AVCJ Private Equity & Venture Forum 2012

Hong Kong 13 - 16 November 2012 ASIAN VENTURE CAPITAL JOURNAL www.avcjforum.com

Asia’s Private Equity News Source avcj.com October 30 2012 Volume 25 Number 41

Ed itor’s Viewpoint Global buyout firms are seeking to raise ever PRIVATE EQUITY ASIA larger Asia funds. But how much is too much? Page 3

News Blackstone, CapitaLand, Carlyle, Cathay Fortune, CHAMP PE, CRCI, M&A ASIA CPPIB, CVC, DCM, KKR, Lightspeed, Matrix, MBK, Mumbai Angels, Nomura, RMB Capital, SingTel Innov8, Triton Page 4

Deal of the week Asian fund-of-funds Squadron Capital joins Cheers, big brother forces with US-based FLAG Capital South Korea, Asia’s government-driven venture capital success story Page 6 Page 10

Deal of the Week Profile

Friday night lights Funder of founders CHAMP PE in Gerard Lighting take-private Page 10 Bruce Gibney on PayPal, Facebook, et al Page 11 Private Equity & Venture Forum India 2012 6-7 December • Taj Lands End, Mumbai 13th Annual GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY avcjindia.com Will India’s PE market rebound? Register now and find out! 45+ leading speakers include: Ashishkumar Chauhan KEYNOTE Navin M Baby Interim Chief Executive Officer Vice President, Investments BOMBAY STOCK EXCHANGE KHALID ALI ALTURKI & SONS CO

Mintoo Bhandari NEW Nainesh Jaisingh Managing Partner Managing Director and AION CAPITAL PARTNERS, Global Co-Head APOLLO MANAGEMENT STANDARD CHARTERED PRIVAE EQUITY

Brijesh Jeevarathnam NEW Gulpreet Kohli Managing Director Managing Director COMMONFUND CAPITAL CHRYSCAPITAL INVESTMENT ADVISORS PVT LTD 13-14 September Sanjay Nayar 2012 Vikram Raju Managing Director and Chief Regional Lead, Private Equity and Executive Officer Investment Funds, INTERNATIONAL KKR INDIA FINANCE CORPORATION (IFC)

Plus Amol Jain, Managing Director, TPG CAPITAL INDIA Lynn Nguyen, Managing Director, Funds Portfolio / IFD, OVERSEAS PRIVATE INVESTMENT CORPORATION (OPIC)

