Asia’s Private Equity News Source avcj.com January 28 2014 Volume 27 Number 04

EDITOR’S VIEWPOINT Know your entrepreneur Page 3 NEWS Accel, CICC, Everstone, Primavera, Vertex Page 4 DEAL OF THE WEEK FirstCry targets online and offline shoppers Page 12 Equis, Partners Group bag Japan solar deal Page 12 FUNDS Irish start-ups eye China Page 13 CDH to close at $2.55b Page 14 EQT’s expanded mandate Page 14 LP INTERVIEW Captive conundrum Axiom Asia’s managing partner Chihtsung Lam What does the emergence corporate-backed funds mean for China PE? Page 7 Page 15

FOCUS DEAL OF THE WEEK

Debuts down under Welcome deliveries Australian IPOs return, PE firms plot exits Page 10 VCs back RedMart’s online grocery option Page 13 HAPPY HOLIDAYS TO ALL OUR READERS! AVCJ WILL RETURN FEBRUARY 11, 2014 11th Annual Private Equity & Venture Forum Australia & New Zealand 2014 5-7 March, Four Seasons Hotel, Sydney Leading the way in a changing market avcjausnz.com Join the leading private equity in Australia, discover new industry opportunities

The public market sale increase in total exit in 2013 29%

Australia Australasia - Capital Under New Zealand Management in Private Equity 53% US$million 29,268 30,400 27,727 of investments 24,782 made in 2013 were allocated to infrastructure 2,455 2,601 3,011 3,100 2010 2011 2012 2013 Total PE Investment Made in Number of deals Australasia Since 2011 TOP 10 PE INVESTMENT IN 2013 US$million 11,952 11,101 9,744 FROM US$189m 192 187 126 UP TO US$5,272m Gross Domestic Australia - Gross Domestic Product Product (GDP) vs. Private Equity Invesment % PEI/GDP 2011 2012 2013 US$million 1,490,521 1,541,797 1,487,971

PE-backed firms employ 0.69 0.60 0.61 262,000 workers in Australia, making it a larger 2011 2012 2013 employer than the automotive * GDP data refers to fiscal year (April 1-March31) and Private Equity Investment data or banking industries refers to year-ended on December 31 The International Monetary Fund PE Contribution to Australia GDP Source: AVCJ Research, IMF and AVCAL represents +0.69% in 2013 Contact us Registration: Pauline Chen T: +852 3411 4936 E: [email protected] Sponsorship: Darryl Mag T: +852 3411 4919 E: [email protected]

Featured in

Lead Sponsors Co-Sponsors Exhibitor

avcjausnz.com 11th Annual Private Equity & Venture Forum EDITOR’S VIEWPOINT Australia & [email protected] New Zealand 2014 Managing Editor 5-7 March, Four Seasons Hotel, Sydney Tim Burroughs (852) 3411 4909 Staff Writers Andrew Woodman (852) 3411 4852 Leading the way in a changing market avcjausnz.com Mirzaan Jamwal (852) 3411 4821 Battles averted? Winnie Liu (852) 3411 4907 Join the leading private equity in Australia, Creative Director Dicky Tang Designers discover new industry opportunities Catherine Chau, Edith Leung, Mansfield Hor, Tony Chow

Senior Research Manager The public market sale increase NO ONE EMERGED FROM THE DEBACLE AT up in scale or product sophistication can only be Helen Lee NVC Lighting Technology looking particularly achieved though a substantial capital investment Research Manager in total exit in 2013 good. and the introduction of more management Alfred Lam 29% Research Associates Tensions came to a head in May 2012 when expertise. Herbert Yum, Isas Chu, Jason Chong, Kaho Mak Australia Australasia - Capital Under Changjiang Wu, the CEO and chairman of the Assuming control, at board or shareholder New Zealand Management in Private Equity Hong Kong-listed lighting company, resigned. level, doesn’t necessarily make investments any Circulation Manager US$million Investors had accused him of making related- easier. As the NVC case illustrates, a deposed Sally Yip 53% Circulation Administrator 29,268 30,400 party transactions and presiding over a culture of chairman can still exert influence over the Prudence Lau 27,727 of investments weak corporate governance. The chairman’s allies business (he has deep-rooted supply chain Subscription Sales Executive 24,782 Jade Chan claimed that his departure was part of a plan relationships, if nothing else) why a disaffected made in 2013 formed by international investors, led by SAIF middle management can be unmanageable. Manager, Delegate Sales Pauline Chen were allocated to Partners, to take control of the board. Many China private equity investors take Wu was replaced as chairman by Andrew Yan, every opportunity to stress their value creation Director, Business Development 2,455 2,601 3,011 3,100 Darryl Mag infrastructure SAIF’s managing partner, and shortly afterwards credentials but bring about meaningful change 2010 2011 2012 2013 Manager, Business Development a war of words between the two found its way the incumbent staff must buy into the value Anil Nathani, Samuel Lau onto Sina Weibo. NVC’s workers demanded the proposition. In this context, choosing the right Total PE Investment Made in Sales Coordinator reinstatement of their leader, suppliers refused executives to bring in is crucial. Number of deals Australasia Since 2011 TOP INVESTMENT IN 2013 Debbie Koo 10 PE to business with the company, and there were As one GP put it to AVCJ recently, the US$million Conference Managers 11,952 executive-level departures. transition is the most difficult part. “Once you Jonathon Cohen, Sarah Doyle, 11,101 Profit warnings ensured due to the disruption bring in people they must have new ideas and Zachary Reff 9,744 FROM US$189m Conference Administrator and, deedless to say, NVC stock took a hit. systems and you have to blend the existing Amelie Poon 192 187 By September, a compromise appeared to and the new,” he said. “The risk of bringing in Conference Coordinator UP TO US$5,272m have been thrashed out, with Wu appointed professional management is they require hands- Fiona Keung, Jovial Chung 126 head of a temporary operations committee on experience of executing strategy in private Publishing Director Allen Lee Gross Domestic Australia - Gross Domestic Product tasked with day-to-day management of NVC. He companies and the people below them are not Product (GDP) vs. Private Equity Invesment returned to the role of CEO in January 2013 and MIT and Yale graduates.” Managing Director Jonathon Whiteley % PEI/GDP Yan resigned as chairman four months later. The second stage of the transition involves 2011 2012 2013 1,541,797 US$million 1,490,521 1,487,971 “They should have settled it earlier and in a understanding how to incentivize these quieter manner,” one LP observed to AVCJ when people. If the founder retains a minority the tensions were at their height. stake in the business, what role – if any – can PE-backed firms employ Conflicts between entrepreneurs and PE be accommodated for him in day-to-day Incisive Media 0.61 0.69 Unit 1401 Devon House, Taikoo Place 0.60 investors are not unknown in China’s personality- management in order to ease the handover of 979 King’s Road, Quarry Bay, workers Hong Kong 262,000 driven economy – corporate governance issues power? As for the middle management, do they T. (852) 3411-4900 are often cited, but so too is a basic failure to want equity in the business or are they looking F. (852) 3411-4999 in Australia, making it a larger E. [email protected] 2011 2012 2013 ensure that interests remain aligned. for something else? URL. avcj.com In 2011, Lan Zhang, founder of restaurant Establishing key performance indicators employer than the automotive * GDP data refers to fiscal year (April 1-March31) and Private Equity Investment data Beijing Representative Office refers to year-ended on December 31 The International Monetary Fund franchise South Beauty, told media that one of is part of every business plan but it must No.1-2-(2)-B-A554, 1st Building, or banking industries No.66 Nanshatan, the company’s biggest mistakes was selling a be complemented by more empirical man Chaoyang District, Beijing, PE Contribution to Australia GDP stake to CDH Investments, which took a minority management. This includes establishing clear People’s Republic of China T. (86) 10 5869 6203 position alongside China International Capital guidelines for all stakeholders as to what is F. (86) 10 5869 6205 Source: AVCJ Research, IMF and AVCAL represents +0.69% in 2013 Corporation in 2008. Expansion plans failed to required of them. E. [email protected] come to fruition, which may explain the discord. An effective investment professional doesn’t Contact us Registration: Pauline Chen T: +852 3411 4936 E: [email protected] Last year CVC Capital Partners acquired majority have to dirty his hands with boardroom or control of South Beauty, facilitating the exit of the shop floor arguments; wherever possible, he The Publisher reserves all rights herein. Reproduction in whole or Sponsorship: Darryl Mag T: +852 3411 4919 E: [email protected] in part is permitted only with the written consent of existing backers. anticipates them before they happen. AVCJ Group Limited. Featured in If NVC represents the worst case scenario ISSN 1817-1648 Copyright © 2014 in GP-entrepreneur relations, then the South Beauty buyout arguably reflects where private Lead Sponsors Co-Sponsors Exhibitor equity in China is going next, with founders Tim Burroughs gradually becoming more willing to cede control Managing Editor to third-party investors. In many cases, that step Asian Venture Capital Journal avcjausnz.com Number 04 | Volume 27 | January 28 2014 | avcj.com 3 NEWS

