal, because it makes his Chinese investments — already profitable — even more lucrative. He said the exemption by Beijing is why he recently pledged to increase his investments in China to a whopping $60 billion by 2020.

That goal, which McGovern first stated several weeks ago, was so ambitious I had a difficult time believing him when he first mentioned it. After I inquired about it at the time, McGovern agreed to drop by my office here in Silicon Valley to explain why he was doing it. That’s when he dropped word about the exemption. Turns, out, he’d been pushing for the exemption for some time. Now that it’s in place, the advantages of investing in China are manifold.

Here are more details about the accord, based on my interview with McGovern: IDG Ventures in China becomes the first foreign investor with permission to invest from a renminbi (Chinese currency)-denominated fund. It means IDG can take their Chinese companies public on local Chinese stock markets without paying a tax. That means IDG Venture no longer needs to set up a shell company in the Cayman Islands, convert dollars into renminbi and then invest it into a mirror IDG start-up company in China — the standard procedure that it and most other venture capital firms have had to use. Until now, IDG and other firms did all this in order to take Chinese companies public on foreign exchanges, such as in Hong Kong or the Nasdaq. If VCs wanted to take a company public on a local market, they were forced to pay a 10 percent withholding tax for taking money out of China. All this is no longer needed for IDG.

McGovern’s IDG Ventures was the first VC firm to begin investing in China back in 1993. Since then, it has plowed $450 million into 180 companies. The value of that investment is now $1.6 billion (counting exits, sales, and value of other holdings), with the average investment being about four years old, McGovern said. Based on this, the firm has seen an internal rate of return of 41 percent (for the uninitiated, this means a net return each year of 41 percent).

Going forward, the opportunity in China is huge, McGovern says. The Chinese have $2.4 trillion stuck away in savings accounts, with only 15 percent of that in the stock market. The small amount in stocks is because of China’s traditionally weak stock market. However, that’s changing as the Chinese warm to investing and tire of the 3 percent or so they’re used to getting from banks. Increasingly, as domestic money cascades into stocks, companies are going public on China’s domestic stock market in Shanghai and elsewhere, instead of waiting to become big enough to go public in Hong Kong or in New York on the Nasdaq. Between $400 billion and $800 billion more may cascade into Chinese stocks over the next two to three years, McGovern said.

While IDG and other investors previously avoided the local stock market, preferring instead to simply sell their investments, that is now changing. With money sloshing around, it’s far better to go public locally in China, because you can get a better valuation, specifically up to a “20 percent premium,” McGovern says, compared to a sale.

In that light, it’s easy to understand why IDG decided to not reinvest in Boston’s Flybridge Capital Partners, the firm previously known as IDG Boston. With China returning a 41 percent IRR, it didn’t make sense to invest in New England, where IDG was generating only 10 to 12 percent IRR, he said. (Flybridge declined comment.)
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Jingle Networks, a provider of free telephone directory services, has raised $13 million in a third round of funding, according to VentureWire.

The service, called “1-800-FREE-411″, is pretty simple, and it’s completely automated: You dial a number, listen to an ad and then get the information you need. The Boston-based company has signed up around 150,000 advertisers.

When we covered Jingle back in 2006, the startup had just raised $30 million to build out its network — reaching a “critical mass” of between 10 million and 20 million monthly callers was key to attracting advertisers, chief executive George Garrick said. It looks like Jingle’s efforts were successful; it’s gone from around 13.5 million monthly calls (450,000 daily) to 20 million.

Investors include Goldman Sachs & Co., Hearst Corp., IDG Ventures, Liberty Associated Partners and Comcast Interactive Capital, and Jingle’s total funding to date is $70 million.

This is a crowded market, with lots of competitors offering similar free services, and Jingle competing against big players like Google, Microsoft and At&T. (We also hear that V-Enable has a big announcement coming tomorrow.) Google, for example, is better placed to deliver targeted ads, which is key to making ad-supported services pay off. If Jingle wants to take on companies of that scale, it will have to be innovative.

On the other hand, the startup must be doing something right already, because it reached profitability last month. I’m trying to reach Jingle’s investors to find out more about why the company has done so well, and how it will stay competitive in the future.

