Asia’s News Source avcj.com March 03 2015 Volume 28 Number 08

EDITOR’S VIEWPOINT Investors flock to join China VC gold rush Page 3

NEWS Accel, AlpInvest, Alibaba, Carlyle, CLSA, Cool Japan Fund, CPPIB, CVC, GGV, GIC, , KKR, LACERA, Matrix, Navis, Northstar, OTPP, PEP, Sumitomo Mitsui, TPG Page 4

FUNDS Shunwei broadens scope by entering RMB space Page 9

LP INTERVIEW Arizona PSPRS’ patient approach to Asia PE Page 10

The next big thing AVCJ RESEARCH VCs want to help firms collect big data and show them how to use it Page 6 Data f ile Page 11

DEAL OF THE WEEK FUNDS

Therapeutic returns Bigger and better? Bain targets Japan hot spring phenomenon Page 8 Baring Asia closes Fund VI at bumper $3.9b Page 9

EDITOR’S VIEWPOINT [email protected]

Managing Editor Tim Burroughs (852) 3411 4909 Staff Writers Andrew Woodman (852) 3411 4852 Winnie Liu (852) 3411 4907 Venture in bloom Holden Mann (852) 3411 4964 Creative Director FLIPPING THROUGH THE PAGES OF A billion, is a good example. Asia is no stranger Dicky Tang men’s magazine in an airport lounge, I can’t help to the VC mega-deal, however, India’s FlipKart , Designers but notice that double-breasted suits being which is said to be eyeing a $1.7 billion round of Catherine Chau, Edith Leung, Mansfield Hor, Tony Chow hailed as one of the next big trends in menswear. funding, is valued at $15 billion, while in China Yes, the Gordon Gekko look, with some updates, smart phone maker (which is profitable), Senior Research Manager is back. And like the fashion industry, certain recently received a $1.1 billion injection at $45 Helen Lee investment themes will undergo a reboot and billion post money valuation. Research Associates Herbert Yum, Jason Chong, come back into favor. This story wouldn’t be complete without Kaho Mak One of the best recent examples is the plenty of liquidity events, which are also at record Senior Marketing Manager resurgence of investments into internet and highs, even though the Alibaba Group IPO threw Sally Yip technology companies, in particular those with the dollar proceeds figure completely out of Circulation Administrator more innovative models. This is of great benefit whack. Prudence Lau to the industry, which until a The gold rush to find the next big start-up has Subscription Sales Executive couple of years ago had largely fallen out of favor even spread to Asian governments. From funding Jade Chan with LPs. The tough times are mostly behind the schemes to incubators to mentorship programs, Manager, Delegate Sales industry now and the future looks bright. Or there is no shortage of initiatives intended to Pauline Chen does it? attract talented people capable of starting their Director, Business Development In China, arguably the most successful own companies. Venture capitalists are also Darryl Mag venture capital market outside of the US, the being courted as preferred investors for their Manager, Business Development amount of capital raised for new funds reached roles in providing risk capital and nurturing this Anil Nathani, Samuel Lau $7.2 billion in 2014, about twice the previous next generation of entrepreneurs, although some Sales Coordinator year’s figure. There has been a similarly large of these incentives may not necessarily attract Debbie Koo increase in investment. For 2014, AVCJ Research top-tier firms. Conference Managers has records of 677 VC deals worth a cumulative It is truly good news that venture capital Jonathon Cohen, Sarah Doyle, $8.2 billion. That’s an average of $12 million per is shining once again. The industry’s role in Conference Administrator investment – higher than the comparable 1999 identifying, investing and nurturing the next Amelie Poon figure ($10 million per investment) but still lower generation of innovators is important if Asia is Conference Coordinator Fiona Keung, Jovial Chung than the $14 million per deal average posted in to continue on its current growth trajectory. 2003. There are some signs – and concerns – about Publishing Director Is it a sign that investments are getting more overheating but certainly the investors of today Allen Lee expensive or are there simply more very large have a better understanding of long-term deals taking place? The answer is certainly a bit of business models. both, but the latter phenomenon is the one really Incisive Media Unit 1401 Devon House, Taikoo Place moving the needle. 979 King’s Road, Quarry Bay, In the US, there is no shortage of still unlisted T. (852) 3411-4900 (and unprofitable) companies with valuations Allen Lee F. (852) 3411-4999 in excess of $1 billion raising money from Publishing Director E. [email protected] URL. avcj.com investors. Four-year-old Uber, last valued at $40 Asian Venture Capital Journal Beijing Representative Office No.1-2-(2)-B-A554, 1st Building, No.66 Nanshatan, China VC investment Chaoyang District, Beijing, People’s Republic of China 10,000 1,000 T. (86) 10 5869 6203 F. (86) 10 5869 6205 E. [email protected] 8,000 800

6,000 600

The Publisher reserves all rights herein. Reproduction in whole or 4,000 400 Deals in part is permitted only with the written consent of US$ million AVCJ Group Limited. 2,000 200 ISSN 1817-1648 Copyright © 2015

