Asia’s Private Equity News Source avcj.com September 16 2014 Volume 27 Number 34

EDITOR’S VIEWPOINT The uncertain world of China short-selling Page 3

NEWS Ardian, Baidu, Baring, Fosun, Gobi, KKR, Macquarie, MSPEA, Redbright, Partners Group, Permira, PEP Page 4

FUNDS Leapfrog raises $400m financial services fund Page 12 DEAL OF THE WEEK Standard Chartered taps chemical tanker demand Page 13 INDUSTRY Q&A Powered by people UOB’s Wee Yap Yeo on SE Asia mezzanine strategy Asian regulators, VCs grapple with the phenomenon? Page 7 Page 15

FOCUS DEAL OF THE WEEK

Shop till they drop? Service with a smile Alibaba, Rocket and online retail overseas Page 10 Mekong makes 9x on Vietnam dining deal Page 13 Private Equity & Venture Forum Taiwan 2014 20 November • Westin Taipei

GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY avcjtaiwan.com

Join the leading private equity Simultaneous translation is available conference in Taiwan! 活動全程提供 中英文同傳。 reasons to attend 5 : Gain insights from the world’s leading private equity firms and local market leaders Network and collaborate with like-minded industry professionals Understand latest policy developments and the impact on your business Explore the hot sectors with senior industry practitioners Examine the implications of the latest and future industry trends

BY TYPE OF COMPANY BY TITLE BY COUNTRY China Managing Director / 3% Partner / CFO, GPs 22% LPs 12% Principal / VP / Japan Associate, 1% 50% Director / GM / Taiwan Chief Rep., 80% 19% Limited General Chairman / CEO / President, Singapore Partners, Partners, 9% 4% 14% 27%

Registration enquiries: Pauline Chen T: +852 3411 4936 E: [email protected] Enquiry Sponsorship enquiries: Darryl Mag T: +852 3411 4919 E: [email protected] Speaking enquiries: Joy Qian T: +852 3411 4866 E: [email protected]

Co-Sponsors 聯合贊助單位

Supporting Organisation 支持機構

avcjtaiwan.com Private Equity & Venture Forum EDITOR’S VIEWPOINT Taiwan 2014 [email protected] 20 November • Westin Taipei Managing Editor Tim Burroughs (852) 3411 4909 Staff Writers Andrew Woodman (852) 3411 4852 Winnie Liu (852) 3411 4907 Short shrift? Creative Director Dicky Tang Designers Catherine Chau, Edith Leung, Mansfield Hor, Tony Chow

“THE CHAIRMAN JUST THREATENED TO such as poor third-party advice, confusing Senior Research Manager GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY avcjtaiwan.com Helen Lee have me killed.” Delivered in a panicked voice, the record-keeping processes that may mean there Research Associates statement brought proceedings to a standstill. As is a very good reason why numbers don’t add Herbert Yum, Isas Chu, it happened, the meeting had been convened to up, the fact that many Chinese companies Jason Chong, Kaho Mak share the news of my imminent departure with underestimate the rigors of the US disclosure- Join the leading private equity Simultaneous Circulation Manager translation is staff. But my bombshell merely spluttered in the based system, and founders’ tendency to take the Sally Yip available face of this far more shocking announcement pragmatic, if the not the most copper-bottomed Circulation Administrator Prudence Lau conference in Taiwan! 活動全程提供 – one that originated in the “China fraud stocks” route to corporate success and it isn’t always 中英文同傳。 Subscription Sales Executive scandal of 2010-2011 when it seemed that every possible to reach a definitive conclusion. Jade Chan What made me uncomfortable – and this US-listed mid-cap Chinese company was on the Manager, Delegate Sales reasons to attend run from short sellers. was actually a factor in my decision to leave the Pauline Chen 5 There is a place for short-sellers in every company – was doubts over quality control. : Director, Business Development market and research firm Muddy Waters deserves First, I was unsure whether the newly-formed Darryl Mag some credit for revealing the exaggerated research unit had the ability to conduct the level Gain insights from the world’s leading private equity firms and local market leaders Manager, Business Development earnings of several companies. Many of these of research required and then deliver it in the Anil Nathani, Samuel Lau Network and collaborate with like-minded industry professionals firms went public in the US through reverse language to which institutional investors are Sales Coordinator mergers so they were subject to less scrutiny. accustomed. Second, I was unsure whether the Debbie Koo Understand latest policy developments and the impact on your business There was an information asymmetry and Muddy end users really cared about the first concern. Waters filled the gap. A number of PE-backed Mud sticks, or at least it does for long enough to Conference Managers Explore the hot sectors with senior industry practitioners Jonathon Cohen, Sarah Doyle, companies were among those found wanting. execute a trade. Conference Administrator Examine the implications of the latest and future industry trends Suddenly a host of researchers were parsing To be fair, the market is a great leveler. A Amelie Poon filings in search of the next big fraud, with hedge research firm or short seller that repeatedly cries Conference Coordinator Fiona Keung, Jovial Chung funds all too willing to pay to see reports weeks wolf will ultimately be ignored and no longer before they were released into the market. able to move stock prices in the desired direction. Publishing Director My employer wanted a slice of the action and Companies have also been known to rebound Allen Lee BY TYPE OF COMPANY BY TITLE BY COUNTRY China formed a dedicated research unit. The death quickly and strongly from such setbacks, just as Managing Director Managing Director / 3% threat represented the first occasion on which others have rightfully collapsed. Jonathon Whiteley Partner / CFO, GPs 22% Hong Kong members of this unit got their fingers burnt. What makes the recent Tianhe Chemicals LPs 12% Principal / VP / Japan The researcher in question had completed his case interesting (and relevant to AVCJ because it Associate, 1% analysis of the company and come up with a list is a Morgan Stanley Private Equity Asia portfolio 50% of questions. He decided to ask the company company) is the party making the allegations Incisive Media Director / GM / Taiwan Unit 1401 Devon House, Taikoo Place Chief Rep., 80% chairman for answers. of fraud eschews accountability. Indeed, 979 King’s Road, Quarry Bay, 19% Hong Kong The chairman’s response indicates the kind Anonymous Analytics, a faction of activist and T. (852) 3411-4900 Limited General Chairman / CEO / of pressure these executives were under. In hacker network Anonymous, positions itself as F. (852) 3411-4999 President, Singapore E. [email protected] Partners, Partners, 9% 4% many cases, the reverse mergers that led to the faceless – and not profit-driven – scourge of URL. avcj.com their companies going public were uneventful dishonest corporations. 14% 27% Beijing Representative Office processes led by intermediaries. Small-scale Is this organization everything it says it is, and No.1-2-(2)-B-A554, 1st Building, No.66 Nanshatan, auditors waved them through even though (as it if so, does this make the accusations any more Chaoyang District, Beijing, Registration enquiries: Pauline Chen T: +852 3411 4936 E: [email protected] turned out) they had neither the bandwidth nor credible? With Tianhe denying the allegations People’s Republic of China T. (86) 10 5869 6203 Enquiry Sponsorship enquiries: Darryl Mag T: +852 3411 4919 E: [email protected] the aptitude to dig deep. Now these executives and Anonymous Analytics standing by them, it is F. (86) 10 5869 6205 E. [email protected] Speaking enquiries: Joy Qian T: +852 3411 4866 E: [email protected] were being asked tough questions for perhaps up to the market to decide. But past experience the first time. suggests this is a murky pond: the identities, There are two schools of thought. Either the motivations and abilities of those conducting the chairman was a fraudster who had found himself research are difficult to fathom. The Publisher reserves all rights herein. Reproduction in whole or Co-Sponsors in part is permitted only with the written consent of 聯合贊助單位 cornered and was willing to say anything to AVCJ Group Limited. find a way out; or he was honest man who had ISSN 1817-1648 Copyright © 2014 built a company from nothing and now feared potential ruin at the hands of short-sellers willing to publish anything to make a quick buck. Tim Burroughs Supporting Organisation In reality, people sit at different points on a Managing Editor 支持機構 sliding scale. Throw in extenuating circumstances Asian Journal

