There Is Opportunity in Asia Outside of China –

Venture investing across Asia is making a comeback. That’s good news for Asian countries that have not had much interest from private equity investors since the late 1990s, when currencies fell as much as 80% in value, banking systems approached insolvency and widespread political instability battered the region. But, according to some reports that have cited U.S. Treasury Department data, U.S. investors in Asia and Europe are on track to surpass the previous record year of 1993.

Surprisingly, the investor interest is coming from several of the firms that were the first to plunge into Asian investing in the early 1990s, including H&Q Asia Pacific (H&QAP), Walden International and IDG Ventures.

Lip Bu-Tan, founder of Walden International, says that the three main countries that come to mind for Asian investing are China, India and Korea. But he’s also enthusiastic about Australia, Singapore, Malaysia and Hong Kong, which all possess potential for investment. In Korea, he notes that investment opportunities are arising from the growth in that country’s economy.

Consumer Tech Is Hot

“The hottest area for venture capital [in Asia] at present is in consumer electronics, such as cell phones, displays, computers and software,” Tan says. Lots of technology startups are being built around supplying Samsung Electronics and LG Group, Korea’s two giant electronics companies that have more than $36 billion and $73 billion, respectively, in annual sales, Tan says.

Chris Albinson, a principal in the San Francisco office of JPMorgan Partners, is enthusiastic about India, particularly about its IT outsourcing (see related story, page 27). JPMP also has offices in Hong Kong, but India clearly has Albinson’s attention. He tells VCJ that almost any deal his group does these days has a Chinese or Indian component.

Pat McGovern, founder of IDG Ventures, which announced a $120 million venture capital fund to target Vietnam last March, says IDG will focus on Vietnamese IT outsourcing firms, telecommunications and software producers. The firm, whose limited partner is the IT media company IDG, will also invest in IT publications in Asia. IDG already publishes 14 magazines in the People’s Republic of China, 12 in Australia, and others in Japan, South Korea, Thailand, Taiwan and Malaysia. But McGovern says Vietnam represents the next big thing.

Last Laugh

“We feel like Vietnam is at the stage at which we went into China in 1992,” McGovern says. “A lot of people laughed at us then, said that there were no exits.” In fact, IDG’s $150 million fund has invested in 120 portfolio companies and has already experienced 30 exits, resulting in a 55% IRR.

McGovern says that IDG is looking at Korea for a possible investment in 2006 or 2007. IDG invested in Japan during the 1980s, but it found that startup companies don’t typically fare well there. Instead McGovern has more interest in the emerging economies of Malaysia, Thailand and Indonesia as places for possible future investments.

H&QAP was another one of the first and most active investors in Asia, opening offices throughout the region in the early 90s, only to close most of them in the aftermath of the financial crisis.

In July, after years of quiet work in Thailand, H&QAP announced several company exits and said that it would begin work on a country-specific fund for Thailand in the range of $100 million to $120 million.

Hungry for Thai

That would mark the first return of significant venture investing in Thailand, says Virapan Pulges, managing director of H&Q Thailand. The firm’s second effort in Thailand may signal to other venture firms that there are lucrative and less pricey opportunities for private equity investing in Asia outside of China.

“We’ll probably start that fund in 2005,” Pulges says. In terms of investment strategy, the fund will provide $10 million to $20 million for each investment.

H&QAP probably had more exposure to the Asian financial crisis than any other U.S. venture capital firm. Founder Ta-Lin Hsu clearly still carries the scars of those traumatic times. Hsu says that the brutal lessons the firm learned in the 1990s are valuable today and guide his firm’s investment strategies in Asia. For example, H&QAP prefers to invest more in the style of a buyout firm than a venture capital firm. Taking control of a company’s majority ownership allows it to re-structure a company and to put in place a new management team.