0 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20142013 No. of deals Investment (US$m)

Source: AVCJ Research

Number 08 | Volume 28 | March 03 2015 | avcj.com 3 NEWS

India gives PE funds tax set up this year – utilize the HK$220 billion ($28 ASIA PACIFIC billion) land fund generated from government pass-through status land sales, plus one quarter to a third of annual TRS Illinois backs RRJ, Private equity funds are to be given tax pass- budget surpluses as periodic top-ups. Carlyle Japan funds through status as part of reforms outlined in India’s first full budget since Prime Minister China’s online drugstore US-based Teachers’ Retirement Narendra Modi swept to power in May last year. System (TRS) of the State of Illinois is backing Finance Minister Arun Jaitley said that all 7LK raises $48m from VCs RRJ Capital’s third flagship fund and The Carlyle alternative investment funds (AIFs) under Chinese online drugstore 7LK.com has raised Group’s third Japanese fund as part of category I, which includes infrastructure vehicles, RMB300 million ($48 million) in a Series A $900 million worth of commitments. RRJ Capital and category II funds, which include sector- round of funding from Govtor Capital, Grand Master Fund III will get $75 million while $30 specific and sector-agnostic funds, will be Yangtze Capital and TusPark Ventures. The million will go to Carlyle Japan Partners III. included in the reform. This means that dividends site was launched by Guangzhou Qilekang from such vehicles will not be taxed at the fund Pharmaceutical Chain, a privately-held pharmacy Navis agrees to Domestic chain, in 2010. Group carve-out Alibaba to launch fund for Malaysia-based GP Navis Capital Partners has agreed to buy Domestic Medical Division Taiwan start-ups (DMD), the cold chain medical equipment unit Chinese e-commerce giant Alibaba Group has of Sweden’s Domestic Group. DMD makes and earmarked NT$100 billion ($316 million) for a distributes a range of cooling and freezing not-for-profit fund that will be used to boost medical equipment. The financial terms of entrepreneurship among young people in the deal were not disclosed. DMD generated Taiwan.. approximately EUR43 million ($49 million) in revenue in 2014. 58.com acquires Chinese

level; the tax liability will simply flow through to real estate platform AUSTRALASIA the limited partners. Category III funds, which Chinese online marketplace 58.com, a VC-backed includes hedge funds, will not receive pass- classifieds website, has acquired Anjuke, an KKR’s Australia head Justin through status. online real estate listing platform, for about $267 In addition, Jaitley announced the deferment million. 58.com has issued about five million Reizes retires of taxation under the controversial general anti- new ordinary shares and paid an additional $160 Justin Reizes, head of KKR Australia, is retiring avoidance rule (GAAR) by two years. The rule has million in exchange for 100% of Anjuke. after more than 15 years with the firm. He will caused concern within the investor community, depart at the end of March. Reizes joined KKR in particularly because of the lack of clarity it offered N5 Capital launches $200m 1999 and played a key role in investments such over the taxation of private equity funds. as Tenovis, , Seven Media, and Santanol. It Steps have also been taken on the taxation debut VC fund is not yet known who will take up Reizes’ role. of real estate investment trusts (REITs) and N5 Capital, a Beijing-based venture capital firm, infrastructure investments trusts (INViTs). has launched its debut US dollar-denominated PEP exits the last of its Provisions include the exemption of long-term fund with a target of $200 million. N5 Capital capital gains tax on disposal of units, and pass- backs early-stage companies across various stake in Australia’s Veda through status for REITs with respect to rental segments in the mobile internet space. Pacific Equity Partners (PEP) has sold its entire income from trust-owned assets. remaining 20% stake in Australian Securities Online drugstore 7LK raises Exchange-listed credit-checking firm Veda Group. The A$382 million ($301 million) transaction saw other functions needed to run a small business. $48m from VCs the Australian GP sell 165 million shares at A$2.31 The investment will give Xero a cash balance of Chinese online drugstore 7LK.com has raised apiece. NZ$285 million. RMB300 million ($48 million) in a Series A round of funding from Govtor Capital, Grand Accel, Matrix back NZ Yangtze Capital and TusPark Ventures. The GREATER CHINA site was launched by Guangzhou Qilekang accounting software firm Pharmaceutical Chain, a privately-held pharmacy Accel Partners and Matrix Capital have together HK’s Future Fund advised chain, in 2010. invested NZ$147.2 million ($111 million) in to target alternatives New Zealand-listed accounting software LACERA invests $75m in developer Xero. Wellington-based Xero provides Hong Kong’s Future Fund has been advised to accounting software for entrepreneurs. The target long-term, less liquid assets such as private GGV’s top-up fund platform lets users create invoices, pay bills and equity. A government-appointed working group Los Angeles County Employees Retirement wages, reconcile bank accounts and numerous also suggested that the vehicle – which will be Association (LACERA) has committed up to