Many venture capitalists think of themselves as romantic swashbucklers, mixing raw intelligence with their bulging money purse to skillfully create companies of huge worth. Many of them are lone wolves that gather in regional packs because it’s more convenient.

So how do you harness of a group of these fiercely proud packs across the globe? How do you keep them loyal to your empire’s headquarters here in the U.S.? Answer: You don’t, unless you’re a bit nuts.

International Data Group is one of brave groups that is trying to scale the venture capital model globally. It was one of the first to start setting up regional venture capital funds — from the U.S. to Asia.

But now it is centralizing much of its fund-raising structure, according to IDG Chairman Pat McGovern.

A central team, run by Steve Kahn in IDG’s Boston headquarters will work with investors to put capital in each of these funds. He’s been discussing IDG’s plans recently, after IDG’s Boston unit broke off last month and changed its name to FlyBridge Capital Partners, removing its affiliation with IDG.

The move sparked a minor controversy, around who was responsible for the break. Was it FlyBridge’s mediocre performance, as McGovern said, or was it just time for FlyBridge to break off now that IDG had reduced its investments in the fund, as FlyBridge contended? McGovern will be dropping by VentureBeat’s offices on Thursday, and we’ll have more. But VentureWire discussed the latest IDG reorganization plans in detail this morning.

Creating global venture capital networks is difficult. DFJ has been one of the more successful, in part because it has rolled with the punches. Key partners of foreign funds have defected once they feel they’re not getting compensated enough by the U.S.-based team, but DFJ usually moves quickly to try to restore operations, hiring new partners in their stead. It’s been topsy turvy, but somehow DFJ has managed. Benchmark had a European team, but it relinquished control of that entity (now called Balderton Capital) once it became successful. Sequoia, Kleiner Perkins and others are trying different models too.

IDG Capital, as the centralized operation will be called, will be the hub for raising cash for IDG’s funds in India, Korea and Vietnam, as well as future funds planned for places like Eastern Europe.

It won’t include IDG’s China operations, which has its own well defined set of investors, or IDG San Francisco, which plans to finish raising a $180 million fund next month.

McGovern said the latest move is designed to simplify the process for investors.

VentureWire provided the following summary of where things stand:

IDG is typically the sole backer of its venture affiliates’ first funds. If the fund generates suitable returns to warrant a successor fund, IDG’s strategy is to open up that second fund to limited partners, while committing 10% to 25% of the capital.

The company set up a $100 million fund in Vietnam in 2004, a $150 million India fund in 2006, and a $100 million Korea fund late last year…McGovern expects IDG to establish its first fund in Eastern Europe this fall, with $150 million and an office in Warsaw; a second early-stage Vietnam fund next year with about $200 million; a second India fund with $350 million in 2010; a growth fund in Vietnam with $350 million in 2010; and a similar-sized growth fund in Korea in 2010 or 2011.

IDG has also just finished raising a $600 million later-stage fund with Accel that will invest in pre-IPO rounds in China, as well as possible PIPE deals.

TODAY’S HEADLINES:

• Drug-screening tool maker IonGate Bio raises €4.6M (release)
• Protein-drug maker Molecular Partners gets $5M up front in Centocor deal (PDF release)
• ProtaGen takes in €1M for protein biochips (PDF release)
• China’s Sundia MediTech, a contract research organization raises second round (release)
• Vital-signs implant maker Transoma Medical sets IPO terms, aims for $78M (Edgar)
• UMD receives $1M grant for Baltimore biotech incubator (TechJournal South)

Drug-screening tool maker IonGate Bio raises €4.6M — IonGate Biosciences, a Frankfurt, Germany, developer of tools for drug screening, raised €4.6 million ($6.7 million) in a third funding round. Investors included Heidelberg Innovation and KfW (Kreditanstalt für Wiederaufbau).

IonGate, whose slogan appears to be “Measure More Membrane,” focuses on the study of proteins embedded in cell membranes, particularly “transport” proteins that move molecules of various sorts in and out of cells. The company’s tools allow drug companies to observe the activity of these proteins, apparently in order to determine whether particular drug candidates activate them in order to make their way into the cell interior.

The company plans to use the funding to expand its international operations, especially in the U.S. The company formed a U.S. subsidiary in December, and plans to build out distribution channels here in order to market its surface-protein analysis technology.

