AWSJ(10/25) Asian Venture Firms Await Right Opportunity
Updated: Wednesday, October 24, 2001 05:25 PM ET
HONG KONG -- Having been dealt a flurry of blows by the world's financial markets over the past year, Asia's venture capitalists are assuming the rope-a- dope position - patiently conserving strength before pouncing on the right opportunity.
"The next 12 to 18 months are going to be pretty brutal for the markets, since Sept. 11 just made everything worse," Hanson Cheah laments. Mr. Cheah is president of Hong Kong-based AsiaTech Internet Group, a technology-focused venture-capital firm with US$220 million spread over seven funds. "Any new form of capital willing to come into this market can be good for the investor and the investee, because investors can buy companies cheap and investees won't go out of business."
But while many are bracing for a prolonged pummeling as the value of their investments fall, a few recent commitments in the region by several international venture-capital and private-equity firms are helping to buoy sentiment and raise the profile of an otherwise bruised local industry.
Take Intel Capital. The strategic investment arm of Santa Clara-based chip maker Intel Corp., has already committed US$400 million to some 70 firms related to Internet technology in the region, including Hong Kong telecommunications company Pacific Century CyberWorks Ltd., Chinese Internet portal Chinadotcom Corp. and Japanese Internet investor Hikari Tsushin Inc.
Vice President Claude Leglise, who declined to disclose the change in value of Intel Capital's Asian portfolio beyond saying it had increased over the past year, said his company planned to invest another US$100 million in 30 to 40 Asian companies by year's end. It had already made 20 strategic investments in the region by the end of September, taking minority stakes of less than 20% of each business.
"Valuations have come down significantly, and the expectations for financial returns are more consistent with real returns," Mr. Leglise said. The average expected return on technology-related venture-capital investment is currently about 20% a year, compared with up to 100% some 18 months ago, says Mr. Cheah.
Another relatively new investor on the Asian technology venture-capital scene is London-listed 3i, which set up Asian headquarters formally in Hong Kong in August. Its biggest regional investment this year was when it engineered a management buyout of Vantec, the logistics business of Japanese car manufacturer Nissan Motor Co., of which 3i is now the main shareholder. The deal was valued at US$130 million.
Like Intel Capital, 3i isn't lacking in interested parties or investment prospects in the region, despite a global slowdown in technology-oriented venture-capital spending this year, according to PricewaterhouseCoopers in its Global Private Equity 2001 report.
"Good entrepreneurs don't stop because the stock market comes down. People are coming up with good business ideas and good strategies all the time," says Jamie Paton, director of 3i's North Asian operation. "The local CEO is looking for a more international perspective from the investor, who can deliver added value in terms of international networks and who can be patient and take a longer term view toward investment."
Longer term means not the early-rounds kill common in the tech boom's heyday, but a three-to-five year wait for either an initial public offering or a takeover bid from a larger company.
Other international investment firms have also been chasing Asian deals and raising funds successfully while some of their local counterparts have been struggling in the sagging economic environment of the past year. New York-based Warburg Pincus said last month it would invest US$16 million in Huawei Technologies Co., a Chinese electronics start-up, while Baring Private Equity Partners in Hong Kong recently raised US$206 million for its Baring Asia Private Equity Fund II, which it says will eventually reach a size of US$400 million. Its first Asian fund of US$305 million is already 75% invested, with the remaining 25% in reserve for follow-up funding for its existing investees.
For home-grown venture capitalists such as Mr. Cheah, the global market downturn has meant the culling of competitors and cash-strapped entrepreneurs without viable business plans. "In the old days a year-and-a-half-ago, everybody was a venture capitalist. Nearly every public company in Hong Kong, for example, had a venture-capital arm. However, a lot of them have fallen by the wayside," he notes. Those overnight venture capitalists either couldn't raise money at the outset, or their initial investors refused to invest more for later rounds as market sentiment turned sour.
While most venture capitalists agree the quality of prospects has improved from 18 months ago, local firms are seeing far fewer viable investments these days.
"The number of business plans has dropped off a lot," says Mr. Cheah, who says he now receives about one of these proposals each week as opposed to two to three each day at the height of the Asian technology boom last year. Now he spends about 70% of his time "maintaining" his existing 35 investees, which in some cases means orchestrating mergers among them. The rest of the time he spends searching for that knockout investment opportunity. DOW JONES NEWS 10-24-01 04:53 PM |
