Asia's venture capital firms learn Silicon Valley tricks
Startups with clever ideas are having more success raising money locally
KEN KOYANAGI, Editor-at-large, Nikkei Asian Review
BANGKOK On March 10, at the SXSW event in Austin, Texas, in the U.S., self-driving electric car maker NIO revealed plans to make a near-fully autonomous electric car commercially available in the U.S. by 2020, aiming at becoming one of the first companies to realize the vision of automobiles that drive themselves.
The car, code-named NIO EVE, will be fully autonomous under specific conditions, such as everyday commutes on preselected routes. That level of self-driving capability is considered level 4 on the U.S. Department of Transportation's five-tier scale.
The company, formerly NextEV, was founded in 2014 by a Chinese entrepreneur, William Li, in Shanghai. Since the announcement, it has raised more than $1.1 billion from a multinational group of investors, including Tencent Holdings and Baidu of China; Temasek of Singapore; and Sequoia Capital, IDG Capital and TPG of the U.S.
NIO has operations in Shanghai, San Jose in the U.S., Munich and elsewhere. Its U.S. chief executive, Padmasree Warrior, grew up in India then came to the U.S. to study at Cornell University, graduating with a master's degree in chemical engineering. She was previously head of technology and strategy at network equipment maker Cisco Systems before joining NIO in 2015.
"We are a global startup from the beginning," Warrior said as she unveiled a mockup of the EVE at SXSW, together with Li and other executives.
BEIJING'S BILL The next day, in Cambridge, Massachusetts, Hong Kong entrepreneur Tim Lee, who created Beijing-based mobile payment system QFPay, spoke to MBA candidates at Harvard Business School about how he built his company.
"I was inspired," he said, by reading about how Bill Gates started Microsoft and changed the world. At the time, in 2005, Lee was a senior at The Chinese University of Hong Kong. "I decided I would like to live like [Gates] -- to start up a business that can impact the society."
But when he graduated the following year, Lee felt he had no choice but to join a big company: first a bank, then IBM. It was only after he was transferred to Beijing that he felt ready to strike out on his own.
"Compared to Hong Kong, there is a far more developed ecosystem for technology startups in China. And of course China is a huge market for any business," Lee said. He had spent less than a year working for IBM in Beijing when he left the company in 2010.
In 2011, Lee founded QFPay, which provides small merchants with point-of-sales devices and software that allows them to handle bank and credit cards for less money. Its business model is similar to that of Square of the U.S. Within a couple of years, it had earned the moniker "the Square of China," and it secured funding from Sequoia in 2013.
QFPay has since transformed itself into a software-based system that enables merchants to accept various methods of payment, including Tencent's WeChat Pay and Alibaba Group Holding's Alipay.
Its new model helped the company secure funding from Japanese partners late last year to begin service in Japan and Hong Kong to meet Chinese tourists' payment needs. It also plans to start operating in Vietnam and Cambodia this year, again targeting Chinese tourists.
"Eventually I want to make QFPay global," Lee said.
HOME AWAY FROM HOME Until just 15 years ago, most startups focused on their domestic markets; few venture capital firms invested outside their regions. Even Sequoia did not set up a Chinese arm until 2005, which still made it the first Asian operation for a big-name Silicon Valley firm.
The game-changer may have been 500 Startups, an incubator founded in Silicon Valley in 2010. It offers shared office space in Mountain View, California, for aspiring entrepreneurs. In exchange for a bit of cash and small equity stake, 500 Startups provides a place for foreign entrepreneurs to settle down for four months and develop their ideas into a real business with help from Silicon Valley pros. Once they successfully launch their businesses, they can return to their home countries and grow them further.
So far, 500 Startups has invested in about 1,600 companies around the world, according to the company website. It now has a network of people and capital in cities around the world, including Tokyo, Beijing, Bangkok and Bangalore.
Cross-border flows of people have long been commonplace among startups. But many newcomers defy the stereotype of cash-starved but ambitious strivers. They are often elites in search of new opportunities. Tim Lee of QFPay illustrates how an entrepreneur may move from his home -- in his case, Hong Kong -- to a larger market nearby.
The founders of Grab and Go-Jek, ride-hailing startups based in Singapore and Indonesia, respectively, were classmates at Harvard Business School. They saw unmet needs in their home countries, and have made a lot of money fulfilling them.
In Kuala Lumpur, taxi rides can be harrowing. It is not unheard of for drivers to rob their passengers. Grab rides are much more pleasant. In Jakarta, motorcycle taxis are a common way to beat the city's snarled traffic, but the bike operators are unregulated and sometimes reckless. Go-Jek's are not.
Ron Hose, founder of Coins.ph, a Philippine fintech startup, moved from a prominent Silicon Valley venture capital firm to Manila to set up his company. He saw a bigger opportunity for fintech in Southeast Asia, where banking penetration is low and people are hungry for handier financial services.
According to KPMG data, venture capital investment in Asian startups in 2016 totaled $39 billion, almost five times more than in 2011. For comparison, the U.S. figure rose 57% over the same period to $69 billion. In 2011, Asia's venture capital investment was only 17% as large as that of the U.S. Now it is 54% as big.
"The development of the venture capital industry in Asia has undoubtedly been one of the major success stories of recent years," wrote Felice Egidio, head of venture capital at research specialist Preqin in a report in March.
Egidio pointed out the need to further develop exit markets -- typically initial public offerings on major stock exchanges, or acquisitions by established companies.
If emerging Asia can create capital market rules, discipline and liquidity similar to those in the U.S., Japan and Hong Kong, and if they provide more exit ramps for founders, Asia's startup ecosystem should thrive. These new companies, in turn, will play a key role in fostering the private sectors of their home countries and strengthening their economies.