Asia’s News Source avcj.com May 20 2014 Volume 27 Number 18

EDITOR’S VIEWPOINT Will Australia’s start-up cuts come back to bite it? Page 3 NEWS Anthem Asia, CIMB PE, Fenox, First Reserve, GIC, Helion, Kerogen, Khazanah, KKR, NVP, TPG Page 4 DEAL OF THE WEEK VCs support iYogi’s overseas expansion drive Page 12 FUNDS Riverside raises $235m for small Page 13 CVC hits $3.5b hard cap for Asia Fund IV Page 13 INDUSTRY Q&A Allocation, Jeeves Mekong Capital’s Chad Ovel talks Vietnam Customization, competition and the rise of separate accounts in Asia Page 7 Page 15

FOCUS DEAL OF THE WEEK

All smiles in Shibuya Know your audience Japanese tech start-ups on the rebound Page 11 Qihoo buys VC-backed digital marketer Page 12 15th Annual Private Equity & Venture Forum Japan 2014 26-27 June, Conrad Tokyo

GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY avcjjapan.com Book before Prospering in the New Japan 30 May to save up to Confirmed speakers include: US$200

Shigeki Kimura KEYNOTE Hidekazu Ishida Yoshisuke Kiguchi Managing Executive Officer Investment Officer Chief Investment Officer (Global Head of Industry OSAKA GAS OKAYAMA METAL AND Finance Group) MACHINERY PENSION FUND JAPAN BANK FOR INTERNATIONAL COOPERATION Kazushige Kobayashi Tatsuya Kubo Kosei Terami Managing Director Managing Director Investment Officer and Deputy CAPITAL DYNAMICS HARBOURVEST PARTNERS Representative, Tokyo Office (JAPAN) LIMITED INTERNATIONAL FINANCE CORPORATION (IFC)

Tamotsu Adachi Richard Folsom Tomotaka Goji Managing Director, Representative Partner Managing Partner Co-Representative ADVANTAGE PARTNERS, LLP THE UNIVERSITY OF TOKYO CARLYLE JAPAN, LLC EDGE CAPITAL

Hirofumi Hirano Megumi Kiyozuka Anthony Miller Member and Managing Director Partner & Chief Executive Officer Chief Executive Officer CLSA CAPITAL PARTNERS JAPAN PAG JAPAN KKR JAPAN KK

William Saito Yuji Sugimoto Katsuyuki Tokushima President & CEO Managing Director Chief Pension Consultant, INTECUR, K.K. ASIA LLC Pension Research Centre NLI RESEARCH INSTITUTE

… and many others!

For the latest programme and speaker line-up, please visit avcjjapan.com Contact us Registration Enquiries: Carolyn Law T: +852 3411 4837 E: [email protected] Sponsorship Enquiries: Darryl Mag T: +852 3411 4919 E: [email protected] Speaker Enquiries: Sarah Doyle T: +852 3411 4842 E: [email protected]