4 avcj.com | March 03 2015 | Volume 28 | Number 08 NEWS

$75 million to a top-up fund launched by GGV CVC, others to raise up to VC-backed Ola acquires Capital. The vehicle, GGV Capital Select, is seeking to raise $450 million. The Sino-US venture capital $750m in HKBN IPO smaller rival TaxiForSure firm closed its latest fund, in which LACERA is an CVC Capital Partners-controlled Hong Kong India’s largest VC-backed taxi-booking service LP, at $620 million last year. Top-up funds allow Broadband Network (HKBN) – the territory’s Ola has acquired its smaller rival TaxiForSure for VC firms to continue supporting companies that second-largest internet service provider (ISP) – $200 million in a cash and stock deal. The deal choose to raise increasingly large sums of private has launched its with a view will help the start-up fend off its global rival Uber, funding. to raising as much as HK$5.8 billion ($750 million). to secure a leading position in the Indian online CVC, HKBN management, and other taxi-booking market. The move comes four China’s Galaxy Game investors will together offer 645 million shares months after Ola raised a $210 million in a Series at HK$8-$9 apiece. CVC owns 70.7% of HKBN, D round of funding led by SoftBank. Entertainment raises $16m with Singapore’s GIC Private controlling 11.3% Shanghai Galaxy Game Entertainment, a and fund-of-funds AlpInvest holding 8.1%. The Food ordering service Chinese mobile games developer, has raised company itself will not receive any proceeds from RMB100 million ($16 million) in a Series A round the offer. TinyOwl raises $16m of funding from Shenzhen Oriental Fortune, HKBN is already understood to have received Indian food ordering service TinyOwl has Shenzhen Green Pine Capital and Shanghai a $200 million order from Canadia Pension Plan managed to raise a $16 million Series B round of Cultural Industry Fund. The firm, which previously funding led by Matrix Partners. Existing investors raised an undisclosed seed round of funding Sequoia Capital and Nexus Venture Partners from Shanghai Buttonwood Capital, expects to also took part. At present TinyOwl only caters to launch an IPO within three years. selected parts of Mumbai. The start-up will use the extra funding to expand its footprint in the NORTH ASIA India SOUTHEAST ASIA KKR completes DJ equipment unit purchase TPG, Northstar in part exit KKR has completed its acquisition of Japanese electronics manufacturer Pioneer Corporation’s from BTPN DJ equipment division. The financial details of Investment Board (CPPIB), which will act as TPG Capital and Northstar Pacific Partners have the transaction were not disclosed but the deal cornerstone investor. The offering has also drawn made another partial exit from Indonesian lender is said to be worth about JPY59 billion ($551 about 40 anchor investors, including hedge funds Bank Tabungan Pensiunan Nasional (BTPN), million). The investment is KKR’s first in Japan and long-only funds. selling a 17.5% stake to Japan’s Sumitomo since it acquisition of an 80% stake in Panasonic’s CVC bought HKBN from Hong Kong Television Corp. for IDR5.93 trillion ($461.8 million). TPG healthcare business for JPY165 billion. Network – then City Telecom – in early 2012 for and Northstar offloaded 1.02 billion shares at HK$4.87 billion. It sold a $40 million stake to GIC IDR5,800 apiece to Sumitomo unit Summit Nippon Venture, ATR set up and a $29 million stake to AlpInvest Partners Global Capital Management. $42m specialist tech fund three weeks later. The IPO is set to be priced on March 4. OTPP backs Singapore Nippon Venture Capital (NVC) and the Goldman Sachs, J.P. Morgan and UBS are serving Advanced Telecommunications Research as joint sponsors and joint global coordinators, mobile platform Garena Institute International in Kyoto have set up with CLSA and HSBC acting as joint bookrunners. Ontario Teachers’ Pension Plan (OTPP) has a JPY5 billion ($42 million) fund for niche led a new round of funding for Singapore- technology investments. The vehicle is also headquartered mobile internet and gaming backed by Omron Ventures, Shinsei Bank, Kyoto platform Garena. The size of the investment was Bank, Sumitomo Electric Industries, auto parts SOUTH ASIA said to value the company, founded in 2009, at manufacturer Suncall, and telecommunications $2.5 billion. giant KDDI. TPG buys $146m stake in Manipal Hospitals KV Asia invests in Cool Japan joins SDI Media TPG Capital has paid INR9 billion ($146 million) Singapore’s Aalst Chocolate purchase for a significant minority stake in healthcare KV Asia Capital has invested in Aalst Chocolate, The government-backed Cool Japan Fund has services provider Manipal Health Enterprises a Singapore-based manufacturer of premium joined a consortium of Japanese investors, led by (MHE). The terms of the transaction were not chocolate. Aalst Chocolate exports 98% of its production company Imagica Roboto Holdings, disclosed, but the GP is understood to have products to over 40 countries under five to acquire a 100% stake in US localization service acquired a 25% stake, valuing the business at brands, supplying to ice-cream, biscuits and SDI Media Group. The consortium, which also around INR36 billion. MHE is part of Manipal bakery shops, and the food service industry. includes Sumitomo Corporation, will pay a total Education and Medical Group and offers The new funds will be used to expand into new of $160 million. healthcare services across India. markets.

