Kai-Fu Lee Raises $180 Mil. for China Tech Incubator

Former search-engine wizard Kai-Fu Lee has raised $180 million more in venture capital for his China startup incubator.

Kai-Fu Lee, the search-engine wizard who once headed up Google China, has just raised $180 million in additional venture capital for Innovation Works, a startup incubator he founded two years ago.

Innovation Works funds and nurtures web and tech startups in China to the stage where they can attract substantial venture funding on their own.

“Our unique ‘incubation-plus-investment’ model has not only produced a pipeline of high-quality projects but also enabled local early-stage startup teams to grow quickly with the help of our 360-degree mentoring services, in effect creating the entrepreneurial academy for Chinese startups,” said Lee in a press release.

Lee had left Google China in early September of 2009 after spending four years developing its China search capabilities based on experience garnered at Microsoft and Apple. He had been hailed as a search-engine guru whose move to Google prompted a highly-publicized lawsuit by Microsoft.

Lee’s departure from Google coincides with the growing conflict between China’s efforts at controlling online information and Google’s desire to keep its search engine free of outside controls. Lee was secretive about the reason for his departure, but it apears he had decided to take a role in cultivating the tremendous amount of talent and commercial energy moving into China’s booming internet sector. He was driven partly by the conviction that he possessed a degree of insight into China’s business environment that western incubator firms lacked.

“Y Combinator would have a very hard time making it in China,” Lee told VentureBeat in 2009. “It would have a hard time finding the startups and qualified people to fund. It could interview hundreds and find only two.”

Lee has enjoyed considerable success with Innovation Works. Of 34 startups it has incubated, nine have secured funding from third-party venture capital firms.

On the strength of Lee’s reputation Innovation Works itself has attracted backing from an impressive roster of firms like Sequoia Capital, Foxconn, SAP, Motorola, Silicon Valley Bank, Ron Conway. It has also attracted talent with experience at Silicon Valley giants like Google, YouTube and Facebook.

Lee was hired by Google in late 2004 and oversaw development of services meant to help the search giant expand its share of China’s search market, which is dominated by local rival Baidu Inc.

Google added market share but never came close to Baidu, which as of 2009 had a 61.6 percent share of of search traffic to Google’s 29.1 percent, according to Analysys International, a technology research firm.

Lee had worked for Microsoft from 2000 to 2004 and helped develop its MSN Internet search technology, including desktop search software rivaling Google’s. He left to lead Google’s China operation after being offered a $10 million compensation package.

Microsoft sued Lee and Google, contending his job would violate a noncompete agreement that prohibited him from doing similar work for a rival for one year. Microsoft also accused Lee of using insider information to get his job at Google.

Google countered with its own lawsuit against Microsoft and the companies later reached a settlement, the details of which were not released.