Asia Series Sponsor Co-Sponsors

Simultaneous translation between Japanese and English will be available throughout the event Join your peers 開催言語：日本語および英語通訳同時あり Tweet #avcjjapan Scan the QR code with your phone to access avcjjapan.com 7,506 avcjjapan.com 15th Annual Private Equity & Venture Forum EDITOR’S VIEWPOINT Japan 2014 [email protected] 26-27 June, Conrad Tokyo Managing Editor Tim Burroughs (852) 3411 4909 Staff Writers Andrew Woodman (852) 3411 4852 Winnie Liu (852) 3411 4907 Policy vacuum? Creative Director Dicky Tang Designers Catherine Chau, Edith Leung, EVERYONE WANTS TO BE SILICON VALLEY. any capital from domestic VC . Mansfield Hor, Tony Chow ’s Zhongguancun area, Bangalore in India fundraising came to $267 GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY avcjjapan.com and Tokyo’s Shibuya district are among those to million last year, the highest level since 2007, with Senior Research Manager Helen Lee earn versions of the moniker by virtue of their nearly 90% of the capital going to the Medical Research Associates Book before technical might. Hong Kong and Singapore Research Innovation Fund (MRIF), a vehicle Herbert Yum, Isas Chu, Prospering in the New Japan 30 May have lofty but as yet unrealized ambitions in to help convert Australia’s medical research Jason Chong, Kaho Mak to save up to this department, with Silicon Harbor and Silicon capabilities into commercial benefits. The Circulation Manager Island, respectively. government provides half the funding and the Sally Yip If a government has its heart set on becoming private sector comes up with the rest. Circulation Administrator US$200 Prudence Lau Confirmed speakers include: a technology hub, action can be taken. The This program has survived the cull – and it Subscription Sales Executive Massachusetts Institute of Technology (MIT) even has been joined by two other fund initiatives, Jade Chan KEYNOTE targeting health and infrastructure, respectively – Shigeki Kimura Hidekazu Ishida Yoshisuke Kiguchi offers a regional acceleration Manager, Delegate Sales Managing Executive Officer Investment Officer Chief Investment Officer program through which representatives from but the casualties are greater. Commercialisation Pauline Chen (Global Head of Industry OSAKA GAS PENSION FUND OKAYAMA METAL AND government, corporations, academia, risk capital Australia, a grants program for start-ups, will Finance Group) MACHINERY PENSION FUND Director, Business Development JAPAN BANK FOR and the entrepreneurial community can draw up close and the government will no longer provide Darryl Mag INTERNATIONAL COOPERATION their own development frameworks. funding for National ICT Australia, an information Manager, Business Development Kazushige Kobayashi Tatsuya Kubo Kosei Terami Hong Kong and Singapore have turned and communications technology research Anil Nathani, Samuel Lau Managing Director Managing Director Investment Officer and Deputy words into action, although the latter has really institution. The Innovation Investment Fund (IIF), CAPITAL DYNAMICS HARBOURVEST PARTNERS Representative, Tokyo Office Sales Coordinator grabbed people’s attention. Incubation programs which sponsors VC funds, is also being axed. Debbie Koo (JAPAN) LIMITED INTERNATIONAL FINANCE and research institutes have been reinvigorated, The loss of the IFF is a great disappointment. CORPORATION (IFC) creating start-ups that not only address the local It pioneered the government-private sector Conference Managers Jonathon Cohen, Sarah Doyle, Tamotsu Adachi Richard Folsom Tomotaka Goji market but also reach into Southeast Asia. Efforts matching system used by the MRIF and only last Conference Administrator Managing Director, Representative Partner Managing Partner are underway to attract VC investors capable of year the previous administration said it would Amelie Poon Co-Representative ADVANTAGE PARTNERS, LLP THE UNIVERSITY OF TOKYO taking these start-ups to the next level. commit A$350 million to the program. Conference Coordinator Fiona Keung, Jovial Chung CARLYLE JAPAN, LLC EDGE CAPITAL In this context, the Australian government’s The logic behind Australia’s austerity budget is decision this week to scale back support for early- well-documented, but it should not come at the Publishing Director stage tech companies is truly disheartening. expense of support for high-growth industries. Allen Lee Hirofumi Hirano Megumi Kiyozuka Anthony Miller Member and Managing Director Partner & Chief Executive Officer The domestic venture capital industry has At a time when other jurisdictions are seeking Managing Director Chief Executive Officer CLSA CAPITAL PARTNERS JAPAN PAG JAPAN struggled ever since the global financial crisis to leverage the globalization of technology in Jonathon Whiteley KKR JAPAN KK when many superannuation funds began to back Asia and beyond, Australia appears to be taking away from the asset class. Several new players a backward step that may be detrimental to its have emerged in the last year or so, sourcing long-term competitiveness. William Saito Yuji Sugimoto Katsuyuki Tokushima Incisive Media President & CEO Managing Director Chief Pension Consultant, capital from US VC players and high net worth Unit 1401 Devon House, Taikoo Place INTECUR, K.K. BAIN CAPITAL ASIA LLC Pension Research Centre individuals and it this is a movement worth 979 King’s Road, Quarry Bay, Hong Kong NLI RESEARCH INSTITUTE encouraging. Rick Baker of Blackbird Ventures T. (852) 3411-4900 – one of these new firms – estimates there are Tim Burroughs F. (852) 3411-4999 … and many others! E. [email protected] 20 break-out companies in Australia that could Managing Editor URL. avcj.com eventually go public but they have yet to receive Asian Venture Capital Journal For the latest programme and speaker line-up, please visit avcjjapan.com Beijing Representative Office No.1-2-(2)-B-A554, 1st Building, Contact us Registration Enquiries: Carolyn Law T: +852 3411 4837 E: [email protected] No.66 Nanshatan, Australia VC fundraising Chaoyang District, Beijing, Sponsorship Enquiries: Darryl Mag T: +852 3411 4919 E: [email protected] People’s Republic of T. (86) 10 5869 6203 Speaker Enquiries: Sarah Doyle T: +852 3411 4842 E: [email protected] 350 F. (86) 10 5869 6205 E. [email protected] 300 250 Asia Series Sponsor Co-Sponsors 200 The Publisher reserves all rights herein. Reproduction in whole or 150 in part is permitted only with the written consent of AVCJ Group Limited. US$ million 100 ISSN 1817-1648 Copyright © 2014 50 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: AVCJ Research Simultaneous translation between Japanese and English will be available throughout the event Join your peers 開催言語：日本語および英語通訳同時あり Tweet #avcjjapan Scan the QR code with your phone to access 7,506 avcjjapan.com avcjjapan.com Number 18 | Volume 27 | May 20 2014 | avcj.com 3 NEWS