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Managing Editor Tim Burroughs (852) 3411 4909 Senior Editor Brian McLeod (1) 604 215 1416 PRIVATEAssociate EQUITY EditorASIA Susannah Birkwood (852) 3411 4908 Staff Writer How much is too Alvina Yuen (852) 3411 4907 Andrew Woodman (852) 3411 4852 Creative Director M&A ASIA Dicky Tang Designers Catherine Chau, Edith Leung, Mansfield Hor, Tony Chow much? Senior Research Manager Helen Lee Research Manager Alfred Lam Research Associates Kaho Mak, Jason Chong KKR had received commitments of alone could rise by more than 40% on the Circulation Manager $6.2 billion for its 11th North American fund previous vintage, so where will the extra go? Sally Yip as of the end of September. The vehicle, which It could be argued that, as a result of foreign Circulation Administrator Prudence Lau entered the market in early 2011, has attracted exchange rate fluctuations and economic about $700 million from LPs in the last six months development, the extra isn’t as much as it might Senior Manager, Delegate Sales Anil Nathani and questions are being asked as to if and how seem to be. Emerging markets currencies have soon the $8 billion target can be reached. By appreciated against the US dollar while potential Senior Marketing Manager Stacey Cross contrast, the private equity firm’s second Asia target companies have grown over the last five Marketing Manager fund, launched earlier this year, is by most years so the equity check required for a buyout Rebecca Yuen accounts sprinting its way towards $6 billion. is larger. But Asia has also evolved in competitive Director, Business Development This says a lot about LPs’ current preferences. terms. Several of regional and country-specific Darryl Mag US buyout strategies are being reconsidered and, private equity firms have also achieved greater Manager, Business Development for some, the sweet spot has moved down to scale in recent years and can at least challenge Samuel Lau funds with a corpus of $500 million to $1.5 billion, the buyout firms towards the lower end of their Sales Coordinator Debbie Koo ideally with expertise in one or two distinct areas. typical transaction scale. Yet most North American LPs are underweight In this respect, the number of offices is Conference Managers Jonathon Cohen, Zachary Reff, Sarah Doyle on emerging markets and still see a global brand important. An indigenous Asian firm could Conference Administrator name and a pan-regional approach as the best always claim that its local knowledge and Amelie Poon Conference Coordinator way to boost their Asian exposure. network of contacts stretched further than a firm Fiona Keung, Jovial Chung The idea that KKR’s Asian fund might come trying to cover the entire region as just one piece Publisher & General Manager within touching distance of its flagship North in a global network. As such the global buyout Allen Lee American vehicle says everything about Asia’s firms have recruited aggressively to create local Managing Director rising private equity profile. It also explains why teams within Asia and thereby wipe out any Jonathon Whiteley global firms devote so many resources and actual or perceived disadvantages. Chairman Emeritus attention to this part of the world. These efforts must bear fruit. In order to Dan Schwartz With the opening of its Singapore base last deploy $4 billion across a five-year period, a week, Asia now accounts for half of the 14 private private equity firm requires: one or two large I ncisive Media equity offices KKR has globally. For The Carlyle buyouts in each of the more mature markets of 20th Floor, Group, it is nine out of 29; for TPG Capital, eight Australia, Japan and South Korea; significant deal Tower 2, Admiralty Centre 18 Harcourt Road, out of 17; for Bain Capital, four out of eight; for volume, including at least one larger transaction, Admiralty, Hong Kong CVC Capital Partners, eight out of 21; for Warburg out of Southeast Asia; continued success in T. (852) 3411-4900 F. (852) 3411-4999 Pincus, four out of nine; and for The Blackstone China, hopefully aligned with increasing deal E. [email protected] Group, seven out of 16, although Singapore, sizes; and India to deliver on its promise. URL. avcj.com currently classified as base for real estate Look back at the past five years and not all of Beijing Representative Office Room 1805, Building 10, operations, is expected to include private equity these sub-regions have performed as one might Jianwai SOHO, 39 East 3rd-Ring Road, in due course. have hoped. The advantage of a pan-Asian fund Chaoyang District, Beijing 100 022, China In addition to KKR’s $6 billion fund, which is that it can respond to this by shifting its focus T. (86) 10-5869-6205 will be up to 50% larger than its predecessor, between countries, but a larger overall capital F. (86) 10-5869-7461 E. [email protected] Carlyle is said to be seeking $3.5 billion for its pool means more of these markets must work fourth latest Asian fund, up from $2.55 billion for more of the time. The Publisher reserves all rights herein. Reproduction in whole or in part is permitted only with the written consent of its third, while TPG is targeting $4-5 billion for its AVCJ Group Limited. ISSN 1817-1648 Copyright © 2012 sixth regional vehicle, up from $4.25 billion for its fifth. Having raised $1 billion for its first Asian fund, Bain closed its second earlier this year at Tim Burroughs $2.3 billion. Managing Editor The pool of capital among these four firms Asian Venture Capital Journal