Number 08 | Volume 28 | March 03 2015 | avcj.com 5 COVER STORY [email protected] Number crunchers Already an established investment trend, big data is becoming increasingly mainstream. From a VC perspective, the money will be made by going specialist and helping clients turn numbers into commercial action

MORE THAN 150 NEWS WORDS WERE Given the broad definition of big data, and management software sectors. It has records of added to the Meriam-Webster dictionary last the fact it is still in its nascent stages, getting a $208 million committed across nine deals so far year. Many of them – gamification, hashtag, selfie, consistent picture of the size of the Asian market this year, compared to $244 million across 50 – find their roots in technology. is challenging. International Data Corporation deals in 2014, and $238 million across 52 deals Another tech-related word to make the list (IDC) recently predicted that the global market the year before that. was “big data.” This term has already become for big analytics – which includes big-data This does not come close to capturing the full commonplace in venture capital, first entering related hardware, software, and services – would extent of GP activity. Most investors divide big the invest lexicon several years ago, but reach around $125 billion this year and see data into three sub-sectors: data capture, data acknowledgment by Meriam-Webster is an compound annual growth of 30% over the next analytics and platforms. The latter, which includes indicator of just how mainstream the idea has five years. analytics-as-a-service (AaaS), allows companies to become. Unsurprisingly, North America and Europe act on data that is collected. To many, big data represents a broad account for a large chunk of that activity, but technological mega trend – much like mobile Asia – with its large populations and increasing After analytics or cloud computing – that cuts across all mobile adoption – is where investors are shifting Many of the early entrants into Asia’s big technology segments. However, there is also their focus. data scene were based in India and offered a growing ecosystem of start-ups that identify Jixun Foo, a managing partner with GGV analytical services. It was an obvious hub for this themselves a big data companies. Capital in Shanghai, points out that because the burgeoning sector. In many ways it represented a “The fundamental premise is that world is internet is generally a mobile-first experience natural evolution for a country in which IT-related starting to go more digital and so there is more for consumers in emerging markets, tackling knowledge process outsourcing (KPO) and data available about every transaction,’ says big data is all the more important for consumer business processing outsourcing (BPO) industries Manik Arora, founder and managing director with internet firms dealing with limited screen size. have proliferated for well over a decade. Examples of this earlier iteration of big data include companies like Mu Sigma, an India VC investment in analytics and performance, system management software in Asia and US-based company that has raised several 250 60 rounds of VC funding. It capitalizes on the need for businesses to understand and create value 50 200 from the intelligence they receive by supplying 40 150 analytics and decision support services to global 30 enterprises. 100 Deals “India has always been good with

US$ million 20 applications, even going back into software 50 10 services industry. There is a lot of domain 0 0 expertise,” says Mohan Kumar, a partner at 2011 2012 2013 2014 2015 YTD Norwest Venture Partners in India. “Essentially No. of deals Aggregate Deal Value (US$m) what you are doing is taking that business

Source: Preqin knowledge and applying it to big data.” However, increasing demand for big data services is moving away from traditional data IDG Ventures India. “You have this unprecedented “Whether you are an e-commerce provider analytics and towards platforms that not only situation where you have massive amounts of or a transportation services provider, you need help users understand the information being data being generated – and the question now is to be able to make relevant recommendations collected but also provide actionable insights. what are you going to do with it?” to the end user so data affects the whole user Manthan Software Services, for example, offers Many venture capital investors are looking experience,” he says. “There is social element business intelligence and big data analytics via to tap into the big data growth opportunity by because the information about what you like and a software-as-a-solution (SaaS) intended to help targeting companies offering to solve these data what your friends like can be captured. You have retailers and consumer products companies issues, although the services they provides can to do a better prediction and recommendation. better understand their customers and drive be very different. While it is generally accepted There is little consolidated information growth. that big data is important, opinions vary not only on investment in big data as a single sector. The firm recently received a $60 million round in terms of how the concept should be defined However, Preqin does track transactions across of funding led by Singapore’s Temasek Holdings but also where the best opportunities lie. the analytics and performance, and system with participation from Norwest. The deal also

6 avcj.com | March 03 2015 | Volume 28 | Number 08 COVER STORY [email protected]