AUSTRALASIA CICC, Qianhai Financial PE firms to bid for China launch $3.3b PE fund Huarong stake CHAMP Ventures plans IPO China International Capital Corporation (CICC) A group of around 20 investors are said to be has teamed up with Qianhai Financial Holdings, a preparing to submit first-round offers for a for SG Fleet wholly-owned unit of the Administrative Bureau minority stake worth $2 billion in China Huarong CHAMP Ventures is seeking to exit its 42% of Qianhai, to launch a private equity fund, Asset Management ahead of the non-performing stake in Australian vehicle leasing and fleet targeting RMB20 billion ($3.3 billion). loan manager’s IPO. According to Reuters, KKR, management business SG Fleet Holdings by way The CICC Qianhai Development Fund will BlackRock, The Blackstone Group and Bain Capital of an IPO. South Africa’s Super Group - the parent primarily invest in high-growth companies are preparing bids, as well as several sovereign of SG Fleet - has said in a statement that, if the registered in Shenzhen economic district of wealth funds from Asia and the Middle East. IPO proceeds, it would maintain a controlling Qianhai and support cross-border transactions, stake of around 51%, while funds associated with including financial services, logistics, information State Street opens Shanghai CHAMP will exit. providers, and tehcnlogy firms. The fund is office ASA calls for Billabong deal State Street has opened an office in Shanghai to provide fund administration, accounting and delay related services to private equity, real estate and The Australian Shareholders Association (ASA) hedge fund clients with business development has called on Australian surf wear company initiatives in China. Billabong International to delay a shareholder vote on a decision that could give PE creditors Alibaba invests $15m in Oaktree Capital Management and Centerbridge Partners as much as 40.8% of the firm. The 1stdibs shareholder group said it was concerned that Alibaba Group has backed New York-based “control of an iconic Australian company is luxury e-commerce site 1stdibs with a $15 changing hands cheaply without shareholders million Series C investment. 1stdibs’ marketplace being given up-to-date financial information.” expected to reach a first close of RMB5 billion by links more than 1,500 international dealers of the end of June. high-end antiques, vintage furniture and design, CICC will partner with Qianhai Financial art, jewelry, fashion and homes to consumers. GREATER CHINA Holdings in establishing a joint venture for fundraising, project investments and Legend re-ups in US sports Primavera supports $1.9b management of the vehicle. Industrial and Commercial Bank of China (ICBC) will serve as tech manufacturer Zepp Shanda Games take-private the financial advisor to the joint venture, offering Legend Capital has re-upped in athlete training Primavera Capital is supporting a buyout of commercial banking services. technology developer Zepp Labs, participating NASDAQ-listed Chinese online game developer As part of broader efforts to internationalize in a $15 million Series B round of funding led and operator Shanda Games that values the the renminbi, Qianhai was designated a testing by GGV Capital. Bertelsmann and Cherubic company at $1.9 billion. The PE firm is backing ground for eased currency movements in June Ventures also committed capital. US-based Zepp, controlling shareholder Shanda Interactive 2012. In addition to private equity funds raising which received $5 million in Series A funding Entertainment in the deal. renminbi in Hong Kong, initiatives include from Legend in January 2013, is best known for enabling companies registered in Qianhai area to sensors that are worn on the hand when playing Suning acquires VC-backed source renminbi-denominated loans from Hong golf, baseball or racket sports. group buying site Manzuo Kong banks. A8 commits to tech-focused Suning Commerce, a Chinese home appliance retailer, has acquired group buying site Manzuo. Perfect Advance, will acquire 4.4 billion CITIC Qingsong Fund com. Transaction terms were not disclosed but 21CN shares at HK$0.3 apiece. A8 Digital Music Holdings, a Hong Kong-listed the investment was said to facilitate a full exit for media corporation, has committed RMB20 VC backer KPCB China. TAL Education invests $25m million ($3 million) to acquire an approximately in VC-backed Babytree 6% interest in Qingsong Fund II. Domiciled in Yunfeng Capital, Alibaba to Shenzhen’s Qianhai district, the fund is looking TAL Education, a China-based after-school to raise a total of RMB333 million. About 30% of buy CITIC 21CN for $171m tutoring services provider, has acquired a the total capital commitment was made by the Yunfeng Capital and Alibaba Group together minority stake in childcare website Babytree for partners upon the establishment of the vehicle. plan to buy a 54.3% stake in pharmaceutical RMB150 million ($25 million). The online baby data provider CITIC 21CN, a Hong Kong-listed nursing information provider secured previous SAIF invests $30m in China subsidiary of Chinese conglomerate CITIC investments from Matrix Partners, Susquehanna Group, for HK$1.33 billion ($171 million). Alibaba, Growth Equity and China Broadband Capital fashion platform through its wholly-owned investment entity Partners. SAIF Partners China has committed $30 million