avcjtaiwan.com Number 34 | Volume 27 | September 16 2014 | avcj.com 3 NEWS

Fosun, Ardian bring in trading on September 2 in response accusations AUSTRALASIA of fraud tabled by Anonymous Analytics, a Jiuding for Club Med offer faction of international activist and hacker Partners Group acquires Fosun International and Ardian Private Equity network Anonymous. $648m MLC portfolio have reactivated their interest in French-based vacation resorts operator Club Méditerranée Nomura forms PE joint MLC, the private wealth unit of National Australia (Club Med), forming a new consortium that Bank(NAB), has sold a A$750 million ($648 includes Chinese GP Jiuding Capital and Hong venture in Shenzhen million) portfolio of private equity investments to Kong Utour International Travel Service. The Japan’s Nomura Asset Management has set up Partners Group. The deal comes at a time when consortium is willing to pay EUR22 per share a joint venture with Shenzhen Hua Xia Ren He MLC is looking to cut back its PE allocations and for Club Med, valuing the company at EUR839 Capital Management to conduct private equity Partners Group is looking to expand its presence million ($1.08 billion), according to a regulatory fund business in China. Nomura AM won a in Australia. The sale is understood to be an license through the joint venture to sponsor and opportunistic move to bring MLC’s allocation manage private equity funds under Qualified back in line with long-term goals. Foreign Limited Partner (QFLP) program. PEP, KKR target SAI Global Renren leads round for extends bid deadline financial social network Australian risk management and standards Chinese social networking platform Renren has compliance business SAI Global – which is led a $40 million Series C round for Snowball, subject to a takeover bid from Pacific Equity a local financial information portal, with Partners (PEP) and KKR – has extended the participation from existing investor Morningside deadline for other offers. The company originally Technologies. Xueqiu, which was founded by wanted all bids in by September 12 but this filing. This tops the EUR21 per share offered Simon Fang, former editor-in-chief at NetEase, has now moved to September 16. The decision by Global Resources, which is controlled by allows investors to exchange information on the was made “following receipt of a request for an Investindustrial, a private equity fund managed US, Hong Kong and Chinese equities markets extension of time from a number of parties in the by Italian businessman Andrea Bonomi. as well as on bonds, mutual fund and trust process,” SAI said. Last month, Fosun and Ardian withdrew their products. takeover bid for Club Med after French regulators Australia’s Looop raises approved the Investindustrial offer, although Xiaomi, Shunwei lead Fosun said the two groups would continue to $2m explore potential options. The new tender offer round for P2P lending site Looop, an Australian online learning platform is being launched through Gaillon Invest II, a Chinese smart phone maker Xiaomi and Shunwei for employees, has raised a $2 million seed vehicle also owned by Club Med management Capital Partners, both founded by Chinese angel round from an undisclosed education investor. and Utour-JD, a joint venture between Utour investor Lei Jun, have jointly led a $37.2 million The funding will be used to expand into new and Jiuding. Fidelidade, a Portuguese insurer Series B round of funding for Jimubox, a peer- markets including the UK and the US, as well as controlled by Fosun, is participating in the tender to-peer (P2P) lending start-up in China. Temasek to improve its mobile app technology. offer alongside Gaillon Invest II. Holdings’ Vertex Venture Holdings, Matrix The investors plan on purchasing more than Partners, Magic Stone Alternative Investments 50% of the share capital and voting rights in Club and Ventech China also participated. GREATER CHINA Med that are tendered in response to the offer, on top of which Fidelidade has committed to Baidu backs online PE group invests in Sinopec purchase a further 20% for up to EUR168 million. Three French banks have also agreed to provide learning site SmartStudy fuel retail unit EUR230 million in debt. Chinese internet giant Baidu has invested $10.6 A group of private equity investors, including If the tender offer is fully subscribed, million in a Series A round of funding for Smart CICC Capital, RRJ Capital and Hopu Investment Gaillon Invest II will own 80% of Club Med SmartStudy.com, an online education platform. Management, have invested in Hong Kong- while Fidelidade will hold 20%. In the absence Smartstudy, which came online in February, was listed Sinopec as the Chinese oil refiner agreed of leveraged financing facilities, the equity founded by former employees at New Oriental to sell a RMB107.1 billion ($17 billion) stake in its investments of the Gaillon Invest II members will Education & Technology Group, a US-listed retail business. The deal comes as China moves be: EUR612 million from Fosun, EUR10 million private school operator in China. to restructure its state-owned enterprises by from company management, EUR20 million from bringing in private capital to diversify ownership. Ardian, and EUR30 million from Utour-JD. Gobi invests in second- hand car site Mychebao Tianhe denies fraud, statements in its IPO prospectus, with second- Gobi Partners has invested in a Series A round MSPEA offers full support largest investor Morgan Stanley Private Equity of funding for Mychebao.com, a Chinese Tianhe Chemicals has issued a point-by-point Asia (MSPEA) declaring its full support. The Hong online trading platform for second-hand cars. rebuttal of allegations that it made false Kong-listed company requested a suspension in The size of the round was not disclosed but is