provide IDG Venture India with a full exit while Another firm targeting the e-commerce “Big data is not just about standalone Fidelity Growth Partners India made a partial exit. opportunity is Baifendian, a data analytics start- services,” says GGV’s Foo. “It is going to be an “More and more we will see big data up backed by IDG, which provides a platform integral part of many businesses looking to transitioning into products, which is really about analyzes customers’ online shopping preferences understand their consumers, understand risk, and how big data analytics can be embedded with in order to help companies increase their online do behavioral predictions.” a product, and there are some very interesting traffic. The company raised a $25 million Series However, not all functions can easily be companies coming up,” says Jishnu Bhattacharjee, C round of funding in July of last year. However, brought in-house and there are some horizontals a managing director with Nexus Venture Partners industry participants insist that the proliferation in which third- party services are expected to in Silicon Valley. of big data start-ups has yet to reflect the size of remain in high-demand. Lightspeed’s Mi points Qubole is another Indian analytics start-up the opportunity. to companies like MediaV. that falls into this category. The Bangalore- “We think online advertising is a big sector,” and US-based firm secured $13 million in its Intellectual horsepower he says. “Not everyone can afford to do big Series B round of financing led by Norwest in One defining characteristic of many of these advertising technology – it is just not cost December. It has platform product, known as platforms is that are becoming increasingly efficient. Even [US-listed Chinese e-commerce QDS, that helps users access big data generated specialized and therefore the barrier to entry is player] JD.com, which is a $22 billion market by their companies to gain insights without the high. Unlike other tech start-ups, big data firms capitalization company, still uses Media V.” In India, VCs are also looking at horizontal opportunities in the advertising space. Vserv, “More and more we will see big data for example, is a smart data platform for mobile marketing in India and Southeast Asia. The start- transitioning into products, which is really about up, which was previously backed by IDG Ventures how big data analytics can be embedded with India, offers a flagship platform, AudiencePro, that ties together data from multiple sources such as a product, and there are some very interesting offline and online marketers, telecom operators, mobile app developers and other third party – Jishnu Bhattacharjee companies coming up” sources. It has raised a total of $18 million to date, expense of maintaining the additional hardware demand both a high-level of technological including a round raised this week from Maverick infrastructure. expertise as well as deep domain knowledge. Capital. “Our belief is the best data analytics The flip-side is that attracting talent can be a Meanwhile, investors see a lot of growth companies will be the vertical data analytics challenge. among start-ups leveraging big data expertise companies on the product side and that is what “You definitely need intellectual horsepower,” to serve very specific industries. Security is seen we have backed,” says IDG’s Arora. “If you are explains Nexus’ Bhattacharjee. “It’s not about as having enormous potential. Mi notes that a backing data analytics product companies or somebody setting up a website and putting up new generation of companies in China is using big data products companies it has got to be products like a e-commerce company. You need big data to monitor devices, servers and firewalls in an industry that generates a lot of data. Those know-how and domain understanding as well.” in real time in order to identify security threats. industries tend to be more consumer-orientated IDG’s Arora also stresses the importance of GGV’s Foo share a similar view. so our belief is that retail, e-commerce, financial human capital to big data start-ups. One of the “There will be niches area like security, services , mobile and telecom are the big key challenges is understanding how take the especially as we share more and more industries.” deluge of data, process it, and apply it to specific information online and more of your behavior is Companies in China have also recognized purposes in a way that is useful to the client. being tracked,” he says. “Security is a specialized the value of such platforms – in part because For this reason, it is important to have talent area where you would need to have a third- they are especially important in countries where across the three competences: data analytics, party provider. We have invested in a number of internet start-ups often more consumer-driven engineering, and product management. security plays in the US.” than enterprise-driven. “The main barrier to entry is having Big data is likely to remain in our lexicon for “From a consumer internet point of view phenomenal talent you can retain, and retain for some time. As it continues to plow a furrow there is a definitely a big data opportunity,” says a long time because it take two or three years to from nascent to entrenched technology, the James Mi, a co-founder and managing director of build a good product and, unlike other start-ups, companies most likely to flourish are the ones Lightspeed China Partners. “The big challenge for if you lose that talent during that process it is a able to make the most of the big data and these companies is how you acquire users cost huge issue,” says Arora. provide tailored solutions to end users. In the effectively.” Looking further down the evolutionary curve, long term, some still see big data becoming just MediaV is big data company trying to solve another potential threat to big data start-ups another part of doing business. these issues. Launched in 2009, the company is the increasing willingness of companies to “In the future intelligence will be built in,” leverages big data to help merchants market take these functions in-house, which could limit says Nexus’ Bhattacharjee “Big data investments their products to the right groups of consumers. demand for third-party analytics providers. Many might not be called big data but instead it The business raised three rounds of funding argue that as more tech companies place a will be next generation CRM, next generation from Lightspeed China, GGV and Soros Fund higher value on big data, the analytics function marketing workflow, or next generation HR Management-affiliated Quantum Strategic will become a more important part of the management systems – all of those things Partners before it was acquired by Qihoo360 business – and therefore a priority in terms of will involve processing massive amounts of Technology last year. internal infrastructure investments. information.”