4 avcj.com | January 28 2014 | Volume 27 | Number 04 NEWS

in Series C funding to Yoho, an online fashion Partners Group, Mizuho Blume Ventures leads seed magazine and e-commerce platform. CDH Venture, Bertelsmann Asia and Vertex Venture target Japanese pensions round for Turtle Yogi have previously invested in the firm. Partners Group has reached a deal with Mizuho Blume Ventures has led a seed round of funding Financial Group (MFG) to jointly develop and for Bangalore-based Turtle Yogi Technologies, distribute global private equity and infrastructure which runs cloud-based video calling service NORTH ASIA products to Japanese pension schemes. 1Click.io. Chennai Angels member R. Narayanan Under the agreement, MFG and its pension and Shead Holdings also participated in the round. Japan’s Venture United trust and asset management subsidiary Mizuho Trust & Banking Corp. will have select distribution Nexus backs digital security raises $11m fund rights for Partners Group’s integrated global Venture United - the corporate investment arm of private equity and infrastructure funds. They will firm Uniken Japanese media group United - has raised a new also look at other ways to collaborate on product Nexus Venture Partners has invested a reported JPY1.26 billion yen ($11 million) fund focusing development in order to meet the needs of INR300 million ($4.8 million) in US enterprise on internet-related start-ups. The fund’s investors security firm Uniken, which has its innovation include the Digital Advertising Consortium and center in India. The firm’s REL-ID technology is the Organization for Small & Medium Enterprises a holistic plug and play security solution which and Regional Innovation Japan (SMRJ). provides identity and device management and authentication and a secure private SC Lowy, Yuil PE buy communication channel among other functions. Korean bank Indian digital education Hong Kong-based investing and trading firm SC Lowy has teamed up with a South Korean private firm iProf raises $9 million equity fund known as Yuil PE to buy Shinmin DMG Information, a division of the UK’s Daily Mail Savings Bank. The institution’s name will change and General Trust, has led a $9 million Series B to Choeun Mutual Savings Bank. The transaction round of funding in Indian digital education firm is a carve-out from a Korean construction Japanese institutional investors. iProf. Existing investors Norwest Venture Partners conglomerate Samhwan Corporation This is the first time Mizuho Trust will offer and IDG Ventures also participated. global private markets investment products to Japanese VCs invest $4m in its Japanese pension clients. “We are very excited Vertex, IDG, SAIF invest to partner with Mizuho Financial Group, one of social retail app developer Japan’s most respected and best-known financial $15m in India’s FirstCry Mitsubishi UFJ Capital and DBJ Capital have institutions, in order to meet the growing Temasek Holdings subsidiary Vertex Venture joined existing investors DCM Japan, Itochu demand for private equity and infrastructure Management has led a $15 million Series C round Technology Ventures and Jafco Ventures, in a investment opportunities seen from the country’s of funding in Brainbees Solutions, which runs JPY400 million ($3.8 million) round of funding pension funds,” said Steffen Meister, partner Indian baby and kids focused e-commerce site for Tokyo-based Tab, the start-up behind the and chairman of Partners Group’s business FirstCry.com. Existing investors IDG Ventures India location-based retail recommendation app of the development committee, in a statement. and SAIF Partners also invested in the round. same name. Everstone-Realterm raise Tokio Marine invests $9.5m targeting INR50 billion ($792 million). According to a release, the India Inclusive Innovation Fund $330m for logistics fund in furniture maker Asplund will invest in ventures that are scalable and Indian industrial real estate and warehousing Tokio Marine Capital has acquired a majority profitable but also address the needs of the facilities developer IndoSpace, has closed its stake in Japanese furniture maker Asplund for under privileged in areas such as healthcare, second fund above target at $330 million. around JPY1 billion ($9.5 million). The terms of food, education, energy, sanitation and finance. IndoSpace is a joint venture between the the deal were not disclosed; however, Nikkei Everstone Group and Canada’s Realterm Global. reports that Tokio Marine has acquired a 70% Helion, Accel invest $1m in stake in the company. MySmartPrice SOUTHEAST ASIA Helion Venture Partners and Accel Partners SOUTH ASIA have invested $1 million in a Series A round for Indian price comparison website Mysmartprice PricePanda gets $3m from as the company expands its product categories Tengelmann India’s National Innovation offering. The company began in 2010 as a book Rocket Internet’s price comparison platform, Council launches fund price comparison provider and then moved PricePanda, has raised $3 million from German India’s National Innovation Council (NIC) and the into electronics. It has broadened the range to retailer Tengelmann Group to expand its Ministry of Micro, Small and Medium Enterprises include personal care, fashion and deals from Southeast Asia footprint. It currently operates in have together launched a new venture fund e-commerce sites. Malaysia, Philippines, Indonesia and Singapore.

Number 04 | Volume 27 | January 28 2014 | avcj.com 5 3rd Annual Private Equity & Venture Forum Indonesia 2014 20 March, Jakarta Sustaining Momentum when the Buzz Cools GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY avcjindonesia.com REGISTER before 7 February to SAVE US$200 Early confirmed speakers include: Ben Bingham KEYNOTE Aditya Srinath KEYNOTE Senior Resident Representative Head of ASEAN Strategy & Indonesian INDONESIA, INTERNATIONAL Research MONETARY FUND (IMF) J.P. MORGAN Markus Ableitinger C K Chua Managing Director & Co-head of Cluster Head – Indonesia, Private Equity Investment Management Asia and Special Opportunities, Mezzanine CAPITAL DYNAMICS Capital Unit, OCBC BANK Doug A. Coulter Willson Cuaca Partner Co-founder and Managing Partner LGT CAPITAL PARTNERS EAST VENTURES

Rachmat Kaimuddin Irene Koh Vice President Vice President BARING PRIVATE EQUITY ASIA JP MORGAN ASSET MANAGEMENT

Tom Lembong Will MacAulay Co-Founder and Partner Director QUVAT MANAGEMENT WILSHIRE PRIVATE MARKETS

Gary Ng Sarvesh Suri Managing Director Country Manager, Indonesia CLSA CAPITAL PARTNERS INTERNATIONAL FINANCE CORPORATION (IFC) Ridha Wirakusumah Director, Private Equity … and many others! KKR

For the latest programme and speaker line-up, please visit www.avcjindonesia.com

Co-Sponsor Contact us Registration: Pauline Chen Sponsorship: Darryl Mag T: +852 3411 4936 T: +852 3411 4919 E: [email protected] E: [email protected]

