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Startups

Temasek tech arm taps 'resilient' Japanese funders to widen reach

Vertex Holdings seeks out patient capital to boost corporate ties with startups

Vertex, the venture capital arm of Singaporean sovereign wealth fund Temasek Holdings, is tapping Japanese companies and government agencies to fuel its growth amid caution over cooling tech valuations.   © Reuters

TOKYO -- The venture capital arm of Singaporean sovereign wealth fund Temasek Holdings is diversifying its sources of funding by tapping an unusual group of Japanese companies and government agencies to fuel its global expansion at a time when many other investors feel skittish about cooling tech valuations.

Vertex Holdings last month began holding meetings with its Japanese investors, including the government-linked Development Bank of Japan, trading company Marubeni, consultant ABeam Consulting and Risa Partners, an investment bank, to discuss potential areas of collaboration with the roughly 200 startups that it invests in.

Vertex plans to hold the meetings every month and has hired two Japanese members to lead the effort. As part of the tie-up, the Japanese investors chipped in $180 million of Vertex's $730 million fund that invests in six major funds across its global network.

Japanese companies are "very resilient, able to withstand challenges and crisis," Vertex Holdings Chairman Teo Ming Kian, who also sits on the board of Temasek, said in an interview. He said potential areas of collaboration can range from forming vendor-customer relationships with the startups to M&A opportunities.

"Japanese companies have gone beyond the Japanese market," he said. "It is not only their capital but their wide reach and network that we are looking for."

The move signals Vertex's efforts to diversify its profile of investors and startups amid growing uncertainty surrounding the booming venture capital industry. Venture capital fundraising in China fell sharply last year and caution over cash-burning startups has rippled across the world.

On the other hand, many Japanese companies are increasingly on the lookout for startups with strong growth potential as they grapple with an aging and shrinking population at home. Investment so far has mostly gone to domestic startups. But the commitment in Vertex's "master fund" signals a growing appetite for overseas markets.

Vertex will be "disciplined" in its investments, Teo said. "You don't want money chasing after ideas. You want ideas to chase money."

Chua Kee Lock, Vertex Holdings' CEO, said valuations are high in Vietnam, but those in Indonesia have started to come down. "Now is best time to deploy capital, not the best time to raise money."

Vertex was established more than 30 years ago as a unit of Singapore Technologies and later became the venture capital arm of Temasek. But it has opened up to outside capital in recent years. More than a third of its roughly $3.5 billion under management now comes from external investors.

In addition to its regional funds across Asia and the U.S. that invest in early-stage companies, Vertex has added funds dedicated to health care and growth-stage startups.

Providing services like facilitating corporate partnerships also helps venture capital companies appeal to startups when competing for deals. When Vertex funded Grab in 2014, it advised the ride-hailing company to move its headquarters from Malaysia to Singapore, Southeast Asia's financial hub. Grab has since raised more than $9 billion, according to Crunchbase.

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