China bankers replaced by tech PhDs as Xi sparks new fund talent war

One in five Chinese youths can’t find a job. Oliver Jiang has to fight off employers with a stick. When the first-time job-seeker posted his resume on a recruitment website earlier this year, his inbox exploded and his phone buzzed non-stop. The 28-year-old doctoral grad spent the following month turning away suitors — including one that promised him 15 months of pay a year — before landing his dream job at a $600 million investment firm.

Jiang is one of the chosen few in China’s rapidly evolving finance sector: a PhD in electric vehicle technology. This kind of methodical researchers steeped in the classical sciences are replacing well-connected bankers as the most desirable hires at venture capital firms across the nation — sometimes doubling their salaries when they switch over.

“Everybody’s on the lookout for deeptech talent. A background in science and technology is now often listed as a must in job postings,” Jiang said. “Who knew such strong demand would come from the venture capital sector?”

It’s a phenomenon that reflects a broader shift in the world’s No. 2 economy. This month, Xi Jinping vowed to depose the US as a technology leader and become self-sufficient — formalizing a groundswell that’s been underway since Beijing in 2021 made it clear the days of freewheeling expansion and deal-making that built internet giants like Alibaba Group Holding Ltd. were over.

The effort is taking on urgency as the Biden administration escalated efforts to contain its geopolitical rival, imposing a series of chip export restrictions in its most aggressive effort yet to contain China’s rise. Hardline nationalist media including the Global Times argued that would only accelerate Beijing’s ambitions. China’s top technology overseer convened a series of emergency meetings with leading semiconductor companies, seeking to assess the fallout and pledging support for the critical sector.

That last is what investment firms are counting on. As Chinese investors scramble to regain momentum by embracing hard-core tech startups, the country’s search for the next Tesla or SpaceX has fueled demand for bona fide engineers like Jiang.

“It’s a way for venture capitalists to differentiate their funds and compete for the best startups at a time when fund-raising has proven to be more challenging for all but for the very top tier,” says Rebecca Fannin, founder of Silicon Dragon Ventures that researches tech trends in China. “The money is following the tech, deeper tech that is.”

Spooked by the ferocity of last year’s internet crackdown, China’s fast-reacting tech investment industry is taking no chances this time. Once rivaling Silicon Valley, Beijing’s heightened scrutiny and Xi’s Covid-zero policy in particular have crippled China’s startup investment industry.

While there’s little reliable data on the secretive industry, the vast majority of new hires since 2021 at venture capital firms have sported science and technological credentials, according to interviews with startup financiers and recruiters.

There’s no guarantee that stacking the deck with PhDs produces better yields. The war for talent is also inflating costs for venture firms struggling with a worsening drought in capital, the aftermath of the tech crackdown and a realization that the easy double-digit returns of years past are no more.

But what’s forcing their hand is the undeniable fact that investors once enamored of the consumer and mobile internet are shifting their focus, heeding signs from Xi’s administration that is prioritizing semiconductors, clean energy and artificial intelligence to wean China off a reliance on American suppliers.

The country’s total startup investment has shrunk roughly 44% this year through September from a year earlier, but the amount of venture money flowing into semiconductor startups has actually climbed by 40%, according to global data tracker Preqin.

Hillhouse Capital Group, the private equity giant that made its name as an early backer of Tencent Holdings Ltd. and JD.com Inc, recently raised its first “carbon-neutral” fund dedicated to climate technologies.

Then there’s Sinovation Ventures. The Beijing-based venture firm founded by former Google executive Kai-Fu Lee plans to expand its investment crew by roughly 15% this year — with new additions working on fundamental technology. That comes as nearly all the venture capitalists there now devote their attention to startups along those lines. By contrast, only half of its investors did that five years ago.

The hiring of deep-tech investors is vital for Chinese venture firms to succeed, some industry observers say. That’s a sea change from just a decade ago. Xiong Hao, a semiconductor researcher who returned from the US to join China’s then-nascent venture investment sector in the early 2010s, planned to build a career on finding and funding startups on the cutting-edge of science and technology. Nobody cared.

“Deep-tech startups in the country were few and far between,” recalled Xiong, now a partner at Sinovation. “Investors would also question your choice of investment — ‘Why not pick internet companies that could grow into a monopoly and give us a home run?’”

Xiong now co-leads a team of six people hoping to groom the Chinese version of graphics chip pioneer Nvidia Corp. and chip-equipment maker Applied Materials Inc. He plans to hire four more this year to keep pace with the industry boom.

In the quest for talent, venture capital firms are forced to get creative. Hiring managers say they’ve begun browsing staff rosters at the Chinese Academy of Sciences — the nation’s premier research organization — while others are befriending engineers at tech giants like the Warren Buffett-backed automaker BYD Co. The fight can get nasty, too.

Venture firms are cannibalizing each other. The bigger players have begun targeting talent at smaller rivals such as Lenovo venture arm Legend Capital and even billionaire Jack Ma’s Yunfeng Capital, industry insiders and headhunters say. Legend Capital and Yunfeng Capital didn’t respond to Bloomberg’s inquiries seeking comment.

On at least one occasion, a Beijing-based US dollar fund doubled the base salary of an investment associate in order to get that person on board – almost unthinkable a few years ago for anyone specializing in advanced manufacturing, says Duke Duan, a partner who specializes in tech talent at boutique recruitment advisory firm Bowers. Industry-wide, Duan estimates the base salary for investors active in hard-core technology climbed at least 50% this year when they joined a new firm, up from a more typical 20% to 30% previously.

All that belies a job market in crisis. Tencent, for one, reduced its workforce by thousands in the June quarter -– its first staffing cuts since 2014, while Alibaba let go of nearly 10,000 employees during the same period.

The shift in fortunes not only has reshaped venture firms’ hiring strategy but also reshaped the path of on-the-job professionals. One case in point is Zhang Lijun, Xiong’s colleague and a partner at Sinovation.

After Chinese policymakers last year banned for-profit tutoring — an arena that once attracted billions of dollars from investors including Zhang — she decided to align her future picks in part with the government’s vision. The venture capitalist took courses in biology, even volunteering at the China Agricultural University, to reinvent herself as the authority on next-generation farming.

“Branching out into fundamental technology has become a common choice for venture capitalists,” she said.

But converting scientists and engineers into venture capitalists isn’t an easy matter. Not everyone has the aptitude for dealmaking, where human relations can matter as much as knowledge. The softer skills essential to investment, such as communications and networking, aren’t taught in classrooms or explored in labs.

Jiang, the engineer-turned-investment-analyst, made it clear that financing wouldn’t be his long-term career choice. He joined his company — a Shenzhen-based venture firm focusing on consumer-facing businesses — because it assembled a team for the first time to invest in electric cars. That was vital to his next move.

“This is just a stepping stone,” Jiang said. “I’d like to start my own business one day, ideally in the manufacturing of smart cars.”