Shared some slides at the India Investment Opportunities Forum in London yesterday.
I also talked about some of my investments (Myntra, Innoviti and ElementsAkademia) in India.
It was a good interactive session. I felt the mood is turning upbeat (although less so here in London and in the US).
More on this later.
At the second China VC & PE Eventin London last week, Ozaki-san of NIkko AntFactory presented some striking data about Japanese and Chinese demographics. I am trying to get hold of the slides and will upload them here. China is already Japan’s largest trading partner (both exports and imports) while for China, Japan was its #1 trading partner but is now at #3 (behind EU and USA).
He also mentioned how China is getting “expensive” (Uniqlo, the Japanese clothes maker has already moved half of its production facilities out of China) and “rich” (# of plasma TV sets sold are already more than Japan).
Some more quick notes:
- JVs are hard to execute in China (Alexia)
- Deals are getting more realistically valued (Fernando)
- JV model of creating a China Fund may not be the best approach…Easier option is to buy an existing management company (a la Sequoia, KPCB)
- Direct transplantation of deals may not work
Quote of the Day: “…The “Pioneers” are the ones with the arrows in the back…” (Courtesy Charles)
Amidst the global downturn, China continues to amaze…
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.
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.
…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!).
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.
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.
…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):
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