ASIA PACIFIC Australia scales back start- Tuniu shares jump on debt up funding schemes after $72m US IPO Kerogen invests $100m in Support for technology start-ups is among the Shares in Tuniu, a Chinese online package tour casualties in Australia’s austerity budget, with provider backed by DCM, Temasek Holdings, Kurdistan oil developer several programs discontinued, including the Gobi Partners and , saw its shares Hong Kong-based Kerogen Capital has invested Innovation Investment Fund, which sponsors climb 10% on their trading debut following a $72 $100 million in HKN Holding, which owns VC funds. Commercialisation Australia, a grants million IPO. The company sold 8 million shares HKN Energy, an oil and gas developer. The program for start-ups, has also been axed and at $9 apiece, the bottom end of the indicative investment, which is structured as a subscription the federal government will no longer support range. The stock ended its first day at $11.10. to convertible preference shares, will be used for National ICT Australia, an information and initial development of the Swara Tika project on communications technology research institution. National Development the Sarsang block in northern Kurdistan. The cuts, revealed in the 2014-2015 federal Fund targets technology Taiwan’s National Development Fund has AUSTRALASIA committed NT$700 million ($23.2 million) to local polysilicon maker Powertec Energy Corporation TA-owned SpeedCast and a further NT$450 million to CDIB Biotech Venture Capital Fund, which is run by China completes another bolt-on Development Industrial Bank (CDIB). TA Associates-owned SpeedCast has made its third bolt-on acquisition in Australia in 18 Digital marketing platform months, purchasing a fixed and mobile satellite solutions provider SatComms Australia for an AdSame raises $30m undisclosed sum. AdSame, a -based digital marketing firm, has secured a $30 million Series C round of TPG sole bidder for budget, are part of plans to deliver annual funding led by Taiwan’s Pacific Venture Partners savings of A$845.6 million ($795 million) over a and Dream Capital Group. Existing backers Matrix engineering carve-out period of five years. The government also intends Partners and Vertex Ventures also participated. TPG is said to have emerged as the sole to reduce R&D tax incentives, delivering cash final bidder for DTZ, the property services gains of A$550 million. The Australian Private arm of Australian engineering and property Equity & Venture Capital Association criticized the NORTH ASIA management company UGL. Sydney-based UGL budget for focusing on short-term cuts rather had expected four bids from PE investors by its than a longer-term vision for the economy. Gree Ventures in $50m first May 16 deadline. However, with just one bidder New initiatives intended to spur nascent left, current plans to sell DTZ are now in doubt. businesses include the Entrepreneurs’ close on tech fund Infrastructure Program, which will receive Gree Ventures - the corporate VC arm of the A$484.2 million over five years, in part for a fund Japanese mobile gaming firm Gree - has held GREATER CHINA backing start-ups, job creation and small firms. an initial close on its second fund of JPY5 billion There is also the Medical Research Future Fund, ($50 million). A final close of around JPY7billion is PE investors set for partial which will be seeded with A$1 billion from expected in the next three months. exits from China’s JD.com uncommitted funds in the Health and Hospitals Fund. The final target is A$20 billion. Fenox, Mizuho lead $10m , DST Advisors, Hillhouse Capital Management and Capital round for e-scooter maker Today will make partial exits from JD.com as the its North American investments in the fund. The Fenox Ventures and have led a Chinese e-commerce firm seeks to raise up to two parties will also form an Asian-focused fund $10 million round of investment in Terra Motors $1.69 billion through a US IPO. The online retailer targeting in oil projects in China and Central Asia. Corp, a Japanese manufacturer of two and three- is planning to sell 93.7 million shares at $16-18 wheeler electric vehicles. Shinsei Bank, SMBC apiece. The offering comprises 69 million in new VC-backed Jumei gains 10% Venture Capital, and Aizawa Securities also took shares, with the rest sold by existing stockholders. on debut after $245m IPO part in the round. Hainan Zhenghe invests in Jumei International Holding, a Chinese online DBJ invests $14m in beauty products retailer backed by several VC First Reserve fund investors, saw its stock jump nearly 10% on its Diamond Electric Hainan Zhenghe Industrial Group, a Shanghai- US trading debut on Friday, following a $245.1 The Development Bank of Japan (DBJ) has paid listed property leasing company, will invest $130 million IPO. The company’s shares opened at JPY1.5 billion ($14 million) for a 49.5% stake in million to First Reserve’s latest global energy $27.25 and peaked at $28.28 before slipping back in Diamond Electric, a listed electronic devices fund. The PE firm will give Hainan Zhenghe prior to close at $24.18. Jumei earlier sold 11.14 million maker. DBJ invested via the 2008 vintage UDS III notice to review acquisition opportunities from shares at $22 apiece, above the indicative range. Corporate Mezzanine, a JPY 33.6 billion vehicle.

