zhou.jpgJoe Zhou, the partner who led the Beijing office of big-name venture capital firm Kleiner Perkins, has left to set up his own venture capital firm.

Zhou had long wanted to start his own venture firm, so the move is not that much of a surprise, according to Asia Venture Capital Journal, which first reported the news (sorry, no link).

The move comes at a time when investments in China are booming, and at all-time highs (see details on financings below). It’s not the first time U.S. venture firms have seen defections in frothy China. DFJ was hit hard when two of its best partners defected to join Sequoia Capital and Granite Global Ventures two years ago. It’s also a sign that the venture capital model can be difficult to scale outside of one’s home territory. Benchmark Capital, for example, had to cut ties with its European partnership last year when that operation became successful enough to declare independence.

ju.jpgZhou’s departure comes less than a year after KP opened its operations in China and announced a $360 million fund for the country, including teams in Beijing and Shanghai. Zhou, who had previously scored a hit by backing Chinese company Shanda while he was at venture firm SAIF Partners, was alone in KP’s office in Beijing and was considered a “maverick,” according to the Asian Venture Capital Journal. The Shanghai office of Kleiner has three partners, led by Tina Ju (middle in image above), who helped back Alibaba and Baidu. That team will stay put. So it’s not like Kleiner is falling apart over there.

The story was reported by Rebecca Fannin, who has followed the Chinese venture scene closely. She recently wrote a book called Silicon Dragon about the Chinese technology scene, which argues that China has moved from copy-cat to true innovator mode. (By the way, the book also has some good color about how Robin Li of Baidu and his co-founder almost failed with Baidu, the Chinese search engine that now is No.1 in that country.)

We tried to reach Kleiner for comment this evening, to no avail.

Meanwhile, according to the latest survey by Dow Jones, venture capitalists invested $2.49 billion in 241 deals in China last year, a five percent increase in investment over the previous year — although this comes with one caveat: the number of deals actually fell, despite the overall increase in the value of investments. The data shows increased investment into non-tech. Here’s a spreadsheet (downloads Excel file) listing China investments by sector, stage and round over the past six years.

More from the release here:

“As has been the trend for several years, venture capitalists continue to diversify their investments in China,” said Jessica Canning, Global Research Director for Dow Jones VentureSource. “While prior years saw big gains in energy and Web-related investment, 2007 saw much of that interest shift to the non-technology focused business, consumer and retail area. This industry really picked up in the second half of the year with more than $831 million invested in the third and fourth quarter.”

In total, the report found that China’s business/consumer/retail industry saw a record $1.25 billion invested in 94 deals in 2007, up 83% over the $682 million invested in 2006. The most popular segment within this industry was consumer/business services, which accounted for 48 deals and $761 million in 2007—61% of the industry’s investment total.

Elsewhere, 110 information technology (IT) companies in China received $992 million in venture funding in 2007, a nearly 9% drop in capital compared to 2006. For the third year in a row, the most popular IT segment was the Internet-dominated information services area, which attracted $562 million in 55 deals. However, the number of information services deals was down from the 86 completed in 2006 and investment dipped 1% compared to the prior year.

While healthcare is a relatively small investment industry in China, particularly in comparison to the U.S. and Europe, it did post record gains in 2007 with 21 deals and $175 million invested, more than double the $86 million invested in 15 deals in 2006.

The data also found that China’s energy segment, which enjoyed record investment and deal flow in 2006, cooled in 2007. The area saw six deals completed and some $31 million invested in 2007, a big drop-off from the $421 million invested in 14 deals in 2006.

“In addition to branching out into new investment areas, venture capitalists continue to help their companies grow quickly by providing larger sums of capital—a trend also seen in the U.S. and Europe,” said Ms. Canning. “The median deal size in China is now $8 million, up from $6.1 million in 2006, and the highest median in at least seven years. In addition, the amount of investment activity going toward mature companies—those that are already profitable or generating revenues—points to the rapid development of the venture capital market in China.”

As expected, given the youth of the Chinese venture capital market, the report found that seed and first round deals make up the majority of deal flow in China with about 61%, but second and later rounds now make up 50% of total venture investment. Specifically, second rounds saw 15% more capital invested in 2007 than in 2006.

As for round sizes, the report found the median size of a first round deal was $6.2 million in 2007, up from $5 million in 2006. For second rounds, the median was $9.5 million, down slightly from 10 million in 2006. However, the median round size for a later-stage deal jumped from $20 million in 2006 to $25 million in 2007—illustrating that investors are willing to provide more capital to mature companies in China.

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