Number 41 | Volume 25 | October 30 2012 | avcj.com 3 News

India’s Rain buys Triton- in China. It has a corpus of S$264 million ($215 ASIA PACIFIC million). CapitaLand China Value Housing Fund owned Rütgers (CCVHF) has a lifespan of five years. It has already King & Wood Mallesons Indian industrial group Rain Commodities has made seed investments in two value housing agreed to buy Rütgers, a German chemicals projects: The Rivervale in Guangzhou and The appoints head of PE producer, from Northern Europe-focused private Floravale in Shanghai. King & Wood Mallesons has appointed Mark equity firm Triton. With an enterprise value of McNamara as head of private equity, effective EUR702 million ($918 million), the deal is by some Discovery Metals takeover November 6. He previously occupied the same distance the largest ever acquisition in Germany role at Baker & McKenzie. McNamara will lead a by an Indian company. bid turns hostile team of around 60 partners and lawyers. Cathay Fortune Corporation (CFC), the PE firm founded by Chinese billionaire Yong Yu, has Clifford Chance promotes made a direct approach to Discovery Metals shareholders after the company’s board funds lawyer rebuffed its A$830m ($856m) takeover bid. CF Clifford Chance has named Mark Shipman as the Investments, 75% owned by Yu’s CFC and 25% new head of its Asia Pacific corporate practice, by the China-African Development Fund, had replacing Roger Denny, who is stepping down offered A$1.70 a share in cash for the portion of after 10 years. Shipman will continue to lead the the firm it doesn’t already own. The Discovery firm’s global funds and investment management board dismissed the offer as inadequate. practice, while Denny will remain head of regional M&A. CRCI sells Grant Achieve Founded in 1849, Rütgers is Europe’s leading producer of coal tar chemicals. It employs 1,000 Global stake to Olympus AUSTRALASIA staff across eight production facilities. Triton China Renaissance Capital Investment (CRCI) acquired the asset from German chemicals maker and the chairman of Chinese water treatment Champ PE makes lower Evonik in 2008 and has seen revenue rise 25% firm Grant Achieve Global (GAG) have sold a during its ownership period. Rütgers is said to 40% holding in the company to Olympus Capital offer for Eye Corp be targeting EBITDA of EUR90-100 million for the Holdings Asia and Anoi, a Hong Kong enterprise. CHAMP Private Equity’s portfolio company current financial year, on sales of EUR900 million. In connection with the transaction, Olympus has oOh!media has made a revised offer of A$110 “We are pleased with the development of acquired a warrant to purchase ordinary shares in million ($114 million) for Eye Corp, Ten Network Rütgers under the four and-a-half years of Triton GAG worth up to $40 million. Holdings’ outdoor advertising business. The ownership,” Peder Prahl, director of the general news comes a week after it was announced partner of Triton Fund II, said in a statement. Rain Shanghai VC firm launches that the PE firm wouldn’t proceed with the deal is a major global producer of calcined petroleum due to concerns that the agreed price of A$145 coke, principally supplying the aluminum JV with MicuRx Pharma million ($148 million) was too high in the light industry. It has plants in the US, India and China Shanghai Zhangjiang Biomedical Industry of the Eye’s poor financial performance. The firm as well as three deep-water shipping terminals. Venture Capital has formed a joint venture with reported a loss of A$12.9 million for fiscal 2012. MicuRx Pharma, a Sino-US bio-pharmaceutical company, to support the development and CPPIB acquires interests in commercialization of antibiotic MRX-I for the GREATER CHINA Chinese market. The Shanghai VC player will two shopping malls contribute RMB60 million ($9.6 million), which Canada Pension Plan Investment Board (CPPIB) Blackstone to buy Shanghai will go towards clinical development. has acquired interests in two Australian shopping office tower centers through a A$436 million ($450 million) Guanxi secures funding investment in AMP Capital Retail Trust. CPPIB now The Blackstone Group has reportedly agreed to has a 37% stake in the trust, which in turn owns purchase Shanghai’s Huamin Imperial Building, from SingTel Innov8 50% of Macquarie Centre in Sydney and 80% of an office tower valued at approximately RMB7 SingTel Innov8, the corporate venture capital Pacific Fair Shopping Centre on the Gold Coast billion ($1.12 billion). The private equity firm’s arm of SingTel Group, has led a Series A round CEO and co-founder, Stephen Schwarzman, of funding in Guanxi, a mobile social network Australia’s RMB invests in revealed on Friday that the firm had bought a services (SNS) provider. Guanxi’s flagship product building in Shanghai. - Guanxi.me - consists of smartphone apps, card producer Placard mobile-web services, SMS services and web- RMB Capital Partners, an Australian mid-market CapitaLand sets up $215m based back-end management systems. private equity firm backed by South Africa’s housing PE fund in China FirstRand, has led an investment in Placard, a Shanghai allows offshore Melbourne-based producer of secure transaction Singapore developer CapitaLand has closed its cards. It is partnering with the existing owner and first value housing private equity fund, which RMB to do PE management team. will invest in affordable residential developments Shanghai has reportedly given a green light