4 avcj.com | May 20 2014 | Volume 27 | Number 18 NEWS

INCJ invests $4m in TPG, Khazanah in $132m ahead to acquire stakes in Gland Pharma and its affiliate Gland Celcus Bio Chemicals. The PE firm Customer Communications Philippines housing play will buy a 37.98% stake in Gland Pharma for $191 The Innovation Network Corporation of Japan TPG Capital and Malaysian sovereign wealth million, infusing fresh equity and acquiring a (INCJ) has invested JPY400 million ($4 million) fund Khazanah Nasional have together invested stake held by Evolvence India Life Sciences Fund. in Customer Communications (CCL), which PHP5.8 billion ($132 million) in Philippines- KKR will also purchase a 29.4% stake in Gland provides analytics for consumer purchasing based housing developer 8990 Holdings. It is Celsus from existing investors for $39.8 million. behavior. Set up in 2000, the company provides one of the largest-ever private equity deals in a customer analysis platform based on ID-POS the Philippines. The two investors committed to (identification point-of-sale) data. subscribe to 892 million shares - or about two SOUTHEAST ASIA thirds - of a follow-on offering that raised PHP9 DCM leads $14.6m round billion. They paid PHP6.50 per share and own GIC invests in Philippines about 16% of the company’s total issued shares. for CRM start-up The Philippines’ Housing and Land Use hospital business DCM has led a JPY1.46 billion ($14.6 million) Regulatory Board estimates that 1.26 million GIC Private has agreed to invest PHP3.7 billion round of investment for Sansan, the Japanese mass housing units were built between 2001 and ($84.5 million) for a 14.4% stake in hospital start-up behind business card-based customer 2011, but the backlog during this period was 3.1 business of Philippines-based conglomerate relationship management (CRM) solution Eight. million units. The country’s total housing backlog Metro Pacific Investments Corp. In addition to Innovation Network Corporation of Japan (INCJ), is expected to reach 6.3 million units by 2030, taking an equity interest, GIC will subscribe to a Nikkei Digital Media, Energy & Environment PHP6.5 billion exchangeable bond, convertible Investment and existing GMO Venture into a further 25.5% stake in the business. partners also took part in the round. Monk’s Hill Ventures SOUTH ASIA launches SE Asia fund Monk’s Hill Ventures, a Singapore-based VC firm, NVP raises $1.2b for global has launched a S$100 million ($80 million) fund to support the growth of start-ups in Southeast VC fund with India focus largely driven by demand for mass housing. Asia. It will be managed by Peng T. Ong, who Norwest Venture Partners (NVP) has reached a Established in 1995, 8990 has four main co-founded Match.com, Kuo-Yi Lim, previously final close of $1.2 billion on its latest fund, which business areas: low-cost mass housing, medium- of Infocomm Investments, and Stefan Jung, will make early to late stage venture and growth rise condominium units, time shares and formerly of Rocket Internet. investments out of the US and via subsidiaries in hotel operations. It also offers home financing India and Israel. packages that require an upfront payment of Armstrong backs Mekong 2%, compared to the 10-20% payment usually region wind, solar projects Panel backs PE to invest in required by other developers. The company has eight projects under development across five Armstrong Asset Management will commit distressed Indian banks cities accounting for approximately 24,000 units, up to US$40 million in equity to support the A panel appointed by the Reserve Bank of India of which 11,000 were already sold. Based on the construction of wind and solar projects in the to review banking industry governance has existing and available land bank of 250 hectares, Mekong region. The PE firm is partnering The recommended that PE firms, including sovereign it has an identifiable pipeline of 64,405 units Blue Circle, a renewable energy developer wealth funds, be allowed to buy up to 40% across 18 projects. operating in Vietnam, Thailand and Cambodia. of distressed lenders. The report arose from concerns about the fragile state of India’s banks. CIMB PE backs Malaysian India’s Smaaash Entertainment, a Mumbai-based education provider Manish Chokani to head sports-centric digital entertainment complex that provides simulators for a range of sports. CIMB Private Equity has acquired a 33% stake TPG Growth India in REAL Education Group, a Malaysia-based Manish Chokhani has been appointed chairman Helion backs IT mobility private schools operator, for MYR33 million of TPG Growth India. Previously CEO of Axis ($10.2 million). The company provides education Capital, he will assume responsibility for growth solutions provider services from pre-school through to tertiary level. investments in India and Southeast Asia, leading Helion Venture Partners has committed a INR250 a team of six professionals targeting small and million ($4.2 million) of funding Anthem Asia backs medium-sized high-growth companies. to India-based RapidValue IT Services, which specializes in mobile IT solutions. Myanmar PR agency FidelisWorld invests in Anthem Asia, a recently established PE firm India cabinet clears KKR based in Myanmar, has invested in Blink, a PR and Smaaash Entertainment digital marketing agency. Financial details were Sport, media and entertainment-focused GP for Gland Pharma deal not disclosed but Anthem is understood to have Fidelis World Asset Management has invested in The Indian government has given KKR the go- obtained a significant minority stake.

Number 18 | Volume 27 | May 20 2014 | avcj.com 5 13th Annual Private Equity & Venture Forum China 2014 10-11 June • Park Hyatt, Beijing

GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY avcjchina.com Early confirmed speakers include: THE TOP Linbo He KEYNOTE Xu Xiaoping (Bob) KEYNOTE PRIVATE EQUITY Managing Director and Head of Private Founder CONFERENCE IN Equity Investment Dept., ZHENFUND CHINA INVESTMENT CORPORATION (CIC) CHINA

Peter Cook Shanjuan Jiang Toshiyuki Kumura Senior Investment Officer Investment Officer Co-head of Private Equity IFC VENTURE CAPITAL CALPERS Investments TOKIO MARINE ASSET MANAGEMENT CO., LTD. Pak-Seng Lai John Qu Sally Shan Managing Director and Vice General Manager Managing Director Head of Asia CHINA RE ASSET HARBOURVEST PARTNERS AUDA MANAGEMENT CO., LTD. (ASIA) LIMITED