Number 08 | Volume 28 | March 03 2015 | avcj.com 7 DEAL OF THE WEEK [email protected] Bain soaks in hot spring opportunity

ALONG WITH CONVEYER BELT SUSHI AND building a relationship with the founder over businesses. According to Bain, sales have lively karaoke nights, the hot spring visit is a three years. Prior to the acquisition, the company increased 30% since 2007, and revenue will uniquely Japanese pastime popular with both was run by Hiroshi Hashimoto, who started reach JPY35 billion for the year ended February. locals and, increasingly, those who visit the the business as a sideline to his circuit board The GP plans to acquire more hotels and hot country. manufacturing interest. springs resorts. “It is a really solid platform, but “It really is a staple of Japanese leisure market,” The company’s history is rooted in the we think there are many more of these hotels says David Gross-Loh, a managing director with Japanese boom period of the 1980s when out there, and the company has done a lot of in Japan. “Many many people used their new- analysis around how many there are, and there Japanese families go to a hot found wealth to open hot are hundreds,” says Gross-Loh. spring a few times a year as kind springs, among other things. What’s more, the company plans to further of standard thing they do, so it Unfortunately these businesses tap tourism growth by attracting international is a very well established large were harder to run that most visitors. Data from Japan National Tourism market, and within that there are expected, and when the Organization reveals that a record 13.4 million several growth trends.” economy turned sour in the early foreigners visited Japanese last year, a 29% Bain recently put its faith in 1990s, there were many sell-offs. jump from 2013. The government is targeting the market by acquiring Oedo- Hot springs: Leisure staple “Hashimoto purchased several 20 million visitors by 2020 - when Tokyo hosts onsen, one of Japan’s largest and brought in professional the Olympics – and encouraging tourism with traditional inn and hot spring chain operators, management to improve operations,” says Gross- measures such as less stringent visa regulations for JPY50 billion ($421 million), including debt. Loh. “He is very focused on the cost-side, he has and fewer duty-free restrictions, The company - which runs 29 spas and resorts a very smart food and beverage model, and “Tourism is always in ebbs and flows, but nationwide - is best known for the Oedo-onsen he has dropped prices enough to dramatically there is definitely a wave of tourism in Japan right Monogatari resort in Odaiba in Tokyo Bay. increase utilization of these hotels.” As a result, now and that has helped breathe new life into a Gross-Loh describes the deal as a classic Oedo-onsen has developed a reputation for very traditional and well-established market,” says Japan succession play in which Bain has been turning break-even resorts into very profitable Gross-Loh.

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To subscribe, call Sally Yip at +(852) 3411 4921 or email [email protected] avcj.com FUNDS [email protected] / [email protected] Shunwei goes local with RMB fund

IT IS A CLASSIC CHINA VC DILEMMA: OVER target of RMB500 million, was oversubscribed. “We have never managed a renminbi fund the past three years, Shunwei Capital Partners LPs are mostly from private sector and include before and we need to learn along the way has been forced to pass up on a string of a good domestic fund-of-funds and Chinese technology and work out what is the best model,” says Koh. deals because the companies wanted renminbi- companies and entrepreneurs. Institutional “Decisions to list on Chinese exchanges are denominated funding and the venture capital investors account for a substantial majority of the driven by our portfolio companies, not by us, firm only had US dollar funds. corpus. but they still account for a small “A few of them already received funding from Shunwei has invested over group of companies within the renminbi funds and they are planning IPOs in the 60 tech and internet companies internet industry.” domestic markets. It is difficult for us to convince since inception across intelligent In the renminbi and US dollar them to buy-back all shares from existing investors hardware, online education, spaces alike, the last 12 months and shift to overseas listings,” says Tuck Lye Koh, e-commerce, internet finance, have seen a substantial ramp co-founder and CEO of Shunwei. “Another issue is real estate services, online up in VC valuations. However, by the nature of the business. Some businesses are automotive services, healthcare, Koh claims to have seen more sensitive to government regulation.” new media, social networking Shunwei: Renminbi vehicle discipline over valuations in Shunwei – which was set up in September and online gaming. recent months, while the M&A 2011 by Lei Jun, founder of Chinese mobile In China, most internet companies raise market has become more active, facilitating exit phone maker Xiaomi, and Koh, formerly of capital in US dollars and so this area will feature opportunities for GPs. GIC Private and C.V. Starr Investment Advisors less prominently in renminbi fund. However, “Hopefully there will be more because a larger – confronted the dilemma by raising its own in areas such as online payment, which have number of M&A transactions makes for a more renminbi fund, which closed at RMB1 billion become difficult for foreign investors, renminbi vibrant venture market. But M&A is something ($160 million) two weeks ago. It comes about managers can claim an advantage. The crux of that’s hard for us to plan,” Koh says. “Primarily we eight months after the firm closed its second US the dollar-renminbi debate is really whether a will choose IPOs. If the business model works well dollar fund at $525 million. company’s business model is more appropriate and the team executes correctly, then an IPO is The renminbi fund, which had an initial for an onshore or an offshore listing. easier to plan for.” Baring scales up for Fund VI

