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Asia turns on the taps for tech funding

June 24, 2014 2:52 am

Asia turns on the taps for tech funding

By Josh Noble in Hong Kong

When the bosses of US video messaging app Tango were on the lookout for a strategic partner, they turned in the direction of Hangzhou, China – home of ecommerce company Alibaba.

Within weeks, Tango’s founders met with Alibaba’s executive vice chairman Joe Tsai, before selling a quarter of the company for $215m.

Deals like this, where Asian capital goes into a young tech company from another part of the globe, are becoming increasingly common. The region is emerging as a key source of funding for the sector, putting Hong Kong and Singapore firmly on the map for tech startups seeking cash.

Asian capital has historically flowed into tech investments through western private equity or venture capital funds. But Asian investors – both corporate and financial – are now more sophisticated, have bigger programmes, and are leading direct investments, says Daniel Wetstein, TMT banker for Morgan Stanley in Asia.

Temasek, Horizons Ventures, Alibaba, and Tencent – four of the main players – have joined in private equity and venture capital deals worth $2.4bn so far this year, up from $1.7bn last year and just $186m in 2012, according to data compiled by CrunchBase.

While still much smaller than Silicon Valley, that chimes with a broader tech sector M&A theme. Non-Japanese Asian acquirers have completed 678 deals this year worth more than $31bn, according to Dealogic, up from 554 deals worth $12bn over the same period last year. At 24 per cent of the global total, Asian acquirers are also taking their largest ever slice of the pie.

Two of the biggest beasts, Chinese rivals Alibaba and Tencent, been aggressively taking stakes in companies around the world as soaring valuations give them freer access to financing. Tencent’s market capitalisation has risen from $60bn to $140bn in the past 18 months, while Alibaba’s initial public offering, set for later this year, could be the largest ever and value the company at more than $150bn.

Tencent’s recent deals include a $450m equity stake in Sogou, a Chinese search engine, along with investments in Plain Vanilla, a Icelandic games company, and US web platform Weebly.

Alibaba too has become more active, recently investing in Tango, search engine Quixey, and taxi app Lyft. Both companies now have global acquisition teams staffed by former sector analysts and bankers.

But the spending spree is not just industry players buying stakes in companies for strategic reasons. Financial investors such as sovereign-backed funds have also stepped up a gear, wooed by the market performance of listed tech companies and the global race to find the next Facebook.

Temasek, Singapore’s state investment agency, is the most established player. Though active in investing in technology companies for a number of years, it has been building expertise in the sector as it looks at deals ranging from startups to public companies.

Other sovereign-backed funds such as Khazanah of Malaysia, China’s CIC and Singapore’s GIC have also been showing increased interest in the sector, which some analysts expect to lead to more direct involvement.

Another well-known name is Horizons Ventures, the Hong Kong-based venture capital firm backed by Li Ka-shing, Asia’s richest man. It was an early investor in Facebook, Spotify and Skype, and now “looks at” as many as 40 companies a week. Of its 56 investments to date, only three have been in Asia, with 17 in the US and 22 in Israel.

For the sellers, the equation is changing too. Asia. with China at its heart. is seen by many as a big growth opportunity for the tech industry, with Asian ecommerce, gaming, and messaging companies on the cusp of achieving true global reach.

As a result, company executives and founders around the world are “increasingly receptive” to potential suitors from the region, says Winston Cheng, TMT banker at Bank of America Merrill Lynch.

Juan Cartagena, founder of Traity, a website that manages online reputations, is a case in point. He says the chance to link up with an Asian investor – in this case Horizons – was simply irresistible.

“The access to Asia that we get through Horizons is massive – it builds our global footprint and helps us become a global company from day one,” he says. “Everybody knows that Asia is the next step for almost every startup.”

Gaining expertise is also a factor. Tango co-founder Eric Setton believes Asia’s messaging market is now more advanced than in the west, with South Korea’s Kakao Talk, Japan’s Line, and Tencent’s WeChat increasingly active beyond their home markets.

For Tango, having a partner who truly understands the Chinese market made the tie-up with Alibaba “a slam dunk”, says Mr Setton.

Horizons Ventures – Finding potential in quirky technology

Utah-based HZO has developed technology that will keep your mobile phone protected from water by coating it – inside and out – with an invisible layer of bonded molecules. Horizons invested in 2011.

By turning plants into fake eggs, mayonnaise and other foodstuffs, Hampton Creek’s team of biochemists hopes to create healthier, more humane ways to eat from its base in California. Horizons invested in 2014.

Set up by two Canadian entrepreneurs, Shenzhen-based Nanoleaf is attempting to re-invent the lightbulb, using LEDs to make heat-free, low energy lighting.

After developing hollow fibres 100 times thinner than human hair, packed with good bacteria, engineers at Israeli company Nanospun believe they have create a fabric that can purify water without the need to use a large amount of power.

Modern Meadow, the latest addition to the Horizons Ventures fold, makes biomaterials – meat and leather products – without slaughtering animals, through a process it calls biofabrication. Horizons invested in 2014.

 

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About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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