4 avcj.com | September 16 2014 | Volume 27 | Number 34 NEWS

understood to amount to tens of millions of LPs suffer by chasing BigBasket raises $32.8m dollars. Headquartered in Nanjing, Mychebao provides a platform that connects used car sellers growth – AVCJ Forum from Helion, Zodius with buyers, with the company receiving a 3.8% Investors in private equity funds are often Helion Venture Partners and Zodius Capital have commission from each transaction. preoccupied by analysis of potential growth led a INR2 billion ($32.8 million) Series B round of trends and neglect close due diligence of a GP’s investment in BigBasket.com – the Indian online ability to generate value over a sustained period retailer owned by Bangalore-based SuperMarket NORTH ASIA of time, industry participants told the AVCJ Korea Grocery Supplies. Several existing investors are Forum. also participating, including Ascent Capital, Permira-owned Arysta Tim Sims, managing director at Pacific Equity which provided BigBasket’s Series A round. LifeScience files for US IPO Partners, noted that LPs find themselves caught in a bind between “wanting a spreadsheet to TA Associates hires Patwari Arysta LifeScience, the Permira-owned Japanese provide an answer and the real discipline of agricultural chemical maker, has filed for its private equity, which is choosing a great manager in Mumbai US IPO with a view to raising as much as $500 in a competitive circumstance.” This reliance on TA Associates has hired Naresh Patwari as a million. Arysta. Permira bought it from Olympus data sets was imported from the world of public director in its Mumbai office to focus on in 2007 for around $2.2 billion. equity investments in India and other emerging markets. Patwari joins from ICICI Venture where Baring Asia drops out of he led deal sourcing, due diligence, transaction execution and portfolio management for Japan electronics deal investments in the consumer, media, healthcare Baring Private Equity Asia has abandoned and energy sectors. plans to acquire the audio-video operations of Japanese car electronics maker Pioneer Clearwater exits India’s Corp – alongsid Onkyo Corp – three months after reaching a basic agreement. Baring was Dolphin Offshore supposed to take a 51% stake in the business but Clearwater Capital Partners has exited its discussions ended after it was decided it would 6.53% stake in Indian marine operation and be more efficient for Pioneer and Onkyo to equities but it is only effective as part of a deeper construction company Dolphin Offshore negotiate integration without a . dive into GP strategy. Enterprises via an open market transaction. The Jim Hildebrandt, managing director at Bain divestment was made through two subsidiaries, NPS, Macquarie-backed Capital, added that investors spend a lot of time Clearwater Capital Partners (Cyprus) and thinking about cycles and where growth will be Clearwater Capital Partners CLO, which sold Megabox goes on sale next while success in private equity rests on the 3.94% and 2.59%, respectively, on the Bombay Megabox, the South Korean movie theatre chain ability to navigate multiple cycles. In this context, and National Stock Exchanges. 50% owned by a consortium including the a strong manager is one with a differentiated National Pension Service (NPS) and Macquarie strategy, not a fixation with the zeitgeist. “You IvyCap, IDG invest in online Group, is being sold at auction. The deal is aren’t trying to find the unique growth industry,” estimated to be worth about $580 million. Teaser Hildebrandt said. “The more interesting, exciting apparel retailer eShakti letters have already been sent out to potential and exotic sector the more money is thrown at it. IvyCap Ventures and IDG Ventures India (IDGVI) bidders with due diligence expected to be Where there is high growth there are high prices.” have participated in a undisclosed Series B round carried out in October. Once a market matures, growth is replaced investment for India’s eShakti.com, an online as the differentiating factor by the ability women’s apparel retailer. The company began Relux raises $3.1m from to enhance profits in a sustainable fashion. as an online platform offering basic cottons However, competition for deals might still be and modestly embellished clothes, but now it Recruit Holdings, others intense, which makes value creation all the positions itself as a design company that focuses Japanese luxury hotel booking site Relux has more important. “It’s not unusual that nowadays on made-to-measure and made-by-design raised JPY330 million ($3.1 million) from Recruit in PE there is no such thing as an inexpensive fashion clothing for women. Holdings and other undisclosed investors. Relux investment,” said Charles Huh, senior managing lists luxury Japanese inns and hotels selected by director at CVC Capital Partners. “In most markets the company based on their on-site assessments. there is an oversupply of capital.” SOUTHEAST ASIA Rebright leads $1m seed SOUTH ASIA close a INR78.46 on its first day of trading in Mumbai. The company raised INR1.97 billion round for Smove PE-backed Snowman jumps ($33 million) from the sale of 42 million shares Japanese seed investor Rebright Partners has led at INR47 apiece. Early investors in Snowman a $1.1 million funding round for Clean Mobility 67.5% on India debut include Norwest Venture Partners and World Singapore, the Singapore-based start-up behind Snowman Logistics - the PE-backed cold chain Bank investment arm International Finance car rental service Smove, with participation from unit of Gateway Distriparks - gained 67.5% to Corporation. 500 Startups and Wavemaker Pacific.

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unquotedata.com COVER STORY [email protected] Herd dynamics The number one source More start-ups are tapping crowdfunding platforms for capital. How well prepared are Asian markets to of private equity deals accommodate the phenomenon and what does its emergence mean for venture capital investors? THE $2 BILLION DOLLAR ACQUISITION and small businesses in need of capital advertise through a share of the capital raised. However, of virtual reality headset start-up Oculus Rift by their proposals on the platforms and individuals corporates are also starting to see the benefit Facebook in March was not noteworthy just who like the idea, and want to see it come to of crowdfunding as a means of accessing because of its size – it was nearly double what fruition, can make a small contribution. In return, innovation and adding to their own ecosystems. unquote” data contains detailed information on over 35,000 Facebook paid for social network Instagram – but investors get the satisfaction of having supported This was Singapore telecom company StarHub’s private equity deals, funds and exits. Sign up today and you will: because of the target’s humble beginnings as the project or business and in some cases they motivation for launching Crowdtivate, which a KickStarter project. Less than two years prior may also receive a small reward, the size of which is co-managed by independent platform the deal, Oculus had launched a campaign depends on their contribution. As in the case of Crowdonomic Media. on crowdfunding platform KickStarter to raise Oculus, it may come in a form of a prototype, a “It is an extension of open innovation; it is $250,000 in donations from fans and developers discount on a finished product or other some basically a way for a company to build a bridge • Track who is doing the deals in your sector who liked the project. kind of merchandise, such as t-shirt. to innovation and invention from the external • Gather the names of deal leaders and their advisers In order to attract contributions, the start-up The first obvious benefit of crowdfunding is environment,” says Leo Shimada, co-founder “Deloitte sees unquote” announced that backers who pledged $300 or that it offers a source of capital to start-ups and and managing director at Crowdonomic. “Start- • Research historic transactions for information data as a high quality, more would receive a developer kit version of ups also appreciate and verification purposes the Oculus Rift, while those committing in excess Asian crowdfunding platforms corporate involvement reliable research tool. There of $275 would receive one of 100 unassembled just because of the • Observe trends in deal flow and size, sector, region prototype kits that would ship a month earlier. Name Country Launched Funding model difference in mentoring and investment stage is not a source of data on The response beat all expectations, with the Fundator China February 2013 Reward / equity/ loan ecosystem a large business raising more than $2.5 million from corporation can bring.” • Analyse financing structures European buyouts like it. Angelcrunch China January 2011 Equity ” 10,000 backers. A total of 7,500 kits eventually Crowdonomic Singapore January 2013 Reward had to be shipped. Quality control • Pinpoint upcoming exits and identify secondary Richard Parsons, Director, Crowdtivate Singapore April 2014 Reward Oculus Rift is not the only success story. Other The reward model, while Corporate Finance Advisory, Deloitte Pledge Me New Zealand February 2012 Reward / equity opportunities examples include US smart watch maker Pebble, it has clear advantages, • Examine GP portfolios and their investment which raised over $10 million on Kickstarter Venture Crowd Australia December 2013 Equity has also thrown up behaviour before receiving a $15 million Series A round of Equitise Australia July 2014 Equity several issues. Firstly, funding from Charles River Ventures in March last Source: AVCJ Research there is the fact that • Compare and contrast the key features of deals year; and Android-based gaming console Ouya, many platforms do side-by-side which closed a $15 million Series A round led projects at the earliest stage of development that not always thoroughly vet which projects get by Kleiner Perkins around the same time, having would otherwise be unable to access funding. to apply for funding, which heightens the risk • Create your own league tables previously raised $8.5 million from crowd backers. Meanwhile, there is the added benefit that they of projects failing to deliver on the rewards • Download data to Excel, PDF, tables or charts for The opportunities presented by do not have to give up equity in the company. promised to backers or just failing to get off the crowdfunding are compelling and inevitably the But the benefits go beyond that. ground. use in your analysis, reports and presentations concept is catching on in Asia, with platforms set “It really is leading to the democratization On the other hand, anyone can invest, so • Track the changing strategies of over 1,700 LPs up in several countries. The phenomenon is still of venture capital, which has always been the projects do not always get backed based on very much at a nascent stage – the region yet to preserve of the very wealthy and well-connected,” merit. Funded projects can often be irreverent see its own version of Oculus – but already early says Tim Heasley, a partner with Australia-based or whimsical in nature; a classic example would entrants are starting to make their mark, and the Artesian Capital Management and director be the man who recently raised $10,000 on VC community is paying close attention. of affiliated equity-based crowd platform Kickstarter to make a potato salad. “It increases the range of choices available VentureCrowd. “I think that is a good thing.” “The great thing about it is you get a lot to people,” says Hugh Mason, co-founder of Another advantage is that if the company of energy, enthusiasm and feedback from the Singapore-based start-up accelerator JFDI.Asia. is funded, it already has a customer base in the public,” says JFDI’s Mason. “But the difficulty is that Request a free trial today: “And we are seeing more people start to think of form of its earliest backers – hence start-ups are many first-time entrepreneurs – particularly in W: unquotedata.com crowdfunding as an alternative to professional potentially able to gain traction quicker once hardware – can be victims of their own success E: [email protected] investors.” their product is launched. And then for later- once they get a lot of interest, as they often have T: +44 (0) 20 7316 9944 stage investors, crowdfunding platforms can no experience in scaling-up whatsoever.” Tapping the crowd provide a source of potential targets that have To certain extent, corporate-backed platforms +44 (0) 20 7316 9169 By far the most prolific model for crowdfunding already demonstrated some success. might be able to iron out some of these issues. – established by the likes of Kickstarter and Typically, such platforms exist as stand-alone For its part, Crowdtivate is not a completely open Indigogo in the US – is a rewards-based system. entities intended to help projects find backers platform; start-ups are approved before they The premise is simple: projects, campaigns while generating revenue for the operator go online. Meanwhile, those companies that unquotedata.com Number 34 | Volume 27 | September 16 2014 | avcj.com 7 COVER STORY [email protected]