BY THE TIME BARING PRIVATE EQUITY ASIA (TCDRS), Pennsylvania Public School Employees’ professionals across seven offices in Asia - more reached a first close on its sixth pan-regional Retirement System (PSERS), San Francisco City than double what it had for the last fund. fund it was clear that LP demand would not & County Employees’ Retirement System, and Despite the larger fund size, the GP will easily be met. Only four months earlier the fund the Arizona Public Safety Personnel Retirement pursue a similar strategy as before: partnering was launched with a $3 billion target, but by System. with management to support the regional October logged commitments already stood at A final close of $3.98 billion was announced growth of portfolio companies through $3.3 billion - head and shoulders above the $2.46 last week - the largest ever operational improvement, billion raised for Fund V. fundraise by an Asia-based GP. industry consolidation and cross- “Early on in the fundraise we received a very The vehicle, which includes $138 border expansion. In addition strong response from investors, particularly from million from the firm’s partners, to targeting companies in Asia, existing investors, so we knew we were going to is more than 62% bigger than Baring Asia will continue to back have a lot of demand,” Jean Eric Salata, CEO and its predecessor. However, Salata companies in Europe and North founding partner of Baring Asia, tells AVCJ. “Even believes the size of the market America with growth plans in in that first close we had the difficult situation of justifies the size of the fund Asia across numerous sectors. having to make allocations to investors on the “It think the fund size is right Big ambition: Jean Eric Salata “Deal flow has been evolving amounts they were looking for, versus what we for the opportunity now. It also for the last 4-5 years but we really thought we would be able to accommodate.” positions us as one of the largest firms in the are not doing anything different now than we By that point investors from Fund V had region, and enables us to have all the resources have been doing,” Salata says. “The market has already re-upped but a number of new to go after all the opportunities we see across the changed and there are more and larger LPs looking to commit were still working many different geographies that we are active in,” minority deals.” through their due diligence. Among Fund he says. In the past year the firm has made roughly about VI’s 105 investors are the likes Los Angeles Salata adds that in anticipation of a larger $1 billion in new equity investments with a total City Employees’ Retirement System (LACERS), fund the firm has also been growing its head transaction value of nearly $2 billion. Meanwhile, Texas County & District Retirement System count. It currently has a team of 110 investment it has distributed $800 million.

Number 08 | Volume 28 | March 03 2015 | avcj.com 9 LP INTERVIEW [email protected] Cautious optimism Over five years spent investing in Asian private equity, Arizona Public Safety Personnel Retirement System (Arizona PSPRS) has gradually moved from a pan-regional to a country-focused approach

WHEN ARIZONA PUBLIC SAFETY managers responsible for credit and real asset diligence on the team and its track record. Personnel Retirement System (Arizona PSPRS) investments. While he recognizes the potential “When we look at their strategy, they’re very first put capital at work in Asian private equity, it of country funds, governments wield substantial opportunistic and they’re consistently evaluating backed Baring Private Equity Asia’s $2.46 billion influence in each Asian market, without a local their approach,” says Chen. “The team is very fifth fund, which closed in 2010. Last week, the presence, it is difficult to foresee change. sensitive to market conditions and changes GP raised $3.98 billion for Fund VI and Arizona Arizona PSPRS followed up its commitment to strategy accordingly.” PSPRS participated once again, contributing $20 Baring Asia in 2010 with a $25 million investment Temasek Holdings and Goldman Sachs’ million. in KKR Asian Fund II in 2012, which closed at $6 commitments to Trustbridge’s previous funds “From a risk control point of view, the stability billion. also provide a sufficient reference for Arizona of the team and its downside protection give PSPRS. The pension system committed $30 us a lot of comfort, because the problem with Hybrid approach million to Trustbridge Fund IV in 2011 and re- many Asian managers is that the partners are The pension system also tries to find GPs in upped in Fund V with the same amount last year. moving around very often,” says Shan Chen, the US that have China or Asian exposure. Chen is looking to deploy 70% of the Asia portfolio manager at Arizona Healthcare-focused Vivo allocation in China, with the rest spread across PSPRS. “We don’t really expect Capital is a classic example. India and Southeast Asia, committing $20-$40 that they [Baring] will deliver Four of the firms six partners million per fund. Overall, the pension system outsize returns in the latest are based in the US but it also expects to generate a 2-2.5x money multiple and fund. But for a US-based LP has local teams in Shanghai, a 20-25% of IRR from its private equity portfolios. investing in Asia, this is a Chengdu and Beijing. The GP “We are careful in terms of the investment size pretty good choice. That’s the is currently investing its $375 in each fund. We only have about six years of same scenario for us to invest million seventh fund in the experience investing in private equity, which is in KKR.” US and China, and the latter still quite short. We want to be patient,” Shan says. With $8.1 billion in asset market is responsible for a under management, Arizona sizable portion of returns. Taking it slow PSPRS has increased its target “They have a kind of hybrid Arizona PSPRS made its first foray into Asian real allocation for private equity approach and we want to take assets around the same time it started investing from 11% to around 13% advantage of it. Since they private equity, contributing $30 million to both and currently has $1.1 billion have offices in the US, once J.P. Morgan’s Asian Infrastructure & Related invested in the asset class we want to make the call, we Resources Opportunity (AIRRO) Fund and CLSA globally. There is no specific “We chose to don’t have to worry about the Capital Partner’s Fudo Capital. Over 50% of the target for Asian exposure go for regional time difference. There aren’t corpus in AIRRO Fund was invested in India and but the pension fund wants many cross-border funds like there have been opportunities for co-investment. to have 15% deployed in funds to begin this in the market. They get On the credit side, the pension system also went emerging markets. with because more used to US-based LPs for a pan-Asian player – PAG’s Pacific Alliance Asia Arizona PSPRS has and it just makes things a bit Special Situation Fund – in 2011. committed about $150 million we don’t want easier for us,” Chen says. There are currently no plans to co-invest in Asian PE funds since it first Having cut its teeth with alongside Asian private equity GPs, mainly due to made the jump with Baring to make any regional funds, Arizona the pension system’s lack of a presence in Asia. Asia, with China the primary mistakes” PSPRS started building Nevertheless, more buyout opportunities focus. relationships with country are expected to emerge across the region, “At that time, we really managers, including China- particularly from China where cross-border deals debated a lot on whether we should go for based Trustbridge Partners, which it got to know have become an area of focus for many GPs. But regional funds or country-focused funds first,” through Stepstone and Opal Financial Group. Arizona PSPRS will, once again, remain patient. Chen says. “We could invest in country funds Trustbridge, which was set up in 2006, “In China, the buyout opportunities are by leveraging our consultants’ expertise in each specializes in and expansion stage there, such as the privatization of state-owned Asian country. However, we chose to go for investments. It has backed the likes of shopping- enterprises (SOEs) or succession planning issues regional funds to begin with because we don’t focused mobile network Mogujie and online among private enterprises. It’s logical to expect want to make any mistakes.” peer-to-peer lending platform Renrendai. that there will be more buyouts. I think those Chen, who joined Arizona PSPRS in 2007, Compared to Baring Asia and KKR, Trustbridge opportunities will play out in at least five years,” plays a solo role in overseeing private equity represents a high-risk investment and Arizona Chen says. “We will watch them closely. But I asset allocation. There are another five fund PSPRS has spent more time conducting due won’t feel bad if I miss first of few deals.”