Weichou Su Jixun Foo JP Gan Partner Managing Partner Manager Partner STEPSTONE GGV CAPITAL

Roy Kuan Hurst Lin David H. Liu Managing Partner General Partner Member & Head CVC CAPITAL PARTNERS DCM CHINA KKR CHINA

James Mi Gordon Shaw Co-Founder and Managing Director, Shanghai Managing Director BARING PRIVATE EQUITY … and many others! LIGHTSPEED CHINA ASIA PARTNERS Frank Tang Alex Zheng Registration Enquiries: CEO and Chairman Pauline Chen Enquiry Managing Partner SHENZHEN COWIN T: +852 3411 4936 FOUNTAINVEST PARTNERS VENTURE CAPITAL CO. E: [email protected]

James Zheng Jonathan Zhu Sponsorship Enquiries: Managing Director Managing Director Darryl Mag FOSUN CAPITAL GROUP BAIN CAPITAL ASIA, LLC T: +852 3411 4919 E: [email protected] For the latest programme and speaker line-up, please visit www.avcjchina.com Asia Series Sponsor Co-Sponsors

关注我们： Legal Sponsor VC Legal Sponsor Exhibitor

avcjchina.com 13th Annual Private Equity & Venture Forum COVER STORY China 2014 [email protected] 10-11 June • Park Hyatt, Beijing Special treatment Separate accounts are a tailored and cost effective means through which large institutions can access portfolios of GPs. Though increasingly popular in Asia, they are not suitable, or appealing, to all