Philanthropy Partner Supporting Organisations Media Partners

avcjindonesia.com 3rd Annual Private Equity & Venture Forum COVER STORY [email protected] Indonesia 2014 20 March, Jakarta Strategic imperative Sustaining Momentum when Corporate private equity arms are catching on in China as companies beyond the tech space develop an the Buzz Cools appetite for investment. What does it mean for the industry’s independent incumbents? GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY avcjindonesia.com CORPORATE VENTURE CAPITAL IS THE number of technology companies in the US – by Dayi Sun, managing director at fund-of-funds latest buzzword among Chinese conglomerates, hiring investment professionals or they form Jade Invest. REGISTER before 7 February to SAVE US$200 with those interested covering the full gamut of partnership funds with independent GPs. An M&A fund run in partnership with an industries from microchips to meat processing. Chen adds that it is too early to tell how the independent GP appeals to corporates as a Early confirmed speakers include: One China-focused fund manager recalls being regulators will respond to these new entrants means of accelerating consolidation within invited to a meeting at which an unnamed pork and what this means for their role in the market. fragmented industries. The GP offers expertise in Ben Bingham KEYNOTE Aditya Srinath KEYNOTE producer probed him on how it might develop However, she is generally positive about Chinese deal sourcing and execution that can ultimately Senior Resident Representative Head of ASEAN Strategy & Indonesian its full potential as a corporate VC. companies wanting to strengthen their core help a corporate maintain its status as a market INDONESIA, INTERNATIONAL Research “The corporate firm has hired a reputable business through investments. leader. Furthermore, it doesn’t incur the same risk MONETARY FUND (IMF) J.P. MORGAN investment banker as chief investment officer and cost of setting up a dedicated PE platform, Markus Ableitinger C K Chua to lead the team. He can choose which GPs Tough timing but it allows exposure to the asset class if a Managing Director & Co-head of Cluster Head – Indonesia, Private Equity to invest in without any intervention from the The rise of corporate funds is in part a function corporate did want take such a step in the future. parent company,” the manager adds. “In this case, of challenges facing China’s PE industry. As IPO Once again, Jiuding is a good example. Investment Management Asia and Special Opportunities, Mezzanine the group is trying to give more flexibility to the exit multiples dropped, and new listings slowed At the end of last year the GP launched a $33 CAPITAL DYNAMICS Capital Unit, OCBC BANK private equity subsidiary.” to a crawl before the regulator imposed a one- million M&A fund with Shenzhen-listed Gifore Doug A. Coulter Willson Cuaca Corporate venture capital is part of a broader year suspension in order to clean up the market, Agricultural Machinery China, seeking acquisition Partner Co-founder and Managing Partner movement whereby large Chinese companies opportunities in the agricultural machinery LGT CAPITAL PARTNERS EAST VENTURES are expressing their appetite for M&A. These sector. The Sichuan province-based enterprise investments might bring financial or strategic “They may have tried is also one of Jiuding’s most successful previous value to the parent companies, and they are no investments: the private equity firm delivered an Rachmat Kaimuddin Irene Koh longer limited to technology – sectors such as to make investments IRR of 12.78x on exiting Gifore via IPO in 2009, Vice President Vice President financial services, healthcare and agriculture also using in-house staff, when the market was at its peak. BARING PRIVATE EQUITY ASIA JP MORGAN ASSET MANAGEMENT feature. In November, Haitong Capital teamed up with The question for independent private equity but it didn’t work out logistics firm Orient International Enterprise to firms is how they address these new industry establish a renminbi buyout fund with a target of Tom Lembong Will MacAulay participants, if and when their paths cross – as the same way as for $493 million, while Shanghai Yimin Commercial Co-Founder and Partner Director a permanent piece of the jigsaw or a temporary independent GPs” – Dayi Sun Group partnered DT Capital on a RMB750 million QUVAT MANAGEMENT WILSHIRE PRIVATE MARKETS phenomenon? ($124 million) M&A fund that will primarily focus “Major Chinese corporates are keen to on acquiring retail chain stores and emerging establish their private equity platforms, it is a investor faith in private equity began to falter. e-commerce platforms. Shanghai Yimin Gary Ng Sarvesh Suri trend that has become more significant in the China fundraising shrank to $19 billion last year, committed RMB236 million to the fund. Managing Director Country Manager, Indonesia last year,” says Lorna Chen, a partner at Shearman from $32 billion in 2012 and $55 billion a year In the Haitong Capital and DT Capital cases, CLSA CAPITAL PARTNERS INTERNATIONAL FINANCE & Sterling. “Start-up companies, which are usually before, according to AVCJ Research. the corporates are serving as anchor LPs. They CORPORATION (IFC) targeted by leading technology firms’ corporate It is therefore difficult for Chinese managers receive favorable terms and in return the GPs can venture capital units, as not the priority when to survive, particularly those operating in the go and raise capital from third-party investors, Ridha Wirakusumah setting up these platforms. They are targeting renminbi-denominated fund space. Aware that using the partnership as a marketing tool. … and many others! Director, Private Equity growth capital type of deals instead.” corpus sizes and management fees are likely to LPs are drawn to sponsored funds in KKR As such, “corporate venture capital” is not a be smaller investment professionals are willing to part because the sponsor can offer detailed wholly appropriate moniker. A typical approach consider a move to the corporate side. knowledge and execution ability in a particular For the latest programme and speaker line-up, please visit www.avcjindonesia.com might see the corporate first set up a fund For example, Yu Bo, a healthcare-focused industry. These corporates know all their peers structure that allows it to invest domestically partner at Jiuding Capital, left the firm in the and competitors and through these networks Co-Sponsor Contact us Registration: Pauline Chen Sponsorship: Darryl Mag in sectors that are complementary to its core middle of last year to set up ZRT Healthcare they learn about potential acquisition targets that business, then create an offshore entity through Capital, which is backed by Zhongrong might be beyond the reach of independent GPs. T: +852 3411 4936 T: +852 3411 4919 which overseas investments can be channeled. International Trust. It also opens up new exit opportunities as the E: [email protected] E: [email protected] Natural resources are a frequent target. “It is usually difficult for corporates to hire corporate may seek to buy portfolio companies. Investment strategies can vary enormously. direct investment professionals with industry However, sponsored funds can represent The aforementioned pork processor appears to experience. They may have tried to make a risk in terms of investment consistency and be happy operating as a hands-on LP. Others investments using in-house staff, but it didn’t corporate influence. One well-known case is Philanthropy Partner Supporting Organisations Media Partners choose the conventional route of setting up work out the same way as for independent GPs. China F&B Venture Investments, which received a captive private equity unit – much like any Partnering with them seems a visible option,” says a RMB245 investment from Uni-President China

avcjindonesia.com Number 04 | Volume 27 | January 28 2014 | avcj.com 7 Customized Research Report Asian Private Equity Data Made Simple

AVCJ Research can provide your firm with timely and accurate research support to help you simplify and expedite your workflow. We conduct in-depth research and provide insightful analysis in a bespoke report that fully meets your data requirements.

AVCJ’s industry standard data is used by the world’s leading firms in their fundraising, investor relations communications and deal due diligence activities. AVCJ Customized Data Service includes:

✔ Pan-Asian Industry Reviews/Regional Reports – timely updates ✔ Specific industry and financing stage research ✔ Comprehensive statistics on investments and funds ✔ Exits strategic analysis ✔ Market peers comparison

To understand how AVCJ Research can help you with your data needs, please call: 852-34114956 or email [email protected] avcj.com COVER STORY Customized Research Report [email protected]

Holdings – the mainland subsidiary of Taiwan- information-driven play, offering companies companies. The group’s previous investments based foodstuffs conglomerate Uni-President visibility on technological developments and include Alibaba and online video site PPTV, Enterprises – in 2008. Uni-President soon bought deal flow domestically and globally. neither of which were swayed in their respective a controlling stake in the VC firm and raised Alibaba broke new ground by investing business strategies. Asian Private Equity capital from other investors. in Silicon Valley-based apps search engine Such investors are also more flexible when “Some LPs were inspired to invest in Uni- Quixey last year and more cross-border deals it comes to exits. Had Wandoujia received President’s corporate investment arm at that have reportedly followed. Tencent, meanwhile, investment from Baidu rather than Softbank, this time as there were more trade sale opportunities became an LP in Eastern Bell Venture Capital’s would limit its trade sale options further down Data Made Simple from parent company. However, a number of logistic-focused renminbi fund, offering logistics the road – Baidu might not look favorably on a prospective investors were concerned about the sector insights. It has since made at least one sale to Tencent, for example, preferring to buy the parent having conflicts of interest with financial direct investment into the sector. business itself. investors in the fund,” Jade Invest’s Sun says. The primary motivation remains strategic That being said, entrepreneurs aren’t living in Raising capital from capital from third-party and industry participants do not expect financial fear of receiving capital from a strategic investor. investors has always been hard for corporate VC imperatives to top the agenda any time soon. A start-up with ties to a large internet company or PE units. The exceptions to the rule are Fosun After all, compared with the mature model will have access to capital, resources and skill sets. Capital and Legend Holdings’ private equity AVCJ Research can provide and venture capital subsidiaries, Hony Capital your firm with timely and and Legend Capital. They are well established, “Even if they don’t invest huge amounts in some experienced in dealing with institutional accurate research support investors and employ market-oriented strategies fundraising round, their impact on business far removed from corporate VC. to help you simplify and development is long-lasting” – Ray Yang expedite your workflow. We Getting crowded If Chinese corporates in most industries are just of global corporate VCs – the likes of Google Influence, when exerted properly, can encourage conduct in-depth research getting their first taste of corporate venture Venture, Intel Capital and Cisco Investments – innovation. capital, the technology specialists are already Chinese’s corporate VC is still at a nascent stage. “Even if they don’t invest huge amounts in and provide insightful familiar with the menu. The territory is still “In house teams will ultimately start to raise some fundraising round, their impact on business analysis in a bespoke report dominated by the Chinese internet giants, Baidu, capital from external sources and have more of development is long-lasting,” says Ray Yang, Alibaba Group and Tencent Holdings, but others a financial return incentive. But it’s unlikely to managing director at Northern Light Venture that fully meets your data are now following suit as they seek monetize happen in the next three years,” Wei says. Capital. requirements. their user bases across several verticals. However, a distinction can be drawn between Qihoo360, a Chinese anti-virus software Strategic angle technology VC units and investment arms of provider that listed in the US in 2011, is Over-emphasizing the strategic angle can Chinese companies from traditional industries. aggressively pursuing acquisition opportunities sometimes scare-off independent GPs looking for The ties between technology and venture capital to broaden its product portfolio. The company co-investors. Of particular concern is that when are well established and the strategic rationale is AVCJ’s industry standard data is used by the world’s leading firms in their started its corporate VC unit two years ago with a these big players enter a new business they often usually quite clear. These are not one-off, random fundraising, investor relations communications and deal due diligence few professionals but now headcount in the M&A have no clear idea about maximizing the value of investments. and investment teams is more than a dozen. the start-up’s products. Influence, when exerted, “There are always new innovative businesses activities. AVCJ Customized Data Service includes: Private companies with ample cash flows may therefore be malign. to provide deal flows, so they are different from are also following this strategy. The country’s A few weeks ago Wandoujia, a Chinese traditional industries where growth is organic largest B2C retailer JD.com – formerly known Android app search engine, is secured a $120 rather than through acquisitions,” Yang adds. “I ✔ Pan-Asian Industry Reviews/Regional Reports – timely updates as Jingdong.com or 360Buy – is building up its million round of investment led by Japanese don’t think there is much deal flow coming from ✔ Specific industry and financing stage research corporate VC team to make select investments corporation VC Softbank Corp. In this instance, pork sellers. They may do 1-2 acquisitions and that might increase its market share. the sum was so large by typical Series B standards they won’t invest a lot.” ✔ Comprehensive statistics on investments and funds “The mentality of Chinese technology firms is that the mid-size growth capital GPs didn’t have If there is no strategic imperative then there changing. Their main businesses are already very the capacity to handle it. DCM, which invested is no incentive to persevere with investments. ✔ Exits strategic analysis competitive and it is difficult for them to develop in Wandoujia’s previous round alongside the Suning Commerce, an offline electronics retailer new products independently in a timely manner. Innovation Works incubation fund, specifically that is aggressively developing an online ✔ Market peers comparison They are now looking to invest or acquire new sought out Softbank as an investor. business, can absorb the costs of a VC program start-ups that are doing well,” says James Mi, “Wandoujia has the potential to be a listed because it has the potential to make a long- co-founder and managing director at Lightspeed company because it is search engine platform, term contribution to the firm’s core business. A China Partners. which potentially puts it in Google territory,” corporate that invests haphazardly is unlikely to David Wei, founder and CEO of Vision says Hurst Lin, managing director of DCM. “The treat its investments in the same way. Knight Capital Partners, notes that technology company needs a huge amount of money Ningbo Shanshan Corporation, a Shanghai- companies’ corporate VC units tend to perform to maintain its business value and compete listed shirt manufacturer, is a classic example. The three functions: strategic M&A, venture capital effectively with the big domestic internet company launched Shanshan Venture Capital in To understand how AVCJ Research can help you investment and making LP commitments to companies.” 2007 with a view to diversifying its business away with your data needs, please call: 852-34114956 or other funds. The impact of the first is immediate, He adds that Softbank has a less proactive from garments. Within a few years the parent had with new businesses often plugged into existing investment approach and fewer operations in run into financial difficulty and the VC unit was email [email protected] platforms. The latter two represent a longer-term, China, so it is rarely overbearing with portfolio soon abandoned. avcj.com Number 04 | Volume 27 | January 28 2014 | avcj.com 9 FOCUS [email protected] Tempting offers Following a prolonged drought, Australia has seen a recent spike in private equity-backed IPOs. Is this a flash in the pan or are public market exits on the cusp of a sustained comeback?

