Post-bubble entrepreneurs and venture capitalists are seeing more opportunities in Asia of late, but the lack of well-developed IPO markets remains an issue for profitable exits.
Panelists at the 2004 Asia Business Conference at Harvard Business School on February 14 outlined their own experiences in starting companies, and an Asia-experienced venture capitalist gave his perspective on hot market opportunities.
VC Nikunj Jinsi said Asia's growth in population and spending is attracting VC interest from all over the world—even from "die-hard" California firms that once invested only in Silicon Valley companies.
Jinsi, senior investment officer for Global Technology Investments, International Finance Corp., said he looks for investments in technology and communications in China, India, and Korea. And there is plenty to look at.
In India, early VC interest was in software, IT outsourcing, and "health scribe": the transcriptions of doctors' recorded notes. But those cost-arbitrage plays are maturing and VCs are looking for new opportunities, he said.
One area of interest, according to Jinsi, is call center operations, especially in the Philippines. But not just any call center. Instead, the opportunities are for centers in vertical markets, which require better educated employees and where barriers to entry are high. They focus on providing value rather than low costs.
The China opportunity
China, he said, "is the hottest investment market in the world." China has advantages over India, he said, because it offers a strong domestic market, a better manufacturing base, and talented labor.
Telecom and telecom applications such as China's three top Internet portals are booming, Jinsi said. NetEase, an online portal that sells dating, gaming, and other services, has seen its NASDAQ-listed stock rise from $1 in 2002 to $45 this year. Other high-tech areas of opportunity include semiconductor manufacturing, digital media, fabless chip design, and Web search technology.
Other intriguing opportunities in China—those that are scalable and lack a monopoly player—include education, healthcare, and clinical trials for biotech, he added.
In Japan, the environment for entrepreneurs is improving as well, said Sachio Semmoto, CEO and founder of eAccess, a provider of broadband services. Traditionally, Japan has not encouraged entrepreneurship, but the government is making Silicon Valley-style changes that make it much easier for small companies to form.
Over the last year, he said, 8,500 small-cap companies were started, and the IPO market has become "quite active" over the last ten months.
| China is the hottest investment market in the world. |
| — Nikunj Jinsi, International Finance Corp. |
However, when eAccess needed a $50 million round of funding in 2002, Semmoto found Japanese VCs not up to the task. They tend to make small investments, up to about $1 million each, which means you have to round up a lot of them to gather a sizable investment, Semmoto said. And Japanese VCs do not move quickly.
The VC market in China has its own challenges, mainly problems with exits, said Karen Liu, chief operating officer of Beijing 3721 Technology, where she raised two rounds of VC financing.
Liu said 3721 wanted to go public, but was too small for NASDAQ and other IPO opportunities were limited. So instead 3721 was acquired by Yahoo! in a trade sale last November for approximately $120 million.
In general, M&As in China are "few and far between" because the number of companies that can buy you are limited, Jinsi said. He advises his clients to keep growing their companies rather than seeking early exits.
And be profitable, added Semmoto. He recalled that when competitor Softbank announced a Web-access service for monthly fees half of what his own company offered, his top executives were floored by the threat. But today, though market share has dropped, eAccess remains profitable in the same businesses where Softbank is recording massive losses.
The moral: Partners and customers respect and want to do business with profitable companies.
Chris Choi represented the newest start-up on the panel. His EducAsia, a U.S. company founded in early 2000 with offices in Seoul and Singapore, sells management training programs in Asia. He started his business without the help of VCs, and instead relied on seed money from friends and family to get going. His advice to start-ups: Get to profitability as quickly as possible to increase your chances for funding.
In a Q&A session, Choi was asked how small companies in Asia could compete for smart workers when many potential employees prefer the lifetime employment that larger companies offer. Choi said his top executives receive full stock, not options, which makes them feel like the true owners of the company and engenders their loyalty. 