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Archive for the ‘Venture Capital in Asia’ Category

From an email I received y’day:

According to Zero2IPO Research Center statistics, a total of 29 domestic and foreign VC firms established 40 funds during Q2‘08. This figure represents US$3.02B of capital available for investing in Mainland China marking a record high for a single quarter.

Additionally, 159 Chinese entrepreneurial firms receiving venture capital disclosed investment totaling US$1.20B. In comparison with the same period last year, the number of deals and the disclosed investment amount increased 31.4% and 73.5% respectively.

Keeping up with the “booming…China investment market”, Zero2IPO is organizing its second China VC & PE Event in London next month. Try and be there.

I will be speaking just after the tea break on investment opportunities for European investors in China.

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Last week, I shared a panel at the China Venture Capital Forum at the Hilton in London with Gerry Montanus from Atlas, Jean-Bernard Schmidt from Sofinnova, Andy Tsao from SVB Global and Kevin Wang from Natixis, moderated by Max Burger-Calderon from Apax.

The panel was part of the day long discussions and panels about the Venture Capital environment in China…The buzz was unmistakeable, the energy and optimism was evident…the ambience very very close to what I sensed the day before at EuroMoney’s India conference.

I heard some startling stats:

  • 50% of VC-backed companies in China exited via an IPO last year (the comparitive figures for US and Europe are closer to 10% and 20% respectively)
  • The median return in VC in China is now ahead of the global top quartile (- I think this is what I heard but I am not entirely sure)

There was the inevitable talk of the market being overheated…so, whats new?

On my panel, we discussed entry strategies for getting into China and everyone agreed that as a VC market, it is coming to a point where it cannot be ignored. Gerry and Jean-Bernard shared Atlas’ and Sofinnova’s approach to the region and how they had slowly begun to dip their toes in the water.

Everyone complained about valuations…except the entrepreneurs.

For young Chinese men and women with ideas, these are heady times.

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…now, if that did not grab your attention, I dont know what will!

I chanced upon this great post by friend and fellow VC-blogger Shin on Japanese VCs and the entrepreneurial/VC environment in Japan.  The post was prompted by an event organised by The Pink Cow (a cuter version of Open CoffeeClub – check it out!).

pinkcowtoplogo.jpg   Shin included some Q&A from the event in his post – which I think are very interesting and worth reproducing here for anyone who is interested in Venture Capital in Japan and the general VC ecosystem:

Q: What is the difference between the Japanese and US VC models?

[Ans: If you look at the history of the Japanese VC model and the background of the major VC players, you soon realise that the traditional Japanese VC is something quite different from the US (SV) VC model. But things are changing as business practices and competition become more global. Japanese VC is changing, or at least diversifying, in the business models it employs.]

Q: There seems to be a lack of Japanese VCs who really understand technology?

[Ans: Again, traditionally, that was indeed the case, with most of the major VC firms being affiliates (to one degree or another) of stock brokerages, commercial banks and goverment agencies, and the human resources at their disposal were limited, given the traditional lack of liquidity in the human resources market. But again this is changing, with VCs recruiting from industry (people like me), and with boutique VCs also springing up. Most of the top Japanese VC firms are large organisations, and as with any organisation, there are many different types of professionals within the organisation. The key is to find the right person to take your idea to. Stop thinking about the VC firm, and think about the individual VC.] [I thought about this question a bit more afterwards, and I think that the questioner may have some misconceptions about how we evaluate businesses. I wouldn’t say technology is not important, but I think many entrepreneurs overestimate the importance and superiority of their technology or technological skills, and the correlation between focus on technology and business success. I know that some entrepreneurs complain about the fact that VCs focus on issues which they feel to be peripheral, but we do that with justification. Our experience tells us, especially in Japan, that many businesses fail due to issues other than technology. Lack of financial planning, lack of sales/marketing ability, lack of corporate discipline in other areas, etc. It is our duty to point those out and inject some reality into many a technological daydream. The aim of a VC is to invest in a COMPANY, and help make that company successful so we can cash out and return money to our investors. I certainly only invest in businesses where their goals are aligned with ours.]

Q: Don’t VCs stack the odds in their favour with preferred stock structures?

[Ans: That is indeed the US VC model, and although it does happen in Japan too, the reality of the Japanese VC model is that currently the vast majority are common stock investments. (certain investment heavy sectors are more likely to feature preferred structures) There are signs that preferred structures are on the increase, but it is still a small minority of deals which see such structures in place. I personally think that barring a severe downturn, there will be VCs willing to continue using an ordinary stock model, and it is up to the entrepreneur to decide which set of terms and which VCs they want to work with. After all, no one is forcing them to take our money. But this ordinary vs preferred issue has to be understood in context, such as the fact that historically structuring preferred stock was subject to various limitations which made it difficult in practice to use the structure effectively. The small average size of investments is also probably a factor which has prevented VCs pushing for preferred stock and the associated liquidation preference, as is the lack of much M&A activity.]