WHEN VIRTUS HEALTH, AN IN-VITRO provider Oz Forex – which was backed by The According to a report issued by Deloitte in fertilization (IVF) business backed by Quadrant Carlyle Group, Accel Partners and Macquarie mid-December, 2013 was the biggest year for Private Equity, listed on the Australian Securities Group – also performed well, gaining 29.5% Australian IPOs – PE-backed or otherwise – since Exchange last June, it came as a breath of fresh on its issue price on the first day of trading. the global financial crisis with A$7.8 billion raised air to PE investors. The market had responded Meanwhile, analytics firm Veda Group – a across 61 offerings. The majority of these were in well, with the offering generating proceeds Pacific Equity Partners (PEP) portfolio company the second half of the year; December alone saw of A$346 million ($303 million) and the stock – jumped more than 42% following a A$341 23 IPOs raise an estimated A$4.6 billion. closing up 9% at A$6.20 on its first day of trading. million IPO in December. Significantly, around 25% of the total funds Today Virtus trades at around $8.38 a share. So is faith in Australian private equity IPOs raised – or A$2.1 billion – were generated by This was the largest PE-backed IPO since the gradually being restored and, if so, can it be private equity-backed exits. Compare this to 2009, when TPG Capital-owned department sustained? 2012, when 48 IPOs raised just over $1.2 billion. store Myer Holdings disappointed investors by “Virtus was one of the deals that helped kick Of these, just three where private-equity backed, accounting for just $156 million. Australian PE-backed IPOs New demand 2,500 8 There are a number of reasons for this rebound. Firstly, broader macroeconomic factors inevitably 2,000 6 come into play – the gradual recovery from 1,500 the global financial crisis has reduced market 4 volatility and led to a resurgence in confidence 1,000 IPOs among investors, particularly Australia’s US$ million 2 500 superannuation funds. “Australia has the third-largest equity market 0 0 in Asia capitalized at $1.4 trillion, and flows from 2009 2010 2011 2012 2013 the mandatory superannuation retirement No. of IPOs Funds raised (US$m) savings scheme drive growing demand for Source: AVCJ Research equities,” David Grayce, a managing director with PEP, told AVCJ in December. “Market valuations are above long-term averages and investors are receptive to IPOs from sponsors.” Largest PE-backed Australian IPOs 2013 Another reason for an increase in demand Company for public equities has been the availability, IPO amount valuation Company Industry PE investors (US$m) (US$m) and renewed interest in, non-mining assets as Australia’s resources boom begins to taper out. Nine Entertainment Media Apollo Management; Oaktree 575.5 1734.3 Capital Management The data from Deloitte shows that resource IPOs dominated the IPO landscape in 2012, with Cover-More Group Financial Crescent Capital Partners 466.4 441.5 services nearly 80% of all listings coming from the mining OzForex Group Information Accel Partners; Carlyle Asia; 414.6 430.3 and energy sectors. This began to change last technology Macquarie Funds Group year, with resource listings accounting for just Virtus Health Medical Quadrant Private Equity 329.3 301.8 one-third of all IPO activity. Meanwhile, sectors such as real estate, financial services, healthcare, Dick Smith Holdings Electronics Anchorage Capital Partners 314.1 418.5 and consumer services have come to the fore. Source: AVCJ Research “With a lot of the new issues in recent years being mining related – either junior mining dropping as much as 9% on debut. The float off the IPO market again,” says Marcus Darville, a companies or service companies joining the precipitated dearth in public exits in Australia director at Quadrant. “I think it was a combination sector – you have this pent up demand for a new with just 10 PE-backed IPOs taking place of the fact it was a healthcare business and so flavor of product, anything other than mining,” between 2010 and 2012, raising a collective $828 had good growth opportunities and then there explains Tim Martin, a partner with Crescent million, according to AVCJ Research. was also a lot of demand because it was an Capital Partners. But 2013 was a different story. In addition to unusual business. Demand was something like Healthcare and financial services in particular Virtus, online foreign exchange and payments eight times covered.” have emerged as lucrative territory for private