are successful have the benefit of support from However, in the absence of clear regulations various steps towards introducing equity-based StarHub’s own network. covering crowd-sourced equity funding (CSEF), crowdfunding.” “The difference with us is that we are an most platforms have only come into existence For its part, Crowdonimics is poised to move operator-backed platform, so we have the by taking advantage of legislative loopholes or into equity-based funding in Singapore once the potential to support projects further and put avoiding potential issues by targeting investors rules are clearer. In the meantime it is working them through an acceleration process,” says over a certain net-worth threshold and capping with the Monetary Authority of Singapore Stephen Lee, head of innovation, investment the amount that can be raised. (MAS) as it looks to bring reforms that cater to and incubation at StarHub. “We wanted to do China has no special exemptions but existing crowdfunding. this is primarily because we found that Asian rules state that offerings made to less than 200 Asia’s developed economies have arguably crowdfunding is still at its infancy stage. We accredited investors do not need to fulfill public made the most progress, and New Zealand wanted to see how a telecom company like equity requirements. Accordingly, a handful of perhaps more so than others. It became the first ourselves could drive the ecosystem.” platforms have emerged, including Beijing-based country in the region to enact CSEF legislation But perhaps the biggest issue with the AngelCrunch – set up in 2012 – and the more in the form of the Financial Markets Conduit Act, reward-based model is when a business is unexpectedly successful and goes on to raise Crowd-sourced equity funding (CSEF) across Asia a large funding round or is the subject of an acquisition. For example, had early backers of Country Current rules Recent and ongoing reform Oculus Rift asked for equity instead of a reward, India CSEF prohibited under current rules . Only The Securities and Echange Board of India (SEBI) they would have potentially earned a very reward-based platforms are permitted. issued consultation paper on crowdfunding in June handsome return on their original investment. China No special exemptions, but offerings made to The China Securities Regulatory Commission (CRSC) less than 200 accredited investors don't need is considering the adoption of CSEF regulation and “It is interesting because it is effectively the to fulfill public equity requirements as of May said its was commited to developing a donation-based funding rubbing up against framework traditional venture capital,” says VentureCrowd’s Japan Start-ups using equity platforms can raise up In May 2014, regulators relaxed existing legislation Heasley. “We would say equity-based to JPY100 million ($1 million) with a JPY50,000 covering financial instruments business operators cap per investor under recent reforms (FIBO) to allow for equity crowd-funding crowdfunding fixes that problem, but from the start-up’s point of view a rewards-based platform South Korea No specific law. Public offerings of $1 million or The government aims to legalize CSEF with less need not registr but intermediaries must legislative proposal already made by both the SMEs is still the cheapest form of funding. All you need be registered securities brokers Department and the Financial Service Commission to do is ship a prototype or sometimes even less.” Singapore Any entities offering securities to Singapore Singapore currently has no specific legislation He adds that while there will always be investors -unless they have an exemption - covering CSEF. However, local start-ups are need to register with the Monetary Authority currently able to raise capital from overseas equity reward-based platforms in the ecosystem, as of Singapore platforms investors see more founders making lucrative Australia Start-ups cannot raise over $20 million or The now defunct Corporation and Market Advisory exits further down the road, they are inevitably transfer equity to more than 20 sophisticated Committee (CAMAC) issued concept paper in going to become more demanding. investors a year September proposing CSEF be open to retail investors New Zealand No investment cap, but start-ups are limited to Enacted the Financial Markets Conduit Act Gray areas raising $2 million a year designed to facilitate CSEF in April The US has already seen a number of platforms Source: AVCJ Research emerge that allow for investors who insist on getting equity. They include the likes of AngelList, Fundable and Early Shares. However, in most recently established Fundator in Shanghai. The which was enacted in April and allows start-ups cases these platforms are not open to all and are latter has taken the unique approach of offering to raise up to NZ$2 million ($1.6 million)a year currently limited to accredited investors, broadly both reward-based funding and a soon-to-be- from 20 retail investors. Japan has also made bold defined as any individual with over $1 million in launched equity-based funding. step. In May, regulators altered the definition of assets or an annual income in excess of $200,000. But the future of these funds will likely financial instruments business operators (FIBO) The growth of crowdfunding platforms in the depend on what the regulators do next. As of to include equity crowd-funding platforms, and US has been made possible by the Jumpstart May, the China Securities Regulatory Commission start-ups can now raise up to JPY100 million ($1 Our Business Startups (JOBS) Act, a piece of (CRSC) said it was still considering the adoption million) with a JPY50,000 cap per investor. legislation intended to encourage the funding of CSEF regulations, adding that it was in the However, not all developed economies have of small business in the US by easing various process of developing a framework. It is not the the progress as well as some in the industry securities regulations. Among the provisions only developing country where authorities are would like. “Australia is still behind the rest of the of the act is an exemption under the securities playing catch-up. India is going through a similar world whereas New Zealand, Canada, the US and law allowing equity stakes to be sold through a process, with the Securities and Exchange Board the UK have all implemented changes to equity- crowdfunding structure. of India (SEBI) issuing a consultation paper on based crowd funding,” says VentureCrowd’s A start-up can raise a maximum of $1 million crowdfunding in June. Existing domestic rules Heasly. through crowdfunding offerings in a 12-month mean the country is restricted to rewards-based He explains that Australian start-ups can period. Investors, meanwhile, are permitted to platforms only. currently raise up to A$20 million through invest up to $2,000 or 5% percent of their annual “When we set out on this journey a year- platforms like VentureCrowd but only from a income or net worth, whichever is greater. and-a-half ago, there were only one or two pool of up to 20 wholesale investors – defined as Asia has inevitably started to follow suit with a jurisdictions talking about equity-based those with net assets of more than A$2.5 million. number of similar equity-based platforms being crowdfunding,” says Crowdonomic’s Shimada. Heasley would like to see the regulations relaxed set up. “As of today, every major market is now taking to allow for smaller investments from a broader