10 avcj.com | March 03 2015 | Volume 28 | Number 08 PRIVATE EQUITY DATA FILE | AVCJ RESEARCH [email protected]

PRIVATE EQUITY IN ASIA Investment Breakdown by Country From Jan 2014 to Dec 2014 Country Deal Amount ($mln) No. of Deals No. of Disclosed Deals No. of Investee China (PRC) 35,451.2 806 543 761 South Korea 10,850.8 174 163 167 India 9,829.7 509 397 485 Australia 8,507.1 107 79 106 Hong Kong 8,495.7 34 26 32 Japan 6,488.3 567 432 551 Singapore 3,987.8 82 57 81 Malaysia 1,096.3 13 10 13 Philippines 868.7 14 10 13 Taiwan 437.1 21 16 20 New Zealand 367.2 49 37 48 Indonesia 354.8 36 17 34 Vietnam 217.3 15 8 15 Thailand 125.6 21 12 20 Sri Lanka 107.7 3 2 3 Myanmar (Burma) 42.4 5 2 5 Pakistan 11.0 3 2 3 Bangladesh 5.5 1 1 1 Fiji 2.0 1 1 1 Mongolia 0.4 1 1 1

FUND-RAISING MONITOR

CLOSED FUND Location: Hong Kong Fund Name: Baring Asia Private Equity Fund VI, L.P. Closing Amount: US$3.988 billion (final close) Launch Date: September 2014 Fund Manager/Advisor: Baring Private Equity Asia Group Ltd. Stage Focus: Expansion/Growth Capital, Buy-outs (MBO/MBI/LBO) Industry Focus: Diversified Geographical Focus: Australasia, Greater China, North Asia, South Asia, Southeast Asia Contact: Karen Ko Phone: (852) 2843-9342 Email: [email protected] Website: www.bpeasia.com Update: Baring Private Equity Asia has reached a final close on its sixth pan-regional fund at a hard cap of $3.98 billion, exceeding the original target of $3 billion. The Fund will continue its successful strategy of partnering with management teams and entrepreneurs to support their growth in Asia through operational improvement, industry consolidation and cross-border expansion. The Fund will target companies in Asia, as well as those in Europe and North America with growth plans in Asia, in a broad range of sectors. Investors in Fund VI include Pennsylvania Public School Employees’ Retirement System, which has committed $100 million, and San Francisco City & County Employees’ Retirement System, putting in up to $50 million. Public Safety Personnel Retirement System of the State of Arizona is investing $20 million.

NEW FUNDS Location: Thailand Fund Name: 500 Tuk Tuks Target Amount: US$10 million Launch Date: February 2015 Fund Manager/Advisor: 500 Startups Stage Focus: Expansion/ Growth Capital, Seed/R&D, Start-up/ Early Stage Industry Focus: Diversified Geographical Focus: Thailand Contact: Kaspar Zhou Email: [email protected] Website: www.500startups.com Update: US-based venture capital 500 Startups has launched a $10 million fund solely dedicated to Thailand. Half of the 500 Tuk Tuks fund will be used to finance early-stage startups, and the other half will be allocated as follow-up and later-stage funding.

Number 08 | Volume 28 | March 03 2015 | avcj.com 11 14th Annual Private Equity & Venture Forum China 2015 28-29 May • China World Summit Wing,Beijing

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