4 avcj.com | October 30 2012 | Volume 25 | Number 41 News

for foreign players to invest in unlisted Chinese KKR opens office in for one-third of all collective pension schemes companies using renminbi capital raised in the Netherlands, plans to make direct offshore. The Renminbi Qualified Foreign Limited Singapore investments into Indian real estate rather than Partner (RQFLP) initiative is part of China’s efforts KKR opened its office in Singapore last Thursday make commitments to private equity funds. to promote the globalization of its currency and as a base for its investment activities across The Dutch pension fund will seek to make help Shanghai become an onshore renminbi Southeast Asia. The global private equity firm’s investments of $100-300 million. convertibility hub. The Hong Kong branch of Southeast Asia team is headed by Ming Lu Haitong Securities will be the first group to (pictured, right), and includes directors Kabir Mumbai Angels to launch participate in the pilot project. Mathur from Singapore and Ridha Wirakusumah from Indonesia. Four years ago, KKR had just 3-4 $20m sidecar fund PE professionals dedicated to the region, but a Mumbai Angels, an Indian investment firm NORTH ASIA total of eight are relocating to Singapore and focusing on early stage companies, is to launch a there are plans to hire at least two more. maiden sidecar fund of INR1 billion ($20 million) Woongjin will honor Coway next month. The fund, to be raised from Mumbai Angels members, high net worth individuals and deal, court says institutional investors, will be the first of its kind A South Korean court overseeing bankruptcy in India. It will allow angel investors to be part proceedings of Woongjin Holdings has said that of the follow-on investment in portfolio firms, or the company’s biggest shareholder will honor an during series-A funding. agreement to sell a controlling stake in subsidiary Woongjin Coway to MBK Partners. The PE firm Dhingana raises $7m from agreed to pay KRW1.2 trillion ($1.1 billion) for a 31% stake in water purifier manufacturer Coway, VC players but the deal was put on hold last month after “Singapore is at the heart of the dynamic Lightspeed Venture Partners has led a $7 million Woongjin applied for court receivership. growth that is taking place across Southeast Asia,” Series B funding round for Dhingana, a Indian commented Henry Kravis (pictured, center), co- social music streaming site. Existing investors Japan’s government to founder, co-chairman and co-CEO of KKR. “Now Inventus Capital Partners and Helion Venture is the time to establish a permanent presence. Partners also participated. The company will create VC drug fund This means we will be even more committed use the capital to support marketing, sales and The Japanese government plans to set up a to understanding local business environments, business development. public-private fund to support research into their unique challenges and opportunities, and drugs targeting cancer, hepatitis, diabetes and the specific needs of entrepreneurs, investors, other difficult-to-treat diseases. According to workers and business leaders.” SOUTHEAST ASIA the Nikkei, the government has set a fundraising KKR has invested over $1 billion in Southeast target of JPY30-40billion ($380-$500 million) by Asia since 2005, making it the firm’s second Carlyle completes first 2014. Innovation Network Corporation of Japan largest investment destination in Asia after (INCJ) is expected to participate. China. Lu said that it could invest more than that Southeast Asia deal amount in the region over the next five years. The Carlyle Group has made its first investment DCM exits game developer in Indonesia, reportedly buying a stake of around Pokelabo to GREE 25% in telecom towers operator Solusi Tunas SOUTH ASIA Pratama (STP) for $100 million. The private equity DCM has generated a 6x money multiple on its firm confirmed to AVCJ that it had completed investment in social mobile game developer its debut transaction in the region, while other Pokelabo after the company was sold to Matrix, Lightspeed invest sources identified the company as a telecom Japanese media giant GREE for $175 million. DCM infrastructure business. STP is Indonesia’s fourth- paid $6.5 million for a 20% stake in the company $5m in LimeRoad largest tower operator. as part of an $11 million round supported by Matrix Partners and Lightspeed Venture Partners Japan’s Incubate Fund in 2010. have invested $5 million in Series A funding for CVC picks banks to run LimeRoad.com, a social commerce site aimed Matahari sale Nomura to launch Indian at women in India. The site, which went live on October 18, has a magazine-style layout through CVC Capital Partners is said to have appointed infrastructure fund which visitors can peruse details on a range CIMB, Morgan Stanley and UBS to manage the Japanese financial group Nomura Holdings of apparel, accessories, home and food items sale of its majority stake in Indonesia’s Matahari has announced it will launch an India-focused that can be shared through social networks like Department Store. The sale is likely to happen infrastructure fund as early as next year, with a Facebook. in the first half of 2013. CVC values the entire target of JPY40 billion ($500 million) for the fund. company at more than $2 billion, having paid The vehicle was first announced in March 2011, LPs chose direct route into $633 million for a 72.6% stake in early 2010 from with a view to launching that July, but global Matahari Putra Prima, a company controlled by economic uncertainty led to a postponement in Indian property the Riady family’s Lippo Group. It remains the January. APG Asset Management, the group responsible largest-ever PE buyout in Indonesia.

Number 41 | Volume 25 | October 30 2012 | avcj.com 5 Co ver Story [email protected] State subsidies South Korea’s venture capital industry is the fourth-largest in the world thanks to generous government support. But is this support helping or hindering the development of self-sustaining investment ecosystem?