10 avcj.com | January 28 2014 | Volume 27 | Number 04 FOCUS [email protected]

equity. Of the six financial services IPOs to raise A$1.75, 12.5% below its offering price of A$2 a months. Among them are PEP-owned facilities more than A$10 million in 2013, three were share and it has yet to recover. Around the same management firm Spotless Group, Macquarie- PE-backed: OzForex, Veda Group and Crescent time Dick Smith, the electronics retailer backed owned educational software firm 3P learning, Capital investee Cover-More Group. The first two by Anchorage Capital Partners, closed flat at and Healthscope, Australia’s second biggest have since performed strongly in secondaries A$2.20 and continues to hover just above its private hospital operator, which is owned by KKR market. Financial services offerings as a whole offering price. and TPG Capital and could raise as much a $4 contributed 25% of all funds raised. Regardless, some observers feel this may not billion. Of the five healthcare IPOs to take place, have necessarily have a negative impact on the Just this week it emerged that CHAMP two were private equity-backed: Virtus and Life prospects for the IPO pipeline in the coming year. Ventures is looking to float its 42% stake in Healthcare Group, the latter backed by Crescent Crescent Capital’s Martin, for example, notes that vehicle leasing and fleet management business Capital and Macquarie and had raised A$76.6 companies which went public last month have SG Fleet Holdings. million. The healthcare sector accounted for 5.8% not gone through a reporting cycle. Beyond increased investor appetite for IPOs, of total IPO funds raised. “Compared to how it has been in the last Quadrant’s Darville expresses the hope that as several years there is more momentum and memories of the lackluster post-global financial December doubt confidence,” he explains. “There will be patches crisis period fades, private equity will be seen However, not all PE-backed offerings in 2013 where people run out of steam and we almost as a natural supplier of companies to the public have been unqualified successes. The flurry saw that in the run up to Christmas where so markets. of IPOs that took place at the end of the year much happened so quickly and people needed The thesis is that institutional investors will yielded mixed results. a month off to catch up, but I expect the then begin to differentiate between GPs based Nine Entertainment – the Australian television next few months will see a pretty healthy IPO on track record. A higher valuation would network saved from receivership when leading pipeline.” be awarded to an IPO backed by a GP with a creditors Oaktree Capital Group and Apollo His evaluation is echoed in the Deloitte reputation for building strong companies and Global Management negotiated a debt-for- report, which sees the IPO window remaining hitting earnings targets than an offering from a equity swap – disappointed on its first day of open well into 2014. This is driven by the backlog one-off issuer. trading in early December. The stock opened at of companies whose listing options in previous “That is the next level of sophistication,” A$2.02, marginally below its IPO price of A$2.05, years have been limited and given strong and Darville says. “First they must realize that private before closing down at A$2.00. It has since ongoing institutional and retail investor demand. equity is not all bad and they can make money recovered to A$2.15. Indeed, a number of private equity IPOs and after that it is about knowing who the high- Cover-More opened on December 18 at are already in the pipeline for the coming quality repeat issuers are.”

The most authoritative and comprehensive guide to private equity investors in Asia Asian Private Equity Online Directory

The Asian Private Equity Online Directory is the most comprehensive online directory on private equity and venture capital in Asia. It is easy to navigate, enabling access to a listing of around 3,900 Asian private equity firms and over 9,600 professionals. For a free trial, please visit asianfn.com/VCDemo.

To subscribe, call Sally Yip at +(852) 3411 4921 or email [email protected] avcj.com DEAL OF THE WEEK [email protected] / [email protected] Vertex backs FirstCry’s O2O e-commerce push

INDIAN BABY AND KIDS FOCUSED at SAIF Partners. “Wherever you open a franchisee opened in 2011 and there are now 50 of them e-commerce site FirstCry.com was not the first store there is a clear rub-off effect on online across 45 cities. BrainBees acts as a wholesaler mover in its segment when it launched in 2010. transactions coming from that city.” to the franchise store owners and operates a Kalaari Capital-backed HushBabies and Babyoye, He puts this down to building trust and supply-chain and logistics network. It owns an Accel Partners and Tiger Global portfolio familiarity with the brand offline, which translates four warehouses in Pune, Bangalore, Delhi and company, were among those already operating into online purchasing. Mumbai. Offline stores currently account for in a highly fragmented market. FirstCry’s product catalogue around 20% of revenue. Last year’s e-commerce funding crunch runs to over 70,000 items from “The offline model is very heralded a degree of consolidation: HushBabies more than 500 national and capital efficient because it’s a shut down and Babyoye acquired rival Hoopos. international brands, covering franchise business,” says Manik com. FirstCry, meanwhile, has continued its consumables such as diapers and Arora, founder and managing growth trajectory with a push into offline stores toiletries, accessories including director at IDG. “It allows us to across India. strollers, apparel and footwear, as leverage a brand that’s been built The firm has raised a $15 million Series C well as books and toys for children online and take it to the offline round of funding led by Temasek Holdings up to the age of 15 years. FirstCry: Online and offline world to reach more people across subsidiary Vertex Venture Management, with BrainBees, which operates the country.” participation from existing investors IDG Ventures FirstCry, used a purely online and inventory-led Vertex’s experience in hybrid online-to-offline India and SAIF Partners. It is the largest-ever model when SAIF invested $4 million in Series A (O2O) business models includes investments in round for a vertical e-commerce company in funding in April 2011. The investment was driven Chinese furniture e-commerce company Meilele India and will be used to build the offline and by the limited availability of baby products in and LOHO Eyewear. It will leverage that expertise mobile strategy alongside the online offering. stores and the segment’s potential, given that and its presence in other growing markets in Asia “The team quickly realized that there is very the frequency of purchase is very high as a child to help the company grow. strong potential in the offline world as well and a grows and new categories of products needed. BrainBees aims to take its number of stores lot of synergies,” says Mukul Arora, vice president The company’s first franchisee stores from 50 to 100 in the next 18 months. Equis, Partners Group bet on Japanese solar

JAPAN’S RAPID EMBRACE OF RENEWABLE development of solar generation facilities. There solar capacity to reach 28 gigawatts by 2020 energy in the wake of the 2011 Fukushima are stakeholders such as the government and and 53 GW by 2030, and then meet 10% of total nuclear disaster has alerted PE investors. In the regulators and to interface efficiently with them domestic energy needs by 2050. last 12 months, Macquarie Capital and local you need a team that can talk to them. An active Feed-in tariffs and 20-year power purchase engineering firm Maeda Corp. launched a management team is also important in making agreements were introduced in 2012 to joint venture that will target infrastructure and banks confident in you.” encourage the development of renewables, renewable energy projects, while This week energy and prompting a host of independent power Goldman Sachs said it plans to infrastructure specialist Equis producers to enter the space, albeit to mixed invest up to JPY50 billion ($487 teamed up with Partners Group effect. Of the 22,068 MW of capacity approved million) in the sector over the to lead a $250 million equity since then, only 3,916 MW was operational as next five years. investment in a Japanese solar of November 2013, with many smaller players Nevertheless, the solar space platform. Babson Capital, LGsuper struggling to get operations online. is seen as underpenetrated by and Qantas Superannuation are In NRE, however, Equis and Partners Group foreign PE investors given the among the co-investors. believe they have a management team capable scale of the expected build- Solar: Big in Japan The platform, which is of leveraging the development opportunity, out and the reliability of the operated by Nippon Renewable while the clarity of Japan’s regulatory structure regulatory regime. David Russell, CEO and partner Energy (NRE), has four projects totaling 47.5 offers investors a level of certainty not necessarily of Equis Funds Group, puts this down to a failure MW ready to begin construction, with 300 MW available in less developed markets in the region. to address the peculiarities of the Japanese in its development pipeline for the next two “On the infrastructure side, Australia is where market, such as the challenges involved in years. “This far outweighs anything the other we have invested most over the last few years,” says securing land leases and local project financing. independents are doing in Japan,” Russell adds. Benjamin Haan, Partners Group’s head of private “You must have local management teams In 2011, nuclear accounted for 8% of Japan’s infrastructure in Asia Pacific. “We’ve had an office in on the ground,” he says. “There are so many energy consumption, with hydro on 4% and Tokyo for five years and this is a good opportunity day-to-day issues you need to address with the other renewables on 2%. The government wants to start investing in Japanese infrastructure.”

