Global Themes

On Globalization & Venture Capital

The VC Stampede to Asia

I am pretty sure that this is not a complete list but it is interesting nevertheless. Below are names of some very well-known VCs who formally declared their intent to invest in Asia in the last twelve months. 

This move towards investing beyond the “2-hour drive” periphery signals a profound change – whose ramifications will continue to be felt for years. Yet, I find it odd that there are not more people commenting on it.

More remarkable than the impressive list of names is the conspicuous absence of European VCs from the list.

In April ’06, the EVCA did a survey of European VC firms that showed almost half (47%) had no activity at all in Asia (either via portfolio companies or through direct investments).

Why are European VCs so cool/cautious on Asia?

Partly it could be that Asia is still viewed as a “supplier of good or services or (an) outsourcing region” and European investors see neither market opportunity nor any signs of innovation happening there (they are wrong on both counts, of course).

As I was searching for some answers, I came across this gem (buried deep under news archive on Walden International’s website)

It was written in Feb ’01, I guess weeks before the markets began to wobble. It mentioned a few reasons why US VCs were not keen on Asia (this was then). Some of those points resonate in Europe today (excerpts).

1. Distance

“Distance is one key factor keeping the creme de la creme of Silicon Valley VCs from setting up offices overseas. …Sequoia Capital founder Don Valentine said: “In 30 years we haven’t convinced ourselves to set up a presence in Boston. It’s a very difficult business to be good at consistently over a long period of time, and it requires a lot of thoughtful and integrated decision-making….”We make enough mistakes on investments we make here (in Silicon Valley), that we’re not comfortable we can (be successful) 3,000 miles away, never mind 8,000 miles away.”

2. Lack of awareness/ knowledge and networks

Said Gary Morgenthaler, general partner of Morgenthaler Ventures: “Increasingly, our firm, and others like us, are obliged to choose markets to devote energy and capital to. And our knowledge of markets, executive talent pools, networks of professional services…are not nearly as acute or complete in Asian markets as they are in North American markets.”

3. Inability to add “value”

…Chua Joo Hock, who heads Singapore Technologies’ Vertex Management Inc in Silicon Valley: “For foreign VCs in Asia, getting into a deal isn’t difficult. How to help a company is the most difficult part.”

4. Culture issues:

A lack of familiarity with Asian ways of doing business, as well as concerns about corporate governance, also cause hesitation for Valley VCs. “Americans who bring an American process of doing business to an Asian environment will see a fairly severe cultural clash,” said Kevin Randolph, chief executive of Randolphs.com and former CEO of Hongkong’s AsiaOnline. “The work ethic is different, the management structure is different.”

5. Lack of track record

The lack of a strong track record in Asia for venture investments also serves as a deterrent. Observed Doll Capital partner Peter Moran: “The number of successful start-ups based in Asia has been quite low in proportion to the relative size of their countries’ economies. For example, in Singapore, there may be only about six stocks in the Internet space.”

6. Quality of deals in home market

And perhaps the biggest reason of all is the sheer quality of deals available in Silicon Valley. “The opportunities are so good here in North America that Asia needs to compete,” said Mr Morgenthaler.

In that report, the VC that showed most foresight and a clear strategy for investing in Asia was Doll Capital – which not surprisingly, has been one of the best performers in Asia.

There may be a few other reasons for the seemingly indifferent attitude of European VCs towards Asia….of which at least one revolves around what good friend Rafiq Dossani from Stanford alluded to, in a conversation I had with him a few weeks back.

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  • Jul ’05: IDG-Accel launch new fund for China
  • Aug ’05: Mayfield Partners witH GSR Ventures
  • Aug ’05: NEA moves in China; opens office
  • Aug ’05: Sequoia ramps up in China
  • Oct ’05: Cisco earmarks $100m for VC investments in India
  • Nov ’05: Sierra Ventures partners with Gobi Partners
  • Nov ’05: Kleiner Perkins enters China
  • Apr ’06: Sequoia acquires WestBridge in India
  • Jul ’06: DCM says it will invest between 25% – 35% of its new fund (DCM V) in China and Japan (and possibly India).
  • Jul ’06: Matrix closes a $150m fund for India

(and I know I have missed Caanan Partners in India and Mitsui in China in that list) 

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August 17th, 2006 Posted by | Europe and Asia, Venture Capital in Asia, Venture Capital in Europe, Venture Capital in US | one comment

1 Comment »

  1. Mark Sherman of Battery Ventures has a couple of posts providing a profile of various Silicon Valley VCs as well as local VC funds with SV connections entering the country. See my blog post “Action heats up in the Indo-US VC” here: corridorhttp://ventureintelligence.blogspot.com/2006/08/action-heats-up-in-indo-us-vc-corridor.html

    Comment by Arun Natarajan | August 21, 2006

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