W hen South Korea goes to polls next disparity: government support. Statistics K-VIC represents the venture capital industry’s month to elect a new president, promises on job published by the Korean Venture Capital cornerstone LP base. creation and wealth distribution will be repeated Association (KVCA) reveal that in the first half of KVCA statistics show that government LPs time and again right up until the last vote is cast. this year more than 25% of the KRW325 billion account for 25.2% of the capital entering VC Each of the three candidates has cited venture ($296 million) pumped into venture capital came funds in the first half of 2012 with a further 20.9% capital as a means of achieving this goal. directly or indirectly from state coffers. coming from public pension funds. The private Geun-hye Park of the Saenuri Party has sector – financial institutions and corporations – pledged to attract overseas VC investment into Capital injections contributed just under 30%. the country to support start-ups; the Democratic Only one other country really stands up to In the last decade, the impetus behind United Party’s Jae-in Moon has voiced his comparison with South Korea. Israel, the world’s government investment has been to drive support for IT, identifying financing for early- 39th largest economy, saw $796 million in innovation in the technology sector. stage companies as one of five major policies for venture capital investment last year. Thanks to Entertainment, IT and manufacturing received the industry; Ahn Cheol-soo, a software mogul a kick-start by the government-backed Yozma the bulk of venture funding in the first half, with running as an independent, has said he would do initiative in 1993, the nation now ranks near the 33.5%, 28.3% and 24.6%, respectively. IT has much the same. top globally in terms of VC per capita. traditionally been the VC sweet spot. Of the 142 domestic companies that have listed on the Korea Stock Exchange and KOSDAQ since 2008, Korea venture capital investment by industry, 1H2012 67 operated in IT, electronics or computer-related areas. In the vast majority of cases, these firms were suppliers to South Korea’s conglomerates, Entertainment 33.5% or chaebols. IT 28.3% “As Korea developed its IT sector during the Manufacturing 24.6% 1960s and 1970s, companies like Samsung, LG and Daewoo have done very well, competing on Biotech 6.3% a global level, so they have had to source their Services and education 1.8% components and technology from start-ups,” Recycling 0.5% explains Brian Koo, CEO of LB investments. “The IT Distribution 2.8% venture capital industry has grown up with these Others 2.2% global players.” Although several of these chaebols have Source: Korean Venture Capital Association corporate venture capital units that make strategic investments intended to benefit the parent group, their contribution to the The general idea is that Korea’s technology “If you look at Israel and Korea they have development of the industry domestically has sector has the capacity for more upstream much in common,” says Yoo-shin Jung CEO of largely been indirect. For example, one of these manufacturers and downstream service providers Korea Venture Investment Corp. (K-VIC), the most recent investments by Samsung Venture that can feed off the wealth being created by largest government-backed investor in the asset was a $5 million commitment to US data-triage conglomerates such as Samsung and LG. class. “Both have highly-educated populations, a start-up Stoke. The country’s venture capital industry is lack of neutral resources, small domestic markets “On the one hand chaebols are beneficiaries already significant, ranking fourth globally by and high dependency on overseas exports. It is of technology developed by venture capital- investment value last year. Given that South because we have to develop our own industries backed companies; on the other hand they Korea’s economy is only the world’s 17th largest, and create resources with our own money and support the VC market by purchasing products it seems counter intuitive that the country’s VC that we are so successful in this field.” from these companies,” Says Sam Lee, managing market is surpassed by only China, India and the Since its inception in 2005, K-VIC has partner at STIC Investments. US. According to AVCJ Research, $428 million was invested around $1 billion into 120 venture The fact the entertainment sector now committed across 74 deals in 2011. capital and private equity funds. At the end accounts for over a third of venture capital To put that in context, Japan, with a GDP of June, its Korea Fund-of-Funds was worth investment in South Korea speaks volumes nearly five times that of South Korea, saw venture KRW1.5 trillion. Alongside the National Pension for the extent of government influence in the investment totaling just $273 million. Service (NPS), Korea Financial Corp. (KFC) and market. Among the biggest investors in K-VIC’s There is one overarching reason for this Korean information & Technology Fund (KIF), fund-of-funds are the Korean Film Council

6 avcj.com | October 30 2012 | Volume 25 | Number 41 Co ver Story [email protected]