12 avcj.com | January 28 2014 | Volume 27 | Number 04 DEAL OF THE WEEK / FUNDS [email protected] RedMart fills Singapore’s e-groceries void

WHEN ENTREPRENEUR STEVE MELHUISH Delivery is free for orders above S$75 ($59). Egan says that bricks and mortar grocery moved to Asia from the UK his wife was a Melhuish and his business partner Jani retailers don’t have the incentive to invest in prodigious online shopper, having grown Rautiainen participated in a $1.29 million seed in online services because they have already sunk accustomed to ordering her groceries from 2012 and a Series A round followed in July 2013, capital into physical stores and don’t want to Ocado or Waitrose. While he provided by Singapore online cannibalize this business. “They don’t have it in made headway in Singapore’s gaming firm Garena. their DNA,” he adds. “We are also a logistics and internet space, launching realty Last week a $5.4 million technology company and their approach is all portal PropertyGuru in 2007, she bridge round, led by Eduardo about real estate and maximizing profit per was frustrated by a lack of options. Saverin, co-founder of Facebook. square foot.” Singapore’s main grocery Melhuish and Rautiainen also Singapore’s organized retail market is worth retailers NTUC FairPrice and Cold participated, along with JFDI.Asia $5.9 billion and while Egan is unwilling to divulge Storage offered online ordering co-founder Meng Weng Wong, RedMart’s revenues, he thinks he can build a and home delivery services, but RedMart: Goods to your door Lo & Behold Group founder Wee $1 billion business. The company employs 100 they weren’t rated very highly. Teng Wen and Lion Rock Capital people, has a fleet of 16 delivery trucks and “The customer service was terrible and the also participating. will soon move from its 36,000 square-foot inventory was very restricted compared to what The company was conceived inside and warehouse for a larger facility. was offered in the stores,” says Melhuish. “Then outside the classrooms at Singapore-based The bridge financing is larger than anticipated about 18 months ago my wife started using business school INSEAD. Co-founders Roger Egan and will be used to provide the technology and RedMart and really liked it. Around the same time and Vikram Rupani discovered there was no local infrastructure required to support month-on- a consultant also mentioned the company, and equivalent for US online grocery store FreshDirect month revenue growth of 20-30%. Geographical then it was like everyone was talking about it.” and chose courses that would help them put expansion is on the agenda, but so too is RedMart, which launched in late 2011, together a business model. By the time they movement into new verticals. “There is a lot of provides a selection of more than 4,000 groceries graduated in late 2010, a supply agreement with value in the infrastructure we have built and it and home essentials to Singaporean households. Unilever was already in place. can be leveraged beyond groceries,” Egan says. VC firms back Irish start-ups in China

LED BY THE LIKES OF GOOGLE, FACEBOOK says Elaine Coughlan, co-founder and general than the other way around,” he says. “Currently, and LinkedIn, US tech companies have flocked to partner at Atlantic Bridge. “The difficulty for these we see a lot of opportunities for Irish companies.” Ireland due to its EU access and business friendly companies is not just access to capital but also Coughlan says this is in part due to incubation policies, creating around 140,000 local jobs in accessing the networks and relationships that are and funding efforts from the likes of Enterprise the process. This has fostered spin-outs and serial critical to doing business in China.” Ireland and entrepreneurs across the mobile, software and The fund will target companies operating NPRF. Enterprise cloud storage segments. in core technology areas including internet, Ireland alone Dublin-headquartered tech investor Atlantic software, semiconductors and cleantech, as well backs 120 Bridge Capital and China-focused WestSummit as those in industries with applied technologies start-ups each Capital want to help these start-ups expand into such as agriculture, food, healthcare and year and an China while simultaneously providing Chinese financial services. Ticket sizes will be around estimated entrepreneurs with a platform from which to $10 million, although there is likely to be co- EUR150 million address European markets. investment from third parties in some deals. China: Target for Irish start-ups ($205 million) This is the thesis that underpins the China The four groups involved have known each is available Ireland Technology Growth Capital Fund, a $100 another for a long time – Atlantic Bridge and annually from a handful of seed funds. million vehicle run by Summit Bridge Capital, WestSummit are both active in Silicon Valley as The Summit Bridge initiative was announced a joint venture between Atlantic Bridge and well as in markets closer to home – and putting at the same time as WestSummit closed its WestSummit. China Investment Corporation (CIC) the fund together has been a three-year process. second China and North America-focused fund and Ireland’s National Pensions Reserve Fund In the interim, Summit Bridge has already started at $225 million. The fund is more than three times – a unit of the National Treasury Management lining up investments. the size of its predecessor and WestSummit’s first Agency – have each contributed $50 million. According to David Lam, managing director since going fully independent in 2011. “Summit Bridge brings together two groups, at WestSummit, these initial deals will most likely Lam says the vehicle will focus on hardware- one from China and one from Europe and Ireland involve Irish companies. “If you were to look at related opportunities in China while its US and we will be taking Irish companies into China,” the pipeline today it is more Europe to China investments will be in software enterprises.

Number 04 | Volume 27 | January 28 2014 | avcj.com 13 FUNDS [email protected] / [email protected] CDH to close upsize Fund V at $2.55b

SPEAKING TO AVCJ LAST YEAR, SHANGZHI private equity, venture capital, real estate, listed funds. In many cases these groups are making Wu, chairman and managing partner of CDH equities and high-yield mezzanine, has raised their first direct commitment to a China-specific Investments, addressed the issue of certain China two renminbi funds in addition to the US dollar G P. managers’ fund sizes rising with each vintage. He vehicles. The second of these closed in 2012 at The source adds that a lot of the new money put the phenomenon down to a combination RMB8 billion ($1.3 billion), twice the size of its comes from Asia – emerging markets investors of rising valuations, having a bigger investment predecessor. generally seen as more comfortable with the risks team, and the availability of larger deals. Fund V launched in September 2012 with tied to minority “First, companies are larger,” he said. “Look an initial target of $2 billion and a hard cap of investments at Focus Media - we bought a 10% stake in $2.5 billion. A first close of $1 billion came on that still that company for $6 million in 2004; now you February 8, 2013 and CDH had one year from dominate the probably wouldn’t get 10% for $200 million. that date to complete the fundraising process. It China deal Second, we have more people. In Fund I and II, has not applied to LPs for an extension, but won landscape. five of us were leading deals. Now we have 12-13 approval to raise the hard cap slightly in order to While guys doing that. Third, our average deal size is accommodate investor demand. growth remains about $100 million. If you do eight deals, that’s The fund also surpasses the $2.36 billion CDH: Multi-asset strategy a prevalent $800 million, and over a four-year commitment Hony Capital raised for its fifth US dollar fund, theme, CDH period, it’s $3-3.5 billion. If you combine the which closed in January 2012. is also looking at control deals. In the past dollar and renminbi funds, we are comfortable According to a source familiar with the 12 months, the GP has purchased majority with fund size.” fundraise, the LP base is one third North stakes in Hong Kong-listed auto after-sales CDH’s fourth US dollar-denominated fund American, one third European and Middle service provider New Focus Auto and apparel reached a final close of $1.46 billion in April 2010. Eastern, and one third Asian. There will be manufacturer Baroque Japan. Baroque also Fund V is scheduled for final close of $2.55 billion around 60 investors in total, with pension funds, touches on another theme, cross-border due on February 7. insurance companies and sovereign wealth funds transactions, with CDH planning to ramp up the The GP, which manages assets across featuring more prominently than in previous retailer’s China presence. EQT’s new fund goes global