Protein-drug maker Molecular Partners gets $5M up front in Centocor deal — Zurich’s Molecular Partners, a biotech developing drugs based on a new class of binding proteins, struck a partnership with J&J’s Centocor unit (PDF link) that yielded the startup a $5 million upfront payment. The collaboration will focus on Molecular’s work with DARPins — the acronym stands for designed ankyrin repeat proteins, in case you were curious — that the company is currently developing as potential anti-inflammatory drugs.

Molecular will receive additional undisclosed cash for research and licensing fees, as well as royalty payments for any drugs that result from the collaboration. We covered their technology — which is interesting, but may also have serious drawbacks relative to monoclonal antibodies, which is Centocor’s specialty — in more detail here (fifth item).

ProtaGen takes in €1M for protein biochips — ProtaGen, a Dortmund, Germany, provider of protein-analysis tools, raised €1 million ($1.5 million — PDF link) in an interim financing. Investors included MIG, Co KG Beteiligungsfonds 3, S-Venture
Capital Dortmund and Kreditanstalt für Wiederaufbau (KfW).

The funding will allow the company to expand its development and sales of protein biochips, which enable relatively quick identification and analysis of proteins from biological samples. Such chips might one day be useful as diagnostic tools, although for now they are mostly used to find and “validate” proteins that might serve as “biomarkers” for the presence or progress of disease. ProtaGen is also working on its own diagnostics for Alzheimer’s disease and various inflammatory conditions.

China’s Sundia MediTech, a contract research organization raises second round — Sundia MediTech, a Shanghai contract-research startup founded by U.S. biopharmaceutical veterans, raised an undisclosed second funding round. Sundia didn’t disclose the identities of its investors beyond noting that first-round participant IDG Ventures was also involved in this funding.

Sundia’s press release makes for some amusing reading, and not just because it seems to have been written by someone with a relatively poor grasp of English. The statement is mostly devoted to extolling Sundia’s “excellent reputation” and “phenomenal growth,” not to mention the difficulty it has had beating investors off with a stick. For instance, there’s this:

One month later, Wuxi Pharmatech from the same city had a very successful IPO at New York Stock Exchange as the first Chinese CRO company to go public. Suddenly, CRO became a hot area for all investors to look for opportunities. ”Wuxi’s IPO definitely brought more investors to us”, the company’s CFO Dr. Beijia Yu recalled, ”We did have a difficult time to handle all requests from VCs, PEs and investment bankers for meetings to discuss investment possibility. The response to our fund raise from the investors was overwhelming.”

Maybe they deserve it — it’s difficult to say from here, and of course, it’s not as if U.S. startups don’t sometimes toot their own horn a bit loudly. Still, it’s an interesting example of the different cultural norms at play in a Chinese company.

Vital-signs implant maker Transoma Medical sets IPO terms, aims for $78M — Transoma Medical, a St. Paul, Minn., medical-device maker, set its IPO terms and now hopes to raise as much as $77.6 million. The company intends to price its shares between $14 and $16.

Transoma makes implantable devices that monitor patient vital signs. We previously covered them here.

Telltale, the San Rafael, Calif. company that makes interactive games, including Sam & Max, has raised $6 million in a second round of financing.

The three year old company is already profitable, having pursued a strategy of making games much more rapidly and cheaply than the large game producers such as Electronic Arts. Rather than trying to produce blockbusters games costing in the millions of dollars, Telltale seeks to make games in episodes (the popular Sam & Max just concluded its first season of six monthly episodes, for example), which keeps the games fresh, creating buzz on chat boards. It also forces a snappy release schedule.

Granite Ventures led the round, with IDG Ventures in San Francisco participating. Telltale raised some $800,000 in an angel round in February last year.

With Sam & Max, Telltale has already made money, chief executive Dan Connors tells VentureBeat, by selling the game through multiple channels. One is through Turner’s Gametap (see here), which is a subscription broadband service for games, costing $9.95 a month. A second is by direct downloads from Telltale’s site. Other ways, still in the works, are syndication with other Web portals (still be announced), possibly along with advertising, and as retail game in stores, aimed at consoles.

Some other companies are pushing episode strategies. Kuma War Hothead games for examples.