poor incentives for early-stage deals, risk aversion money into the gap where there are no private VC global leaders, 2011 among investors, and a general attraction to investors and by doing that we are supporting the larger capital commitments and higher IRRs the venture ecosystem,” says Jung. VC investment generated by pre-IPO deals. As a result, some C ountry Investment (US$m) industry participants are skeptical about the No VC optimists? 1) China 6,066 merits of government participation. Regardless of these efforts, Koo of LB Investments 2) India 1,345 “If you start buying shares at the pre-IPO expects many venture capital firms to struggle 3) USA 726 stage, volume will increase dramatically but you as the larger players move up to the pre-IPO 4) South Korea 428 are not pouring cash into the start-ups, you have space and take investors with them. Of the 100 5) Japan 273 created speculation versus real cash infusion,” registered VC firms in Korea, he estimates that Nominal GDP says Sung Park, co-founder of Translink, a Silicon only 30-40 will be able to raise funds. C ountry GDP (US$m) Valley-based firm that invests in US tech firms This may be good from LP point of view as 1) USA 14,447,100 looking to expand into Korea and the wider Asian those larger VCs that survive will have proven 2) China 5,739,358 region. “The government has put in too much track records, making the selection process easier 3) Japan 5,458,873 money and is speculating, but that is my very for investors. On the other hand, the market 4) Germany 3,280,334 cynical view.” will suffer as a smaller pool of VCs focus on the 5) France 2,559,850 However, this trend has not gone unnoticed. big returns available from mid-stage, pre-IPO Source: AVCJ Research Last December K-VIC set up the KRW10 billion investments. Indeed, average fund size swelled Angel Investor Matching Fund, which is intended from KRW7.4 billion to KRW180 billion in first half (KOFIC) and the Ministry of Culture, Sports & to support start-up financing by matching up to of 2012 as VCs sought more capital for later-stage Tourism (MCST). KRW1 billion of investment made by individual investments. In December last year K-VIC joined Lotte angel clubs and up to KRW500 million for “The government cannot support the VC Entertainment, Route One Films and CJ individual angel investors. Six months later it market indefinitely – it should gradually be Entertainment investing $110million in the Sovik announced the fund would increase to KRW70 replaced by the private market, pensions and Global Contents Investment Fund, the largest- billion. other financial institutions,” says Koo. “If this ever South Korean entertainment sector-focused Last year the state-backed Small & Medium doesn’t happen and there is a contraction in fund. It finances international co-productions and Business Administration (SMBA) opened an GPs, it would be bad for new technological a slate of Korean-language television dramas to angel investment support center Seoul’s Seocho developments and job creation. It won’t happen be distributed throughout Asia. district. in three years or five years but maybe in 10 years “It is because of investment from the MCST “The Korean government is trying to do is put something like that can happen.” that so much is being putting into this sector,” K-VIC’s Jung says. “It is the reason Korean culture output is so strong right now and I think this trend will continue or improve. It is a good E xits: Overdependence example of how there can be cultural benefit in addition to fund performance.” on IPOs Wider objectives For all the cultural credibility, is government orty companies went public on KOSDAQ in 2011, continuing a year-on-year increase that participation in funds fulfilling the broader Fdates back to 2008. The run is unlikely to continue in 2012. Between January and June there mandate of creating a venture capital industry were only three IPOs, consistent with a global trend of weak capital markets. The impact on South that can be sustained by more than just state Korea’s venture capital industry has been far reaching. backing? While IPOs account for 10% of VC exits in the US, in Korea the figure is closer to 20%. This Last year, VC investment in South Korea overdependence on an exit channel that can be highly volatile has long been a concern. reached KRW1.2 trillion, the highest level in a However, David Oh, head of the Seoul office of boutique advisory firm J. Moore & Partners, decade, but this figure is unlikely to be matched sees the fall off in IPOs as an opportunity to develop other exit options. “The exit structure in 2012 as deal value came to KRW539 billion in depends mostly on IPOs and so the government and other big investors will be looking for the first half. Furthermore, the number of angel alternatives such as trade sales,” he says. “Next year the M&A market could be booming.” investors has fallen 90% since the height of the This is also the government’s hope. Korea Venture Investment Corp. (K-VIC), the largest state- dotcom bubble in early 2000. backed investor in venture capital, has set up a small- to medium-sized enterprise (SME) M&A Another mitigating factor is venture capital matching fund intended to help mid-size companies with domestic and outbound acquisitions. investors abandoning the early-stage space for Meanwhile, the IPO market could be to get boost in from the Korea New Exchange (KONEX), pre-IPO deals, a trend that emerged in 2008 a bourse specially created for SMEs. Announced by Korea’s Financial Service Commission, it is and has since taken a firm hold of the industry. intended to narrow the gap between early-stage investment and the point at which a company In 2011, 44.3% of VC commitments targeted can seek an IPO. more mature companies expected to go public Yoo-shin Jung, CEO of K-VIC, also sees opportunities for Korean companies on overseas within two years, while early- and expansion- exchanges, notably Japan, China and the US. “Over the next five years I think will see the stage companies received 29.5% and 26.14%, globalization of our VC market. The government wants to see this development but the priority is respectively. supporting local seed and early-stage companies.” This could be put down to a combination of