“WE ESSENTIALLY OPERATE AS AN the exception rather than rule. As one fund-of- As Jonathan English, the firm’s Hong Kong- GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY avcjchina.com elongated work bench and view ourselves as an funds manager – whose firm does offer separate based managing director, points out, the total is integral part of the institution with which we are accounts – puts it, “The majority of separate “skewed by larger mandates that are committed Early confirmed speakers include: working. As much as it is about making good accounts are more about the fee breaks and less to the region for the long-term.” THE TOP investments it is also about interacting with the about the value-added services.” Linbo He KEYNOTE Xu Xiaoping (Bob) KEYNOTE PRIVATE EQUITY client, doing calls on a regular basis, sharing It is not a question of which model works Size matters Managing Director and Head of Private Founder CONFERENCE IN information and educating,” says Ralf Jaeger, best; as separate accounts proliferate, so will their There is no standard commitment threshold Equity Investment Dept., ZHENFUND managing director and portfolio manager of strategies, based on the needs of the underlying above which LPs qualify for special treatment. CHINA INVESTMENT CORPORATION (CIC) CHINA Siguler Guff’s emerging markets funds. “That is LP. What remains to be seen is whether managers Sidecar vehicles that invest alongside a fund- Peter Cook Shanjuan Jiang Toshiyuki Kumura the essence of the separate account.” can accommodate the potential conflicts of-funds can be as small as $25 million while Senior Investment Officer Investment Officer Co-head of Private Equity Siguler Guff has offered separate accounts of interest and administrative workload that independent discretionary mandates are often IFC VENTURE CAPITAL CALPERS Investments alongside its fund-of-funds for years, but they comes with offering an increasing number of substantially larger than $100 million. TOKIO MARINE ASSET are a particularly prominent feature of the firm’s separate accounts, and meet LPs’ performance The five largest vehicles Preqin has on MANAGEMENT CO., LTD. third BRIC opportunities fund. Of the $650 million expectations. This is particularly an issue for the record include some predictable names. The Pak-Seng Lai John Qu Sally Shan corpus, approximately two thirds is held in three smaller pan- and sub-regional operators. State of New Jersey has separate accounts – of Managing Director and Vice General Manager Managing Director separate accounts for large institutions. “These structures can get quite complex and $200 million and $100 million – alongside Asia Head of Asia CHINA RE ASSET HARBOURVEST PARTNERS In return for writing big checks, these raise conflicts issues that are not easily resolved,” Alternatives last two regional fund-of-funds. AUDA MANAGEMENT CO., LTD. (ASIA) LIMITED groups can to a certain extent choose their own says David Pierce, an experienced fund-of-funds State Common Retirement Fund also adventure. Exposure is tailored, governed by manager in Asia who also managed separate committed $125 million to a separate account Weichou Su Jixun Foo JP Gan Partner Managing Partner Manager Partner factors such as strategic imperatives and the level STEPSTONE GGV CAPITAL QIMING VENTURE of experience with the asset class in particular PARTNERS geographies. Reporting is customized, based on “When a fund continues to be oversubscribed it institutional needs and system requirements. The Roy Kuan Hurst Lin David H. Liu investor can be hands-off, leaving operations to comes down to your proximity and relationship Managing Partner General Partner Member & Head the manager, but the model Jaeger describes is to the GP” – John Morrison CVC CAPITAL PARTNERS DCM CHINA KKR CHINA far more hands-on, with participation from due diligence