THE ACQUISITION OF A 65% STAKE IN investments in Greater China, Southeast Asia benefit of making sure EQT as a company Qinyuan Bakery in 2010 was EQT Partners’ debut and Northern Europe. EQT is headquartered in is sufficiently integrated so that we are best food service sector investment in China. Yet the Sweden. geared towards the next five years when more deal was familiar territory for the GP, which was The fund will be deployed by 35 investment Chinese companies will be seeking cross-border able draw on previous portfolio investments advisory professionals across the globe, focusing expansion.” in Europe, including Vaasan & Vassan, a Finnish on family- and entrepreneur-owned businesses, Despite the challenges, LPs have responded baked goods producer that was exited in 2004. corporate orphans and public-to-private well, with existing investors accounting for 95% The dynamic works both ways. Lessons EQT transactions. Ticket sizes will range from EUR80- of the corpus. Of this group, 51% are from the learned from Qinyuan can also be applied to its 200 million in Asia and EUR80-150 million in Nordic region, more recent investment in BackWerk, Germany’s Europe. 22% from the leading self-service bakery franchise. Given that all prior vehicles managed by rest of Europe, “Even though the company is in Germany and EQT have either focused exclusively on Europe 16% from North not in China, there still was a lot we learnt from or Asia – with the exception of its infrastructure America and 11% Qinyuan that we could feed back to our team in funds which also deploy to North America – this from Asia. Europe,” says Martin Mok, a partner with EQT in latest vehicle represents a departure that has not So far the fund Hong Kong. necessarily appealed to all LPs. has made five He sees this ability to leverage the Mok explains that for some investors in EQT EQT: Europe and China investments, one experiences of its teams in Asia and Europe as Greater China II – which closed at $545 million in of which is in Asia: one of the private equity firm’s key strengths. It 2006 – a limited mandate prevented them from China F&B Group, the Chinese franchise operator is also part of the rationale behind the EQT Mid committing to a Europe-focused fund. At the of international restaurant chains Dairy Queen Market Fund, which has reached a final close same time, more conservative backers of EQT’s and Papa John’s Pizza. The other’s are: German of EUR1.1 billion ($1.48 million) after just under European funds don’t care for Asian risk. art retailer Avenso, dental chain Swiss Smile, one year in the market. The new vehicle will “It was a big strategic move for EQT,” Swedish data communication provider IP-Only, focus on mid-market buyouts and growth equity says Mok. “On the other hand we have the and BackWerk.

14 avcj.com | January 28 2014 | Volume 27 | Number 04 LP INTERVIEW [email protected] Small is beautiful Axiom Asia has followed a consistent approach in backing small to mid-market country funds in the Asia Pacific region. Chihtsung Lam, the firm’s co-founder and managing partner, explains the strategy

SINGAPORE-BASED FUND OF FUNDS China’s prominence in the portfolio is spin-out of Bank of America Merrill Lynch’s Asia investor Axiom Asia likes to back new GPs and explained by GPs in the country outperforming PE team to form direct secondaries specialist smaller country funds because it believes they other geographies since the Axiom began NewQuest Capital Partners in 2011. Axiom are more focused on making carried interest. investing in 2006. However, Lam notes that backed the GP’s $400 million first fund used to “It’s one of our characteristics that we do look there has been a change in returns coming from absorb assets from the former parent, although it out for good teams who might have less capital Japan. “The returns were initially very poor in the is understood to have decided not to participate to manage,” says Chihtsung Lam, the firm’s years immediately after the 2008-2009 crisis but in Fund II. Axiom was also involved in a partial managing partner. “We think they could be in some instances there has been a fairly rapid spin-out last year when it helped underwrite hungrier and deliver good returns.” turnaround on the back of the deal that allowed Asia Since Axiom was launched in 2006, it has raised stock market gains post- Growth Capital Advisors $2.5 billion to commit to GPs as a primary fund-of- Abenomics,” he says. to acquire a portfolio of funds, make co-investments alongside portfolio In China, Axiom private equity assets from managers, and purchase fund interests on the expects GPs who can an investor group led by its secondary market. Lam and four of the partners capitalize on the consumer, former parent, Credit Suisse. previously worked together at GIC Private. environment, healthcare, Lam says that relative The most recent fund, Axiom Asia Private retail and affiliated sectors to the global market, Asia’s Capital Fund III, reached a $1.15 billion final close to do better as the country share of secondaries is still in 2012 after just four months in the market, undergoes a structural small. These would typically exceeding the initial target of $950 million. rebalancing intended to be the offerings of fund Secondaries and co-investments receive 10-25% ease its dependence on interests from a few years of the corpus. investment-led growth and ago when private equity In keeping with the small to mid-market boost the consumption in the region was less fund focus, Lam says the vast majority of funds share of GDP. The firm has developed. Also, a lot of Axiom commits to are less than $1 billion in also committed to Chinese selling LPs are still under- size and a large number are below $500 million. VC funds in the expectation allocated to Asia. Commitments fall within the $30-75 million that rebalancing might lead “We are almost “In terms of what they range but can be as much as $100 million. Axiom to a slowdown in more always on the want to trim from the likes to be one of the largest LPs in the funds its traditional sectors, while portfolio, they are less likely backs because this allows for greater influence. emerging growth segments advisory board” to sell the Asian assets. “We are almost always on the advisory board, prosper. They are more likely to offer and get more co-investments and secondaries,” India is the other VC something where they feel Lam explains. play, where “the prospects for venture looks they are overweight – for instance, if they have better than growth capital in the aggregate.” 10 mid-market US buyout funds,” he explains. Regional distribution Investments in the country are therefore Axiom is also seeing good co-investment The firm aims to commit half of its funds to China weighted towards emerging technology and deal flow, driven by it typically being among and the other half is distributed broadly between services companies. the largest backers of portfolio GPs. To apply Japan, South Korea, Southeast Asia, India and Currency depreciation has been one of the quality control to the co-investment portfolio, Australia. India has the next biggest allocation reasons investors have received lackluster returns the first thing Axiom looks at is the quality of after China, but not sizably more than the rest. from India but Axiom has contained its exposure the manager who shows them the deal and the While the size of Axiom’s funds has increased, here and in other markets vulnerable to the alignment of interest between the GP and the LP. the number of manager relationships has not, effects of stimulus tapering in the US. In India for Other criteria are adverse selection risk – the which implies that the LP is writing larger checks instance, it has managed the risk by the stage of manager might be “showing this deal because in each of its commitments. Each vehicle has the investment. it’s a lower conviction deal on his part,” Lam notes approximately 20 GP relationships, including “Since venture capital is further back in – and the GP’s expertise in the relevant sector. private equity and venture capital funds. the start-up stage I would argue that it is less Axiom is flexible on how early it enters into a co- “We don’t have that many managers per vulnerable to valuation fluctuation or ultimately investment, given its partners’ experience doing country, outside of China,” says Lam. “If you add even short term currency fluctuation than say direct and co-investments at GIC. one more manager in any one geography, you pre-IPO type investments,” Lam explains. “We have that capability to partner the GPs at drop one in another at the same time. That could an early stage if need be, but we also welcome change the allocation quite significantly for Emerging secondaries opportunities which are further along and particular countries.” On the secondaries side, the firm backed the packaged by the GP,” Lam says.

Number 04 | Volume 27 | January 28 2014 | avcj.com 15 13th Annual Private Equity & Venture Forum China 2014 10-11 June • Park Hyatt, Beijing

GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY avcjchina.com China: Revitalising the private equity market

Why you should attend: LPs GPs

Learn how leading local and 1 international GPs are approaching

1 : 2 RATIO LP-GP the market in 2014 and discuss the challenges they face Managing Director / Partner / CFO / CIO, Find out how successful funds are 38% Principal / VP / 2 profitably exiting their portfolios and Associate, 31% their predictions for 2014/15 Director / GM / Chief Rep., 17% Chairman / CEO / Examine how the LP-GP Managing Partner,

3 relationship is evolving in China and 14% TITLE BY its impact on the industry

Understand the new regulations 4 USA & Canada Europe Asia ex China and and decode the free trade zones 2% 4% Hong Kong 5% Hong Kong Hear about the triumphant return 21% 5 of corporate VCs and the rise of China their local counterparts 68% BY COUNTRY BY

Chinese New Year Special Rate will expire on 30 Jan! REGISTER NOW by emailing us: [email protected] with booking code: AVCJNY1 For sponsorship enquiries, please email: [email protected] or call: +852 3411 4919

Co-Sponsors VC Legal Sponsor

avcjchina.com