MySpace is negotiating its entry into China with a venture capital group and a former China Netcom Group exec, according to the WSJ (sub required), a sign that it is relying on local help to avoid the expensive mistakes made by other U.S. companies in China.

The report said the Rupert Murdoch, chairman of MySpace owner News Corp., is sending his wife Wendi Deng (pictured above) to plan MySpace’s entry into the world’s most populous nation, and that she’s in talks with IDG Ventures in China, and Edward Tian, the former China Netcom Group chief executive to help with the move.

MySpace’s move is significant because eBay and Yahoo, two other large U.S. Web companies that made earlier moves to China, have struggled against local competitors there. Yahoo, an early player in search, has invested $1 billion there, but has little to show for it. It has seen competitors spring up all around it. The controversy around Qihoo has been particularly bedeviling for Yahoo. Notable is that Qihoo’s investors include IDG, which is MySpace’s supposed ally. IDG also invested in Baidu, which has eaten Google’s lunch in China so far.

MySpace will compete against several other local Chinese social networking players, including 51.com. That company recently received $12 million (scroll down) from Sequoia Capital. Sequoia is also investor in Qihoo, and thus the Web of intrigue is spun.

Murdoch has made all the right moves. He has said MySpace’s local operations need to be very Chinese.

The WSJ reports:

IDG’s Chinese investment arm already has a joint venture with News Corp. operating a Chinese portal called Chinabytes.com. A person close to IDG’s Chinese venture confirmed it had held talks with MySpace. A Chinese news outlet reported earlier this week that Luo Chuan, the former general manager of MSN China, would become president of MySpace China on Dec. 8. Luo Chuan couldn’t be reached for comment.

(Updated below with comments from chief executive George Garrick)

Jingle Networks, a Menlo Park start-up which provides free phone directory assistance, has raised a whopping $30 million more in venture capital — upping the ante in what is now a crowded field.

This area has become popular because people find this an easy way to avoid the $1 to $3 they get charged using regular DA service.

Jingle, which markets itself as 1-800-Free-411, supports the free service by injecting advertising snippets in it responses. If you call them at 1-800-Free-411 looking for a particular local pizza company, for example, you may be offered a voice ad from a competing pizza company.

Competitors (see our early stories here and here), include San Diego’s 800ideas.com, which provides different 800 numbers depending on the city you are in, and Palo Alto’s 1-800-411-Save. (Update: InFreeDA, a San Francisco start-up that went live earlier this year with 1-800-411-METRO, has effectively closed shop. Thought he company told us in August it hadn’t closed down — and was just doing a major restructuring — we just tried using it, and got an “all circuits are busy” message, twice.)

The venture round is significant because it brings the company’s total funding up to about $30M over the past year (it got $26 million in April, and $5 million in December, three months after launching).

This latest third round was led by Goldman, Sachs & Co. and Hearst Corporation. Previous investors Comcast Interactive Capital, First Round Capital, IDG Ventures Boston and Liberty Associated Partners also participated.

Jingle says it now enjoys three percent of DA calls in the U.S., accounting for more than 13 million inquiries from more than four million consumers each month.

Among its advertising customers are CBS, which promoted its fall lineup with audio spots in the DA responses, and 1-800-flowers.com and 1-800-Mattress.

Chief executive George Garrick told VentureWire in a story (sub required) this morning that the company’s post-money valuation was “about $150 million.”

[Update: We just got off the phone with George Garrick, who confirmed the valuation was "slightly higher" than $150M. The large amount of cash is needed, he said, to build out the service. Advertisers come later, because they don't take a company seriously unless it can show five to ten million calls a month, he said. And he says Jingle has hit the tipping point, with about 450,000 calls daily. He expects revenue of between $1 and $5 million this year -- he wouldn't specify further -- and "ten times" that next year, he said. He said Jingle is the clear leader in free DA service, in part because of its more recognizable number. InFreeda has shut down, in part because of its less memorable name, he added. Palo Alto's 1-800-411-Save, meanwhile, is only placing between 5,000 and 10,000 calls a day, he said. We've reached out 1-800-411-Save for comment. No one else has raised close to this $30M, he pointed out. His real fear (he corrects; he did not say he feared them) assumption is that the carriers will unveil an ad-supported free DA service, he said.]