Sept. 7 (Bloomberg) -- Google Inc.’s departing head of China operations, Kai-Fu Lee, will run a $115 million fund that invests in Chinese technology startups after he leaves the world’s biggest Internet-search company.
WI Harper Group will be the lead investor in Innovation Works, the fund headed by Lee, according to a statement today. Other investors include YouTube co-founder Steve Chen, Foxconn Technology Group, Legend Group and New Oriental Education & Technology Group, according to the statement.
Google faces the challenge of building on Lee’s progress in almost doubling Mountain View, California-based company’s market share in China and narrowing Beijing-based Baidu Inc.’s lead in the world’s largest Internet market by users. The departure also highlights the difficulty for global technology companies in retaining personnel in a country that ranks first globally in online censorship.
“In our view, Mr. Lee’s departure and the ensuing management transition may create near-term challenges for Google and thus indirectly benefit Baidu,” Morgan Stanley analysts led by Richard Ji wrote in note to clients last week on the day Google announced Lee’s resignation.
Google rose $3.78 to $461.30 in Nasdaq Stock Market trading on Sept. 4, extending the stock’s gain this year to 50 percent.
Google hired Lee in July 2005 from Microsoft Corp., prompting the world’s biggest software maker to sue by accusing Lee, 47, of violating an agreement to shun competitors for a year. The sides reached a settlement in December of that year.
Executive Defections
Lee wasn’t the first executive Microsoft lost in the country. Since 2002, top executives in China at the Redmond, Washington-based software maker left to Chinese online-game company Shanda Interactive Entertainment Ltd., the National Basketball Association and News Corp.’s Star Group.
The U.S. search engine’s share of the Chinese market rose to 27.8 percent last year from 16.1 percent in 2006, according to Beijing-based researcher Analysys International. Baidu’s share grew to 62.2 percent from 53.3 percent, the researcher said.
Lee’s tenure at Google included the launch of the company’s Chinese Web site, Google.cn, which omits links to online content censored by China’s government. He also oversaw the setup and expansion of Google’s Beijing development center, where Chief Executive Officer Eric Schmidt said the search company would eventually have “thousands of people.”
Government Scrutiny
Google has also been subject to Chinese government scrutiny under Lee. In June, Google suspended its “Suggest” search prompt feature on its Chinese site after the local-language service was criticized by the government for providing links to pornographic material.
China adopted “punitive measures” against the company’s international site, Foreign Ministry spokesman Qin Gang said on June 25, as the service became inaccessible to Chinese Web users for hours.
Google’s YouTube site was among 77 international Web sites that were inaccessible in the past week in China, more than any other country, according to Harvard University’s Berkman Center for Internet & Society’s Herdict.org site, which monitors reports of Web outages.
Internet Users
China added 40 million Internet users in the first half for a total of 338 million at the end of June, according to the China Internet Network Information Center. That’s more than the total population of the U.S.
Lee was born in Taiwan and raised in Tennessee. He is a former assistant professor of computer science at Carnegie Mellon University in Pittsburgh and worked for Microsoft for five years. Microsoft Chairman Bill Gates testified in September 2005 that Lee was “one of the top two” people influencing the company’s strategy in China.
WI Harper manages more than $400 million in investments through its offices in Beijing, Taipei and San Francisco. The venture capital firm specializes in investments in early and expansion-stage companies with operations in China, according to the company’s Web site.