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Th e future of independent Asian platform and be able to deal with issues across global LP base, we can help in terms of investor fund-of-funds has long been a matter for debate different jurisdictions,” says David Pierce, CEO of relations and LP coverage. On the investment if only due to the resource pressures. Fundraising Squadron, who will become a partner at FLAG. side, we have been active in Asia but certainly can be a protracted process, which means Informal negotiations between the two not at the same magnitude as Squadron: they some people spend long periods on the road; parties began last year after Peter Denious, a have $1 billion with managers in the region to stricter compliance requirements are making partner at FLAG and responsible for international our $200 million.” back-office functions more demanding; and the investment strategy, raised the possibility of a Robert W. Miller, owner of Squadron via his proliferation of industry participants in the past merger with Pierce. family office, Search Investment Group, saw the five years means that competition for The timing of the approach was merits of the alliance and gave it his approval. mandates is fierce. driven by the US fund-of-funds’ Miller started building the Squadron team in A degree of consolidation seems needing to reassess its Asia strategy. 1989 and spun them out into a subsidiary in 2006 inevitable and last week there was FLAG has been investing in Asia so they could raise third-party capital. He will a step in this direction as Squadron since 2005 and opened an office in continue to be an LP in the firm’s fund-of-funds. Capital joined forces with FLAG Hong Kong two years ago, hiring FLAG’s two executives in Hong Kong will join Capital of the US. Squadron currently Chi-Ho Song from Cambridge the 23-strong Squadron operation and, although has $1.5 billion under management; Associates to head up operations. a degree of attrition isn’t unusual in M&A by unifying with FLAG it will become Sadly, Song passed away in mid-2011 situations, Pierce says the rationale behind the part of a combined organization and the firm decided the best way transaction is “not so much a consolidation as a with more than $6 billion in assets Squadron’s David Pierce to develop a regional platform was strategic combination that creates a more robust and exposure to North American to find a partner with strengths that organization.” Both firms were in the process venture capital, mid-market private equity and complemented its own. of raising their third funds but efforts were put real assets, in addition to Asia. “What we bring to the table is global on hold once negotiations reached a certain “Increased regulation is making the industry perspective,” says Denious. “When you look at stage and the expectation is they will launch a more complex so it helps to have a larger how Squadron is operating in Hong Kong with a combined vehicle in 2013. CHAMP PE completes lighting take-private

T ake-private deals are a challenge Both investments came via CHAMP Buyout company’s three-month trading average. in Australia. Conflict creates headlines, but the III Fund, a A$1.47 billion vehicle that closed in Gerard is one of Australia’s leading country appears to see its fair share of majority November 2010. Other portfolio companies manufacturers and distributors of lighting shareholders falling out with prospective private include shipping services provider Miclyn Express products, and also maintains a substantial equity investors despite the fact that share prices Offshore, wine purveyor Constellation and overseas business. Its brands include Pierlite, have turned against them. fencing company AFT Services. Sylvania and Crompton. Struggling surfwear manufacturer Billabong “Historically, we’ve got involved in situations For the year ending June, Gerard posted is currently trading below A$1 after a A$694 where we think a major shareholder and revenues of A$389 million and a net profit of million ($709 million) buyout by TPG Capital fell the board is open to a potential take-private A$17.6 million, down 9.7% on prior year due to through earlier this month. The private equity transaction,” John Haddock, CHAMP managing a fall in demand from residential developments. firm originally bid A$841 million for Billabong director, tells AVCJ. “Among the five Despite these headwinds, Simon in February – A$3 per share – but the company deals Champ III has completed, two Gerard, managing director of the founder rejected it. Cleaning and catering are take-private, so I would say it has company, said in August that contractor Spotless was acquired by Pacific been an important source of deal investment in new technology, Equity Partners for A$720 million in April despite flow over the last couple of years.” particularly LED lighting, is the best efforts of its chairman. The origins of the transaction continuing. CHAMP Private Equity, however, has managed can be traced back to March, when “Lighting in general is to complete two take-privates in the past seven one of CHAMP’s affiliates identified undergoing a structural shift to months with minimal fuss, albeit for smaller Gerard as a potential target and Gerard: Public to private LED and energy efficient lightings. ticket sizes. Having won approval to buy outdoor initiated discussions with the board. Gerard is very well positioned advertising company oOh!media in March, last An agreement was reached in July, with the to utilize its sales and distribution network to week the firm won full backing from the board private equity player offering to pay A$1.05 per capitalize on this change,” Haddock adds. “There and family owners of Gerard Lighting Group for a share for all outstanding shares. At that time, are a number of areas of growth we will pursue A$186 million buyout. the price represented a 49% premium to the including bolt-on acquisitions in Australasia.”

