China High-tech
Forum 2001 Asian Venture Capital : Investment Partnership
China High-tech Forum 2001
Asian Venture Capital: Investment Partnership
Roger T. Marshall
14th October, 2001
President Managing Director
The Hong Kong Venture Capital Association ABN AMRO Asia Capital Investment
email: enquiry@hkvca.com.hk email: roger.marshall@hk.abnamro.com
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China High-tech
Forum 2001 Asian Venture Capital : Investment Partnership
The Hong Kong Venture Capital Investment
150+ members
Hong Kong as a regional base, most investors investing in
Greater china
Venture capital pool - US$22.3 billion*
Objectives
– develop awareness of VC in HK
– represent the views of the VC community in HK
– forum for discussion of matters affecting the industry
– consultation with government on public policy
Develop the practice of VC in China with Chinese agencies
* 1999 figure
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China High-tech
Forum 2001 Asian Venture Capital : Investment Partnership
Asian Venture Capital Industry Profile
Australia 3,616
Hong Kong/China 22,288
Japan 21,729
Korea 4,986
Singapore 7,791
Taiwan 4,447
Others 4,275
0 5,000 10,000 15,000 20,000 25,000
US$ million
Guide to Asian Venture Capital 2001
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China High-tech
Forum 2001 Asian Venture Capital : Investment Partnership
Hong Kong Capital Pool
US$m
25,000
20,000
15,000
22.3 1998
10,000 1999
14.5
5,000
5.3
3.1
0
Capital Pool Fund Raised
Guide to Asian Venture Capital 2001
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China High-tech
Forum 2001 Asian Venture Capital : Investment Partnership
Asian Private equity funds raised 1999-2001
Jan - Dec 1999 Jan - Jun 2000 Jan - Jun 2001
Traditional Traditional Traditional
Private Equity Private Equity Private Equity
24% 17% 24%
Venture
Capital 23%
Venture Buyout/
Buyout/ Capital 55% Restructuring
Restructuring 29% Venture
28% Capital 58%
Buyout/Restructuring
53%
US$7.2 bn US$5.3 bn US$6.8 bn
Source : Asia Private Equity Review
• These numbers are indicative only but interesting to note the weight of funds available for technology and
early stage investment
• 2001 reflects the momentum of fund raising for technology investments in 2000
• Currently the market is returning to conventional expansion and Pre-IPO investment
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China High-tech
Forum 2001 Asian Venture Capital : Investment Partnership
Recent Hong Kong funds - buyout/strategic
Focus Name Amount Sponsor Industry focus
US$M
Asia Pacific Lombard Asian Private 500 Lombard/APIC Manu. and Industrial,
Investment Co LDC Fin.Services, Infrastructure
Asia Investor Capital 400 Investor Asia Manufacturing,
Partners Asia Pacific consumer goods
Asia Lazard Asia Fund 500 Lazard Asia All except real estate,
Investment Management infrastructure
Asia Newbridge Asia III L.P. 750 Newbridge Capital All
Asia Pacific Asia Pacific 750 CVC Asia Pacific All
Enterprises Fund
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China High-tech
Forum 2001 Asian Venture Capital : Investment Partnership
Recent Hong Kong funds - technology related
Focus Nature Amount Sponsor Industry focus
US$M
Asia-Pacific HSBC Technology Fund 50 HSBC Technology Internet, e-commerce,
multimedia, hardware,
software
Asia Technology Venture 750 Carlyle Partners Telecoms, networking,
Fund - Asia Internet
India, Korea Electra Asian Fund 200 Electra Partners Asia Technology rich companies
S E Asia
Asia Pacific Nirvana 66 Techpacific.com capital Information technology
Asia Pacific GE Asia Pacific Technology 150 APC Asset Management Computer related,
Electronics, IT, Medical
Asia Pacific Asia Star IT Fund 163 Sycamore Ventures Information technology
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China High-tech
Forum 2001 Asian Venture Capital : Investment Partnership
VCs are demanding
Concepts of trust are critical
no “Principal to Principal” relationship...
… but investors have their own requirements
Venture capitalists as financial investors
Performance measurement
“Hands on-hands off” syndrome
Management of the entrepreneur’s expectations
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China High-tech
Forum 2001 Asian Venture Capital : Investment Partnership
Why partnership?
The participation of investors with different skills - money and
operational ability
venture may include a number of different parties e.g.
technology, strategic
The investment assumes that neither party can make
progress without the other
The whole is greater than the sum of the parts
It is important to find common goals (and respect)
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China High-tech
Forum 2001 Asian Venture Capital : Investment Partnership
The nature of Venture Capital
VC is a highly negotiated form of capital
Agreements - the synthesis of different interests
The VC puts considerable trust in the entrepreneur/
management
Agreements will define the arrangements between the parties
- these will be written
- legally enforceable
Investment will be in the nature of partnership
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China High-tech
Forum 2001 Asian Venture Capital : Investment Partnership
Critical issues
Development of the relationship
participation in the business plan
ownership of the plan = commitment
Structure
a common investment vehicle
basis for management and decision making
a single set of constitutional documents
Issues of control
VCs less interested in effective equity than rights
structures increasingly complex (e.g. convertibles,
priorities, liquidation preference)
Control vs. controls
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China High-tech
Forum 2001 Asian Venture Capital : Investment Partnership
Critical issues (2)
Transparency
openness, honesty, co-operation
share management and strategic decisions
high level of disclosure and discussion
Alignment of interest
critical to partnership
common financial goals
appropriate incentives for management
Regular information
critical for managing the business
critical for understanding the business
the key to good governance
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China High-tech
Forum 2001 Asian Venture Capital : Investment Partnership
Critical issues (3)
Management
the biggest challenge for fast developing companies
each stage of business development may require a
different management
VCs expect to have a say in the choice of managers
Exit
what are the financial goals of the parties?
needs to be an understanding in advance
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China High-tech
Forum 2001 Asian Venture Capital : Investment Partnership
Conclusion
Importance of partnership in venture capital investing
VC only works if all parties commit to a partnership
Investors looking for high growth, but also…
… an open and flexible partner
VCs are not the most comfortable investors…
…but they drive financial returns and performance
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