8 avcj.com | September 16 2014 | Volume 27 | Number 34 COVER STORY [email protected]

the issues is it’s a lot harder think people think to with regards to due diligence,” he says. “Also, since find decent projects.” you are looking at multiple opportunities at the “It really is leading to Accordingly, Mason expects many early same time, it is easier for an take the democratization movers to fail – not unlike the first wave of more of a portfolio approach instead of making start-up accelerators in Asia. “Some fail to realize one bet at a time.” of venture capital, this isn’t a tech business,” he adds. “Though it is In the future, though, crowdfunding may which has always been a done through the internet, it is still a financial not be limited to very early-stage investment. services product and people have expectations. Artesian is currently in the process of leading the preserve of the You only have to get burnt once, because trust a A$7 million Series A round of funding for an is the true currency of a crowdfunding platform, undisclosed target. VentureCrowd will contribute very wealthy and well- not the technology or the transactions.” A$1 million to the round. It is predicted that in connected” – Tim Heasley time 20-30% of these institutional rounds will be Positive vibes fulfilled through crowdfunding platforms. However, there is still a general bullishness Crowdonomics’ Shimada is equally upbeat. public, noting there are only 207,000 wholesale about the long-term prospects of crowdfunding “Because so many people are involved in the investors in the country and most Australians are in Asia, despite slow progress in countries like process the appeal is that you are dissipating excluded. China, India and Australia. The expectation is the risk,” he explains. “Although the industry is Recommendations to allow for smaller that regulatory wrinkles will be ironed out, more young we are seeing some encouraging signs. retail investor participation were included in a capital will come into the market and the supply The business survival rates among crowdfunded report by the Corporation and Market Advisory of start-ups will grow to meet investor demand. start-ups are close to 80%, which is much higher Committee (CAMAC) in September but progress As a result, valuations should come down. than for traditional VC-backed start-ups because has stalled since the committee was disbanded Heasley adds that more investors are likely so many people are involved in the process, earlier this year. to want to use crowdfunding platforms for the which means more high-quality businesses are Regardless of regulatory ambiguity across efficiency and transparency they offer. He points being funded.” the whole region many companies are still out that in traditional early-stage investing angel On this basis, with increasing amounts trying to establish platforms in the region. “As backers rarely have insight into what discussions of capital raised from larger groups of small with any area of business you will have a lot of start-ups are having with other investors. “With investors, companies like Oculus Rift could people who go rushing in without realizing the crowdfunding, all these conversations are become the norm rather than the exception – in complexities involved,” says JFDI’s Mason. “One of happening online so everyone has line of sight Asia and other markets.

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To subscribe, call Sally Yip at +(852) 3411 4921 or email [email protected] avcj.com FOCUS [email protected] The final frontier Rocket Internet and Alibaba Group are preparing to go public and have ambitious growth plans. But how suited are their respective models to cross-border e-commerce expansion?

“WE WANT TO BE THE ALIBABA AND about the future of e-commerce. Is it possible brand, products, business model and customer Silicon Valley outside of China and US.” So said for companies to enter new markets through base are still very different. It is a financial not an German internet start-up factory Rocket Internet organic growth and which operational forms – operational restructure – they are not putting earlier this year, speaking at an investor meeting B2B, B2C, C2C – travel easiest? everything together to be an equivalent to alongside its major shareholder, Investment AB Amazon.” Kinnevik. The firm also outlined its plans to rule No easy task Founded in 2007 by Samwer brothers, the internet across multiple categories – but The challenges presented by cross-border Rocket is active in more than 100 countries, without encountering China’s Alibaba Group or expansion were all too apparent when eBay and generating revenues of $1 billion last year Silicon Valley e-commerce doyens Amazon and Amazon tried to crack China in the early to mid- through e-commerce and online marketplaces eBay. 2000s. The former was effectively shut out by an for everything from taxis to meal deliveries. Alibaba is on the brink of a $25 billion IPO in aggressive Taobao, Alibaba’s C2C platform, while In a previous interview with AVCJ, Tito Costa, the US, which would be the largest stock market the latter bought local player Joyo but failed to managing director for Rocket in Southeast Asia, offering ever seen. Rocket is on a similar path, achieve much traction with it. noted that although the company is replicating albeit towards a smaller goal. J.P. Gan, managing partner at Qiming Venture approaches in different regulatory environments The firm has announced plans to raise Partners, says he has seen little evidence of and local situations, he sees the footprint, model EUR750 million through a listing on the Frankfurt Alibaba risking the same fate in new markets. and mindset as the same. “We take on the Stock Exchange later this year. It has also recently “They’re doing well by providing a platform for market risk of acquiring enough customers at a created Global Fashion Group, combining five multinational brands to enter China as well as reasonable cost and getting the customers to fashion e-commerce brands it has established in helping Chinese merchants to sell products buy enough to make it profitable in the long run,” Costa said. Rocket’s biggest e-commerce success has B2C e-commerce sales worldwide been Zalando, Europe’s largest online fashion retailer, which is preparing for a listing. In 2.5 25 Southeast Asia, the company has gained traction 2.0 20 with Zalora, a copycat of US player Zappos, and Amazon-clone Lazada. According to Ardent’s 1.5 15 Vanzyl, Rocket owns the largest e-commerce % 1.0 10 players in the region, given the two sites US$ trillion previously raised about $700 million within two 0.5 5 years. 0 0 The fragmented nature of the Southeast Asia 2012 2013 2014 2015 2016 2017 market requires a degree of localization. Zalora % growth Sales ($ trillion) provides brands and styles that are relevant to