to decision-making. “It is a learning experience and it may also be accounts. “You shouldn’t be surprised if you linked to Asia Alternatives Capital Partners III. James Mi Gordon Shaw transitory one. After a while these institutions see some unhappy investors coming out of The top five is completed by Finnish pension Co-Founder and Managing Director, Shanghai Managing Director BARING PRIVATE EQUITY … and many others! might feel they know the market well enough these situations because they weren’t on board fund Keva’s $152 million account with Squadron LIGHTSPEED CHINA ASIA and want to do it themselves, or they don’t and with the way conflicts got resolved. It isn’t Capital, agreed before the fund-of-funds merged PARTNERS we continue to do the work for them,” Jaeger easy. We took the view that the key thing was with FLAG Capital in 2012. Frank Tang Alex Zheng Registration Enquiries: adds. “For the industry as a whole, the separate transparency, with all investors knowing what we Second, even if a separate account is CEO and Chairman Pauline Chen Enquiry account component is going to play a larger role.” were doing and why we were doing it.” disclosed it may not fit the definition used by Managing Partner SHENZHEN COWIN T: +852 3411 4936 According to Preqin, $1.83 billion has gone others. A global LP survey conducted by Preqin FOUNTAINVEST PARTNERS VENTURE CAPITAL CO. E: [email protected] Critical mass into Asia Pacific-focused PE separate accounts found that 38% of Asia Pacific-based respondents Few would contest the growing importance of since 2005, with 90% of this capital committed to that expressed an interest in separate accounts James Zheng Jonathan Zhu Sponsorship Enquiries: separate accounts; the emergence of large pools 10 accounts formed from 2011 onwards. While came from Australia. This hardly surprising given Managing Director Managing Director Darryl Mag of institutional capital is pushing private equity the numbers are weighted to more recent years, the country’s LP base is deeper than most others FOSUN CAPITAL GROUP BAIN CAPITAL ASIA, LLC T: +852 3411 4919 in this direction. LPs are able to make bigger indicating the growth in take-up, they almost in the region, but at the same time, the majority E: [email protected] commitments to managers who in turn offer certainly offer an incomplete picture. of Australian superannuation funds rely on non- For the latest programme and speaker line-up, please visit www.avcjchina.com exposure to a portfolio of GPs and they want First, existence of separate accounts is discretionary advisory relationships. These are Asia Series Sponsor Co-Sponsors special treatment in return. It may come through not always publicly disclosed and anecdotal service agreements, not separate accounts. a vehicle that sits alongside a funds-of-funds evidence suggests that more than 10 have been One Asia-based manager tells of a providing identical or tailored exposure to the formed in the last three-and-a-half years. Asia longstanding pension fund client that hired a main portfolio at lower cost, or through a fully Alternatives raised $1.5 billion for its third fund- new executive who was not content allocating independent mandate. of-funds in 2012, with $600 million coming from capital to fund-of-funds on a discretionary However, the dynamics of the investor- separate accounts. Portfolio Advisors has put $3 basis. “The deal we offered him had some non- 关注我们： manager relationship can vary hugely. Indeed, billion to work in Asia since 2005, of which only discretionary elements plus a commitment to the Legal Sponsor VC Legal Sponsor Exhibitor the educational function is generally regarded as 25% has been through fund-of-funds structures. comingled fund,” the manager says. “He opted for avcjchina.com Number 18 | Volume 27 | May 20 2014 | avcj.com 7 COVER STORY [email protected]