10 avcj.com | October 30 2012 | Volume 25 | Number 41 Profile [email protected] The social networker Founders Fund Partner Bruce Gibney became a multi-millionaire by investing in PayPal while still at university. He was later involved in the first angel investment made in Facebook

I t may have been the best investment small family office. Not long after this, the law ever made. But when Peter Thiel, the billionaire firm went bankrupt. co-founder of PayPal, decided to make his $500,000 call on Facebook in 2004, he had a team Funding founders of advisers by his side. Bruce Gibney, then an Gibney’s role at Clarium was to review intellectual property specialist with Thiel’s family prospective investment opportunities. One of office, Clarium Capital, was one of those people. those was Facebook, which at the time of Thiel’s “At the time, it looked like a lot of other cash injection appeared earlier-stage than a lot promising start-ups,” he says of an early Facebook. of the angel investments he sees today. Within “It was a group of intelligent, passionate, a year, though, the firm was on its way to being dedicated people who had a grand vision, and in gigantic and today claims to have one sixth of their case it worked out spectacularly well.” “It’s the education of the world’s population as its users. Gibney himself joined the ranks of the Not having put his own money in the pot intelligent and dedicated at an early age. Born of a venture capitalist – isn’t something Gibney regrets, however: “Every a Chinese mother who was a chemical engineer, month, out of all the companies you see, there’s and a father who worked in the furniture you give smart people going to be something you rejected that ends industry, he grew up on America’s east coast, money and you do up being a billion-dollar deal. This is why VCs before moving to the San Francisco Bay area and never write in an email ‘I decline to invest in your scoring a place to study at Stanford University. nothing and it all works company’ because it’s like a trophy of someone’s He majored in science and technology studies stupidity. But if it keeps you up at night, that’s just out” and industrial engineering and joined a fraternity a recipe for dyspepsia.” where he became acquainted with young After a while, Gibney’s enjoyment of the man called Ken Howery. Through Howery, who PayPal, Gibney decided to go to law school, hedge fund business that Clarion had become became his room-mate, he was introduced to buoyed by a love of writing discovered during his began to wane. The regulatory environment Thiel – a Stanford alumnus who had founded the time on the student newspaper. He describes this was deteriorating and the financial system was university’s student newspaper, for which Gibney period as an emotionally formative experience: coming under increasing strain. was invited to write a column. “It’s the education of a venture capitalist – you When Thiel and Howery established Silicon In Gibney’s senior year, Thiel established a give smart people money and you do nothing Valley-based venture firm Founders Fund in early small company and asked Howery to join him. “In and it all works out.” 2005, Gibney soon got involved on a full-time a conversation I can laugh about it now because Though Thiel tried to involve Gibney more basis with both fundraising and the deployment it worked out really well, Ken told me he had two in the business as time went on, a belief that of capital. He is now one of the firm’s six partners, job offers and asked my advice. One offer was to his financial holding in PayPal was sufficient alongside Thiel, Howery, Sean Parker [co-founder work in a bank, and one was working for Peter exposure to the company led him to accept a job of Napster and Facebook’s first president], Luke at his start-up. I said the conventional thing: go as a securities litigator at law firm Heller Ehrman Nosek and Brian Singerman. work for the bank,” Gibney recalls. in 2001. He regrets this today as he believes While the firm prefers to back innovative participating in a hugely successful company American companies rather than investing Fool’s gold would have accelerated his learning process in directly in Asia – Gibney says he is shocked at the Fortunately Howery ignored this advice, for VC. The following year, PayPal went public, and “gweilos trundling over to China and thinking the company Thiel had set up, then known just a few months later, it was acquired by eBay they’ll just land and replicate Silicon Valley” – he as Confinity, later changed its name to PayPal. for $1.5 billion. recognizes the importance of the region for During its initial months, Gibney and his parents It was at this point that Thiel decided to set the expansion of Founders’ existing portfolio decided to invest their own capital in the venture. up Clarium Capital, and when he offered Gibney companies. “I knew Ken very well, thought he was a job, he thought to himself, “I can’t be stupid As for the future, venture capital is where ambitious, and thought Peter was one of the three times in a row” [having previously advised he’s staying. “I would like to continue investing smartest people I’d ever met who wasn’t 70 Howery against working at PayPal and then in great companies for as long as I’m able to,” and wondering around the physics department declined a job there himself] and leapt at the Gibney says. “At the end of my career, I’d like to with a Nobel Prize,” Gibney says by way of opportunity. point to five or six companies where the CEO justification. It was also the late 1990s, so there So in a scenario with more than a touch of believes I contributed something more than was a pronounced cultural momentum behind resemblance to Howery’s own dilemma several just capital – even if it’s just one terrific piece of investments of this kind. years prior, Gibney gave up the chance to be a advice. While his best friend put in the hours at partner at a 120-year-old law firm to work for a That’s what would make me happy.”

Number 41 | Volume 25 | October 30 2012 | avcj.com 11 Customized Research Report Asian Private Equity Data Made Simple

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