Source: eMarketer particular markets, such as Muslim collections for Indonesia and Malaysia as well as specific local offerings for Vietnam and the Philippines. emerging markets, including Jabong in India and overseas,” he says. “I don’t see them becoming an Logistics systems are also run independently. Zalora in Southeast Asia. Rocket and Kinnevik are independent international e-commerce player Compared to Rocket and Amazon, domestic the largest stakeholders in the new venture. without a China angle.” players like Singaporean online cosmetics retailer The move endows Rocket with scale and Rocket, on the other hand, appears to have Luxola and luxury bags seller Reebonz are much potential cross-border clout, and serves as further international expansion written into its DNA, smaller in size. One of the reasons is that scaling evidence of its Alibaba-size ambitions. The key with a strategy that involves taking concepts that up by entering new markets is difficult for them. difference between the two is that while Alibaba have worked in developed markets and rolling “It’s very difficult to expand into new operates in one market, Rocket has a presence out replicas in the developing world. But there is geographies but this is something Rocket in many. It remains to be seen whether the skepticism as to whether Global Fashion Group has definitely excelled at,” says Vinnie Lauria, Chinese company seeks to convert its domestic constitutes a true cross-border entity. managing partner at Golden Gate Ventures. “As dominance into a global proposition. “What they have done is to restructure a regional investor, that’s something we look to The transitional periods in which the two so they could list the parent company,” says help with, through connections on the ground, companies find themselves and the areas of Adrian Vanzyl, CEO of Ardent Capital, which partnerships, and sharing inside information commonality and contrast in their business has a number of e-commerce investments in between our CEOs in different markets.” models and ambitions, naturally invite questions Southeast Asia. “The company itself, including the However, the fragmentation of Southeast

10 avcj.com | September 16 2014 | Volume 27 | Number 34 FOCUS [email protected]

Asia arguably works in Rocket’s favor. Taking on “Over time, I don’t see a problem in Chinese motivation is to form a giant holding company incumbents that have already achieved scale products being accepted by users outside of for purposes of the IPO. “They have a bunch of in their home markets is another challenge China. The main task is to make sure the delivery other companies, from taxi ordering to food entirely. Amazon and eBay found this in China, and payment settlement systems work in a delivery, and there has been no announcement where Rocket has also struggled. India is similarly way to which overseas users are accustomed,” about these consolidating. Maybe they will in the problematic. Amazon has arrived and is spending he says. “It will require Chinese companies to future though.” aggressively to acquire market share, prompting overcome cultural barriers and develop a better The notion that a listed Rocket might domestic players Flipkart and Snapdeal to follow understanding of foreign markets through hiring ultimately carve out its fashion e-commerce suit, raising ever larger rounds of funding. more local staff. It’s a learning process.” segment through a sale to trade buyers is As for smaller Chinese internet players, also treated warily, given the complex nature Aladdin’s cave David Wei, founding partner and chairman at of the management structure. But Vanzyl In this context, Alibaba’s foray into the US is Vision Knight Capital, argues that most of them believes combining the entities could also interesting. Last month the Chinese company shouldn’t go international if they are targeting serve an operational end – improving efficiency unveiled 11main.com, an e-commerce business offering similar services to Amazon and eBay as a marketplace for smaller vendors. The site will “It is a financial not an operational restructure – come into operation in November, but there are numerous obstacles in its path. they are not putting everything together to be an First, it took Amazon and eBay a long time equivalent to Amazon” – Adrian Vanzyl to get established in the US, so 11main must be patient in collecting data and developing an understanding of US consumers. Second, areas already dominated by local players. and lowering costs by removing duplicated Alibaba’s competitive advantage at home – the Without a truly disruptive technology, there infrastructure, warehousing, call centers and so-called Alibaba ecosystem – is less telling in is very little these companies can offer local payment systems. overseas markets. For example, users have the consumers apart from cross-border transactions. option of paying for goods by credit card; it is “A company cannot just decide one day Loose threads not a case of Alipay, Alibaba’s payment service, or to be an international player. The company’s Despite Rocket’s dominant presence in Southeast nothing. international operations must bring extra value Asia, Ardent sees a huge gap running all the way In addition, while the Alibaba B2B platform to the local consumers,” Wei says. “If Taobao down to multiple categories below. With this has allowed Chinese suppliers to gain traction allows US consumers to buy products from in mind, it is investing in e-commerce sites that with US customers, the same does not China, or enables Chinese consumers to buy are in competition with Lazada and Zalora but necessarily apply to the approximately 8 million products from the US, then Taobao cross-border focus on particular categories, such as health merchants doing B2C trading through Tmall. is necessary. Otherwise, it’s not necessary.” supplements. Developed markets consumers will favor familiar As a result, US internet companies have This idea of expanding into different verticals international brands over Chinese names they do focused on cross-border transactions in China. is also visible in China. Venture capital firms not know. EBay partnered with PayPal to enable Chinese are making investments along these lines and This doesn’t mean B2C is impossible for merchants to open shops online and sell there have even been cases of strategic players Alibaba in the US, it’s just hard to build anything Chinese-made products to US consumers. facilitating an exit by acquiring niche operators in order to boost their own coverage. Earlier this year, VC-backed online retailer Vipshop agreed to B2C e-commerce sales by region ($b) buy a 75% stake in Lefeng.com, adding cosmetics 2012 2013 2014 2015 2016 2017 and fashion products to its platform. “Vipshop is a

Asia-Pacific 301.2 383.9 525.2 681.2 855.7 1,052.9 good example of how an e-commerce company can grow from one vertical to become more North America 379.8 431.0 482.6 538.3 597.9 660.4 general,” GGV’s Tung says. Western Europe 277.5 312.0 347.4 382.7 414.2 445.0 A final issue in the cross-border debate Central & Eastern Europe 41.5 49.5 58.0 64.4 68.9 73.1 revolves around asset-light marketplaces versus asset-heavy online retailers. Lauria argues that it is Latin America 37.6 48.1 57.7 64.9 70.6 74.6 easier for a marketplace like Alibaba to enter new Middle East & Africa 20.6 27.0 33.8 39.6 45.5 51.4 geographies but the experiences of eBay and Source: eMarketer, Jan 2014 Craigslist suggest it doesn’t apply to emerging markets. Ardent’s Vanzyl adds that it ultimately like the market share it enjoys at home. In Amazon wants to export directly to the Shanghai depends on a company’s long-term game plan, emerging markets like Russia and Turkey, Free Trade Zone, giving Chinese consumers and whether it is willing to commit huge sums to Aliexpress, Alibaba’s international subsidiary, has direct access to US-made products. creating logistics systems from scratch. become a leading player. Hans Tung, managing On this basis, Rocket’s Global Fashion Group “The marketplace model is much cheaper partner at GGV Capital, estimates that only the initiative is not meaningful unless it creates because you’re not holding the inventory,” he top 10% of Alibaba merchants offer products of synergies between India, Southeast Asia, Middle says. “But in the long term, individual brand sufficient quality to stand a chance in developed East and Russia. Golden Gate’s Lauria agrees online retailers have more sustainable margins markets. with Vanzyl of Ardent that Rocket’s primary and therefore a competitive advantage.”