Shin also mentions in his post that he has been thinking “seriously about…creating a venue for entrepreneurs to meet with each other and with investment professionals in a casual environment“. Perhaps Tokyo is ready for an Open Coffee Club?!

…which reminds me that I finally managed to cross an important “To-Do” off my list last week: went to the Open CoffeeClub meeting at Waterstones (24th)…more on that later.

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Six years ago, when I joined Amadeus, I would have been incredulous if someone had told me that China will rank ahead of Israel and UK as the No. 1 overseas destination for U.S. Venture Capital by 2006

But that is exactly what this graph from last month’s print edition of Red Herring reveals.

 china-vc-investments.jpg

…more interestingly, the investment sectors are getting increasingly sophisticated – and last year included sizeable investments in software and advanced materials/speciality chemicals (see graph below):

 china-vc-sectors.jpg 

Whats next, I wonder?…Investment in Shenzhen overtaking Massachusettes and/or Bengaluru attracting more venture dollars than Texas?

.

See also, “Intel is going global, and as goes Intel, so goes the globe

UPDATE: Scott from Library House pointed me in the direction of this fascinating piece of research they did earlier this year: “Break for the border“…It looks at who is crossing borders to invest in Europe…Thanks Scott.

* Source and Copyright: “Venture Goes Global” by Sean Wolfe, in Red Herring, Issue 12th Mar ’07

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I came across this post today by Mark Sherman of Battery Ventures

Shaadi meets Match.com”: Dating, Flirting, and Marrying between US VC firms and the Indian VC Market 

It has some nice points (and data) about the state of VC activity in India today (albeit from a US perspective).

I particularly liked Mark Sherman’s “most important elements” for funding Indian entrepreneurs:

  • A long term commitment to India with personnel (frequent trips or local presence), budget, and process.
  • A global network of customer relationships and strategic partnerships, primarily coming from current and past portfolio company investments.
  • A network of entrepreneurs who could act as domain or functional advisors to the company or potentially fill positions as the company scales.
  • A network of LPs, banking relationships, and corporate development relationships to advise the company on private placements, IPOs, and M&A.
  • A deep portfolio and numerous consultant and professional services relationships on which to draw best practices benchmarks and information around customer acquisition, sales, channel, traffic acquisition, marketing, development, engineering, supplier relationship management, manufacturing, etc.

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A feature on “Investing in Japan” in yesterday’s Wall Street Journal (Dec 14, ’06, Pg 6) caught my eye with a very powerful and compelling graphic of the size of the economy.

It had a map of Japan with different regions and a comparison of their GDPs with different countries (See scanned map here).

The graphic immediately brought to mind a point I have made several times before about the indifference that most people have about Japan. In spite of the economic ascendancy of China and India (which is no doubt relentless and will continue for a long time), Japan remains the world’s second largest economy ($4.7 trillion in ’05 vs. $2.2 trillion for China*) and a showcase of leading-edge technology in mobile communications, displays, new materials and more recently solar and alternative energy (see Shin’s recent comment on my post about parking lot solar panels).

So it is surprising that not more people pay attention to what is happening there in terms of technology and innovation.

What drives this apathy?
No doubt distance is a barrier – but more than that, it may be a business culture that is still notoriously difficult to understand (in terms of decision-making and process) and formal behaviour that is inscrutable to most observers. I will shut up at this point as no doubt my good friend Shin will have something to say on this…(Shin, feel free to rip me apart if I am out of touch…)

Having said that, things are changing…In the last few years that I began visiting Japan once again (after a hiatus of almost five years), I have met VCs like Shin and Mori (who sound more like Silicon Valley than anywhere in Japan), have seen shoe-shine boys outside Tokyo station and have consistently found things cheaper than in London (not to mention the Japan-only models of products which are a style apart)

And slowly but steadily, more and more gaijins seem to be paying attention to what is going on in the country. I will certainly be watching for many years to come.

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* Although on a PPP basis, China at $8.8 trillion is more than double Japan at $4.0 trillion; India is a shade below at $3.66 trillion

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We managed to pull it off!

Phenomenal event yesterday. 100+ attendees and some great insights and experiences that were shared by the speakers. I am in the process of putting up the slides on the server (hopefully before end of tomorrow).

We had Richard Laing, Chief Executive of the CDC Group speaking from an LP perspective on opportunities and challenges in PE/VC in India. Harpal Singh Randhawa, CEO of GEM reflected on his experience of investing in India over the last 15 years and Jonathan Blake, Senior Partner at SJ Berwin addressed some of the structural issues around setting up an India fund.

Earlier, I set the backdrop to the evening with a few slides (here:India – At Inflection Point) on how the country is at an inflection point.

All in all, a fitting start to the formal launch of the India Venture Capital Interest Group (India VCIG) and hopefully we will be able to maintain the high standard of the event and build on the momentum that has been generated.

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P.S. My pick of the quotes:
“The only antidote to poverty is the generation of wealth”.

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