Silicon Valley’s graveyard in China’s El Dorado

Salira, the company that developed passive optical networks (PONs), has sold its assets to Hitachi at a loss after failing to succeed as a stand alone company. The company ate through (sub req) more than $50 million from investors. This is noteworthy because it was one of the early Silicon Valley start-ups to head to China amid the latest wave of preoccupation with that huge market. The company, which launched in 200O, placed most of its bets on the fast-growing market. In 2002, CEO Herbert Martin told the publication Lightwave that 15 Chinese engineers were at the heart of the company; Salira had hired them in China and brought them here for training. He said the use of resources in China would result in cost savings of four to five times compared to what was available in Silicon Valley…

…”I’m seeing the same thing that I saw in Silicon Valley 25 years ago in China,” he explained then, in what would become a common refrain here over the next few years. “I see an energy and an enthusiasm there. And I often get on the plane to come back and I think, ‘Watch out, U.S. This is a big, big country that can compete with us in the world market.'”

Sure, failures will always happen, and that’s part of the venture capital business. Indeed, they’re inevitable. And China is a very big country that can, and should compete with us, no question. More importantly, we should be taking the risk. It’s imperative to Silicon Valley’s ability to compete. We’re just wondering how many stories similar to Salira’s we’ll hear over the next few years, after the China investment frenzy recently, and hope that entrepreneurs in talks with their investors about the need to go to china will give enough weight in their decision-making to the potential costs.

Salira’s investors included several with offices in Silicon Valley: Mobius Venture Capital, Sofinnova Ventures, Pac Rim Venture Partners.