Number 34 | Volume 27 | September 16 2014 | avcj.com 11 FUNDS [email protected] LeapFrog jumps to $400m fundraise

“EMERGING CONSUMERS ACROSS AFRICA and Zurich Group followed up with to create value in their businesses, including and Asia are working to achieve prosperity and commitments. product design, distribution development and security for their families and businesses, but Kuper says LPs were motivated to invest for enhanced governance,” Kuper explains. most have yet to reach the middle class. There is a variety of reasons, including “a recognition Fund II is three times the size of its 2009 an immense demand for transformative financial of the enormous opportunity presented by vintage predecessor and as a result the equity tools,” says Andrew Kuper, founder and CEO of the emerging consumer market, the demand check range has increased from $5-20 million to microfinance specialist LeapFrog Investments. for financial services by this market, and by $10-50 million. The first investment has already Having closed its second fund last week at LeapFrog’s philosophy of ‘profit with purpose.’” been completed: a $29 million commitment to $400 million, LeapFrog – which is With an addressable market Indian non-banking finance company (NBFC) backed by George Soros and J.P. that comprises billions of people IFMR Capital. Morgan Chase – has a renewed in need of affordable financial LeapFrog is open to a broad range of exit mandate to support high-growth services covering insurance, options, including IPOs, trade sales and selling financial services companies that savings, pensions and payments, back to the promoter. Its most recent exit from will provide these tools. LeapFrog breaks down its target Fund I was the sale of Express Life – a high- The fund launched in January companies into three major growth provider of life insurance and savings 2013 and arrived at a first close groups: financial institutions, products in Ghana – to Prudential in December of $204 million the following Leapfrog: Emerging finance distributors of financial products, 2013. The investment is said to have delivered an September. LPs that signed up and enablers of financial services IRR of 82%. in the first round included MetLife, Prudential, such as administrators or technology platforms. LeapFrog estimates that Fund I portfolio XL Group, Achmea, PartnerRe and Swiss Re, as In addition to sitting on the board of companies have reached 22.7 million people well as developmental financial institutions CDC portfolio companies, LeapFrog also seeks active across 16 countries. These companies focus Group, DEG, the European Investment Bank and involvement below board level. “Because of our on customers earning under $10 a day, whose FMO. The vehicle came in oversubscribed as deep operational experience in financial services, collective spending power is forecast to rise to $5 AIG, Alliance Trust, AXA, HESTA, RGA Reinsurance we work closely with portfolio companies trillion over the next $10 years.

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avcj.com DEAL OF THE WEEK [email protected] Aggressive demand for aggressive chemicals

TANKERS USED TO SHIP CHEMICALS recent investment in Greathorse Chemical. firm that manages the Greathorse fleet as well require a degree of customization. Smaller than The PE unit is contributing $65 million to the as those of select third-party clients. The latter normal tankers, they are divided into self- company for a 40% stake. SCPE’s partner, Tiger company will provide technical and shipping contained compartments so that cargoes can be Group Investments, is putting in $30 million management services to Greathorse Chemical as loaded without any mixing. There may also be while another $65 million will come from other it scales up. specialized heating systems to keep chemicals financial investors. Shanghai-based Greathorse Part of SCPE’s value-add is geographic viscous in transit. And then the tanks themselves Chemical currently has eight vessels with four coverage. The captive private equity unit are sometimes made from stainless steel. more under construction. The operates in the same regions as “The majority of chemical tanking vessels investment will be used to fund its parent bank – Asia, Africa and come with epoxy or marine lining and they can the construction of new vessels the Middle East – and Greathorse be used for carrying vegetable oils. Stainless as well as acquisitions through Chemical sees these as target- steel vessels must be used for the transport of the resale market. The firm wants rich areas. fine and acidic chemicals,” says Greg Karpinski, to grow the fleet to more than 20 “The investment thesis is managing director at Standard Chartered Private and become a top 10 player in built around the operating and Equity (SCPE). “The number of stainless steel the chemical tanking space. commercial competency of the vessels in operation globally is still relatively small The eight vessels in operation Greathorse: Chemical demand teams that are going to run the compared to the overall chemical tanker fleet comprise a fleet that Tiger Group venture and the overall supply and will need to rise to meet increasing demand has been operating for the past two years. The and demand characteristics for fine chemicals for transportation services.” specialist maritime investor already has a string and vegetable oils,” Karpinski adds. “This is tied Demand to ship high-end chemicals – sulfuric of customers, including Shell, BP, Samsung in part to the massive increase in production of acid, phosphoric acid, acetone and ethanol and Wilmar International, and relationships shale gas in the US and the expected increase dichloride are among those that would require with leading shipyards. It is also an investor in the production of various petrochemicals. A stainless steel tanks – and customers’ willingness in Greathorse Group, a shipper that operates significant amount of additional production will to pay a premium for the service is behind SCPE’s separately to Greathorse Chemical, and the need to be transported.” Mekong delivers golden return

AS THE OFFICE WORKERS CLOCK OFF IN founders as well. Mekong has generated a net second-tier cities, although Vuvuzela is also Hanoi and Ho Chi Minh City, Vuvuzela outlets multiple of 9.1x and an IRR of 45.1% on an initial expected to catch on in these markets. begin to fill up. It was supposed to be a Hooters- commitment of $1.5 million. The company was founded by five locals style casual dining chain – and the female staff SCPE is buying into a firm that operates 11 who had previously spent many years in Russia, dress accordingly – but Vuvuzela has morphed proprietary restaurant brands across 67 outlets and two of them are still actively involved in into a very local beer club. Big screen TVs show and is targeting 120 outlets within three years. In managing the business. Ovel puts their success fashion shows instead of sports; discounts are 2008, it was a five-outlet mushroom hotpot chain down to a willingness to absorb ideas from other offered to groups who buy 100 glasses of beer; with a business model closer to markets. The cost efficiencies and as the night wears on DJs take up residency fine dining than the mass-market derived from chef-less kitchens and the whole place turns into a disco. affordable approach that has – deliveries are made to outlets “Vuvuzela has democratized the bar scene,” enabled it to achieve scale. from central facilities – were a says Chad Ovel, a partner at Mekong Capital, “We wanted there to be key part of this and Mekong took which invested in Vuvuzela’s parent company, quality service but not at an the management team to Hong Golden Gate, in 2008. “It is astonishing to see the outrageous price,” says Ovel. “We Kong to see how it was done. number of office worker females going there and spent a lot of time on pricing They also visited Lettuce hitting the beers and chicken wings. We didn’t strategy. Even though we had Golden Gate: Raising the bar Entertain You in Chicago, which expect this – we thought it was more about high inflation in Vietnam we kept has around 50 different concepts casual sit-down dining – but there was always the pricing stable by improving supply chains scattered across more than 100 restaurants. At the idea that the more concepts we could create and inventory management.” the time Golden Gate was struggling with the that were chef-less kitchens, the better.” The second concept Golden Gate introduced, management structures for 10 concepts. “It Last week, Mekong exited Golden Gate rotary express hotpot chain Kichi-Kichi, targeted gave them a deeper understanding of how to as Standard Chartered Private Equity took price points that appealed to a broader incentivize brand managers,” Ovel explains. “They a significant minority stake in the business consumer demographic. Kichi-Kichi is at the are generally motivated to act like individual for $35 million, acquiring shares from the forefront of the company’s expansion into CEOs rather than as back office.”

