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According to experts with long-term experience in Asia, opportunities in venture capital and private equity still exist—but only for those who can understand and capitalize on the cultural and business differences that make the region unique.
"The idea that failure is good does not exist in Asia the way it does in the United States," said Andy Goldfarb (HBS MBA '93), a senior managing director at JAFCO. "It's important to choose your partner carefully, structure the deal appropriately, be patient, and remain committed." Despite its economic difficulties, he added, Japan—with a market the size of Europe—still offers significant opportunities.
Jim Hildebrandt, managing director of Bain & Co. Hong Kong, provided a snapshot of the $80 billion private equity industry in Asia, noting that the average deal size has jumped from $1 million to $20 million in the past seven years. The type of transaction has also evolved, from pre-IPO investments to larger funds focused on restructuring or "value added" deals.
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| The idea that failure is good does not exist in Asia the way it does in the United States. |
| — Andy Goldfarb, JAFCO |
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Commenting on specific countries, Hildebrandt said, "Nobody expected Korea to be such an explosive growth market—and it turns out time in Thailand was wasted." Looking to future developments, he predicted that Korea will continue to provide deal flow but won't dominate to the extent it has in the past. Increased manufacturing in China will generate more deals, he added, and there's potential for "interesting transactions" in Southeast Asia.
Pay attention to subtlety
Maura Wong, a founding partner of J.P. Morgan Partners Asia, warned against two simplistic venture capital strategies that ignore market subtleties.
The "bridge to the U.S." approach involves developing products in Asia and selling them in the United States. "But development takes longer in Asia, and results are not optimal due to the distance from the market," said Wong. The "bridge to Asia" approach, which introduces a successful U.S. venture in Asia, also has a high failure rate. In this case, Wong said, "the parties involved didn't fully understand the market dynamics in Asia, or maybe the technology was just a rip-off of something from the United States."
Moving on to developments in private equity, Wong said buyout firms specializing in Asia began to appear in 1999 and 2000. Challenges of the market vary from country to country, she said. In general, exit strategies (particularly in China) can become highly politicized, while union issues and the scarcity of good management can create obstacles as well.
Despite these difficulties, Wong concluded with an upbeat assessment of the market's potential to create change. "Private equity can be a force for restructuring and globalization in Asian companies," she said. "There's still a long way to go, but I'm optimistic."
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