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Asian Capital

A new dawn is emerging for the venture capital industry in Asia

The good old days when hopeful start-ups used to queue at venture capitalists' doors to pitch their business ideas are long gone, a leading venture capitalist says. Competition within the industry in Asia is so tough in fact, that he predicts consolidation among existing key players is just around the corner.

"The industry has already undergone such a transformation in the United States," Alain Vandenborre, Chairman of the Singapore Venture Capital Association says. "Part of the reason that consolidation will take place in this part of the world is due to the industry reaching saturation point."

Speaking at the Venture Capital/Private Equity Partnership Conference on September 13, organised by the Hong Kong Venture Capital Association and the Chamber, he pointed out that consolidation does not mean the number of companies using venture capital or private equity funds to kick-start their business is declining. In 2003, Mr Vandenborre's firm only had nine Asian firms in its portfolio, compared to 25 projects this year, while its European and U.S. projects remained almost stagnant.

David Chow, General Partner, Pacific Venture Partners, agrees that Asian venture capital is entering a new era, but he is not as optimistic about the industry's prospects in the Mainland.   Many venture capitalists joined the gold-rush stampede sparked by the Mainland's stellar growth, only to exit shortly after, driven out by frustration and a lack of real understanding of how business on the Mainland works, he says.

"I don't think we will see more venture capitalists from the United States going into the Mainland China market in the future," Mr Chow says. "I also don't think we will see the kind of deals that used to take place -- those days are probably gone forever. But there is still money pouring into the Mainland, even though they know it is very difficult to manage Mainland Chinese companies."

Among the difficulties dampening investors' confidence in the Mainland is the pirating of senior management from start-ups trying to find their feet, speakers say. But it is not just the lure of higher pay, stock options and offshore investments that causes them to jump ship. People are more concerned about their sense of belonging, that management is interested in them and whether or not they can discuss ideas and problems with the CEO, instead of going through a chain of bureaucracy.

A far bigger problem, but one that is often hushed up, is the over-inflated egos of the founding partners splintering the business. Sooner or later both partners believe that their ideas are what drive the company forward and feel they would be better off without "being held back" by the other partner.

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