Number 34 | Volume 27 | September 16 2014 | avcj.com 13 15th Annual Private Equity & Venture Forum India 2014 2-3 December • Taj Lands End, Mumbai

MODI-F.I.E.D. - FUELLING INDIA'S ECONOMIC DEVELOPMENT

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 Opening panel session on the INR18,090/ State of Play for PE in India US$300  Executive address by Renuka Ramnath, Founder, MD & CEO of MULTIPLES ALTERNATE ASSET MANAGEMENT Peter Casey  Investor Selector: a highly interactive and Executive Chairman, entertaining session on “What do LP’s really CLADDAGH RESOURCES look for in a GP when deciding where to Investor, DRAGONS’ DEN Author, THE WORLD’S commit their money” GREATEST COMPANY: THE STORY OF TATA

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Scan the QR Join your peers code with your Tweet #avcjindia mobile phone to access the latest avcjindia.com event updates 15th Annual Private Equity & Venture Forum WEE YAP YEO | INDUSTRY Q&A India 2014 [email protected] 2-3 December • Taj Lands End, Mumbai Temporary solutions United Overseas Bank (UOB) has teamed up with Orix Corp. to launch a $200 million Southeast Asia mezzanine fund. Wee Yap Yeo, head of at UOB, explains the strategy

Q: Why is the fund being wants to go for an IPO in two Asia – impact the mezzanine launched now? years’ time, it has some senior space? A: We had been planning this for a debt and wanted to replace A: There is a macro event but couple of years. For this business, one of the banks. It went to my what is the impact on individual it is easier to operate as a fund corporate banking colleagues companies? For example, coal MODI-F.I.E.D. - FUELLING INDIA'S ECONOMIC DEVELOPMENT than as a unit within a bank. and they liked the company isn’t particularly attractive right By coincidence, Orix was also but the gearing was quite high, now. There are plenty of low looking for exposure in this area so they asked us if we could quality, high cost producers Keynote address Register before in Southeast Asia. It was a good come in and replace the senior that can’t survive and they are 17 NOVEMBER match for UOB’s strengths. The debt. However, it was an issue of looking for capital to strengthen relationship between UOB and convincing a guy paying a 4-5% the balance sheet. For us, it is What’s hot this year? to SAVE Orix goes back to the early 1970s. coupon on senior debt to pay us not a very good investment 20-25%. We did convince him. opportunity – we can try to  Opening panel session on the INR18,090/ Q: What sort of companies are We said, “You’re going for an IPO fix financial issues, we can’t fix you targeting? and we can help you restructure market issues. Then there are State of Play for PE in India US$300 A: If the company is sizeable it the company in a way that the “We like to do a industries that aren’t so affected.  can just tap the capital markets, net profit increases by 50%. We debt component For example, the consumer-retail Executive address by Renuka Ramnath, so we are looking at small to will then take part of the value space is still growing, real estate Founder, MD & CEO of MULTIPLES ALTERNATE mid-size companies. They can we have created for you.” In first and then still looks okay. You also find ASSET MANAGEMENT get bank financing but perhaps another situation, we are looking we get warrants companies that are looking to not enough to cover all of their at a company right now – a listed expand beyond Indonesia, to Peter Casey  Investor Selector: a highly interactive and financing needs. There is a gap business of decent size – that that allow us Malaysia, Thailand or China. In Executive Chairman, entertaining session on “What do LP’s really and we can help fill it. They has borrowed money from the to convert part addition to providing capital, we CLADDAGH RESOURCES look for in a GP when deciding where to might not actually need capital financial markets with very strict can go through our databases Investor, DRAGONS’ DEN for that long. A businessman may covenants. It is a capital intensive of the debt to and figure out who could be a Author, THE WORLD’S commit their money” need money to build a factory business and they need to buy good business partner in the GREATEST COMPANY: THE and get it into production, but assets to grow, but the more equity” target market, or who could be STORY OF TATA once the revenue ramps up and they buy the closer they get to a potential customer or a lower- he is generating cash flow then the covenant limits. We lend cost supplier. For the latest programme and speaker line-up, visit avcjindia.com the credit metrics are okay. He them the money so they can find a way to help him achieve needs some kind of solution for grow, minimize the dilution and his goals while achieving our Q: In what other ways does the 1-3 years and he doesn’t want further down the road they raise desired returns with our required banking connection help? Registration enquiries: Sponsorship enquiries: too much equity dilution. a rights issue and take us out. We protections. A: We save a lot on deal origination Yeni Kittrell T: +852 3411 4836 Anil Nathani T: +852 3411 4938 also do M&A financing, corporate resources. With China, it’s one E: [email protected] E: [email protected] Enquiry Q: Mezzanine financing can restructurings. It is very varied. Q: What sort of returns do you system and one language, but cover everything from equity need? Southeast Asia is extremely investment to private lending. Q: Do you find that as companies A: We are running at about a 20% fragmented. Indonesia is the What will the fund focus on? get comfortable with the IRR. We get an upfront fee from largest market but then you have Asia Series Sponsor Co-Sponsors A: Solutions are tailor-made to concept of mezzanine investments, then an interest Thailand, Malaysia, Singapore, the situations we come across. financing their requirements coupon and an equity right. Philippines, Myanmar – and each One angle is growth capital. A become more complex? Returns come in most quarters country is a market on its own. company wants to buy assets, A: Many mid-size companies are so there is a very low j-curve If you do a deal in Thailand, how grow for three years and then go not that sophisticated. You are effect. We also plan on recycling are you going to conduct your for an IPO. That’s pretty standard. dealing with a businessman capital during the investment due diligence? We can draw on We typically like to do a debt who is 50 years old and has period. An investment may last the bank’s resources. If we are Knowledge Sponsor Luncheon Host Cocktail Reception Host Exhibitor component first and then we get been running the company for two years and then the proceeds doing a deal in Indonesia we warrants that allow us to convert 30 years. He needs $50 million, go back into the fund. can map out the whole family part of the debt into equity. goes to the bank and it agrees for three generations. We know We are also looking at some to give him $30 million so he Q: How did the macroeconomic what businesses the guy has, his form of advisory business. For has to cover the remaining $20 volatility in Indonesia – the areas of focus, where he sits in Scan the QR Join your peers code with your example, there is a company that million on his own. We try to biggest market in Southeast the family hierarchy. Tweet #avcjindia mobile phone to access the latest avcjindia.com event updates Number 34 | Volume 27 | September 16 2014 | avcj.com 15 11-13 November, Four Seasons Hotel Hong Kong avcjforum.com Keynote addresses: John Connaughton Scott Kupor SAVE Managing Director Managing Partner BAIN CAPITAL ANDRESSEN HOROWITZ US$200 until 10 October How should the fund of fund model evolve to survive? Industry veterans share Don’t forget the their thoughts in our exclusive executive interview with: discount code Volkert Doeksen D. Brooks Zug Co-founder Senior Managing Director and Founder GOLDENWEEK_HKE14 ALPINVEST PARTNERS HARBOURVEST PARTNERS SIGN UP NOW! Senior Professionals: Weijian Shan Kok Yew Tang Susan Carter Group Chairman & Chairman & Managing Partner Chief Executive Officer Chief Executive Officer AFFINITY EQUITY PARTNERS COMMONDFUND CAPITAL PAG

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