an advisory relationship instead. The fees are a can take the pain but it also depends on the meaningful size in smaller funds can be difficult, lot lower for non-discretionary business and we investor experience and the returns on the other unless the separate account is aligned with a don’t want to get into that.” vehicle,” says one fund manager. fund-of-funds that has agreed to anchor a start- Customization comes in many forms. On The need for larger allocations to satisfy up or spin-out manager. a basic level, it reflects preferences in terms of separate account investors also raises the “A fund that is not oversubscribed can still fill geography and strategy. A European pension prospect of conflicts of interest. If a fund-of-funds’ up quickly,” says Jonas Lindblad, co-founder and fund might use a separate account with an Asian average check size is $30-40 million, getting managing director at China-focused fund-of- fund-of-funds to carve out exposure to emerging additional capacity for separate accounts can be funds Jade Invest, which does not offer separate markets managers because this is where it sees problematic. The danger is that by carving up an accounts. “For funds of $150-300 million there is the best growth prospects. Similarly, some LPs allocation in a particular way to accommodate limited capacity and this creates a clear conflict seek to avoid the higher risks tied to early-stage separate accounts, existing investors the fund-of- of interest.” investing or they are restricted from participating funds lose out. The dangers arguably worsen if allocations to in certain industries, perhaps on religious or Munich Private Equity Partners (MPEP) has secondaries and co-investments, which tend to regulatory grounds. In addition to value-added services such as Capital raised by Asia Paci c-focused PE separate accounts customized reporting and education, managers might offer access to round-the-clock portfolio 1,000 4 management analytics systems or sideline 800 advisory relationships. If a separate account 3 covers only a portion of an LP’s activities in Asia, 600 the manager could supplement due diligence 2 400 carried out on other GPs or co-investments that Accounts US$ million touch upon the region. 200 1

Sustainable returns? 0 0 For a fund-of-funds, the fee incentive is often 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD structured along the lines of “buy one, get one No. of separate accounts Capital raised (US$m) free” – a commitment is made to the comingled Source: Preqin product at standard rates and another goes into the separate account at a discounted rate. When closing its third fund, Asia Alternatives yet to introduce separate accounts but accepts be more opportunistic, are also being divided up said that all its separate accounts had the same they may feature in its future. John Morrison, between different kinds of clients. fee structure and follow the same investment managing director at MPEP notes that Asia may strategy as the co-mingled product. New be particularly suited to individual mandates Conflict management Jersey disclosed that it was paying an annual because of the nuances within individual markets. Portfolio Advisors’ English observes that the of 0.8% on its separate account But he adds that separate accounts must not best way to avoid conflicts of interest is through during the commitment period, falling to 0.5% prejudice the interests of existing clients. allocation policies and providing complete thereafter, and then zero once an investment has MPEP’s commitments in Asia include Hony transparency to relevant parties. It is a view returned 85% of initial capital or run for five years. Capital’s fifth US dollar-denominated fund and shared by other industry participants, who stress The manager also receives a 7.15% share of the BVCF’s third China life sciences vehicle. The $200 that transparency should be reflected in fund . million BVCF fund was not a one-and-done documentation drawn up before capital-raising. When New Jersey decided to re-up in 2011, close and Morrison suggests that the GP might Solutions are of course heavily negotiated. it cited the strong performance of the previous have welcomed any request for additional A commonly held view is that the pro rata separate account, which was invested in 11 funds capacity. Hony, which raised $2.35 billion at short approach, with each investor receiving an and one co-investment, and had outperformed order, was the opposite scenario – massively allocation proportionate to the capital they the top quartile Cambridge fund-of-funds index oversubscribed and MPEP was a comparatively put in, regardless of how it is put in, is the only by over 1,300 points. The question some industry late arrival. It is doubtful there would have been fair approach. Others prioritize the co-mingled participants ask is whether a $200 million enough capacity to satisfy additional clients in fund over the separate account, the latter account – albeit one divided into two equal that particular case. absorbing any leftover allocation. Furthermore, tranches covering two two-year periods – can “When a fund continues to be oversubscribed it is not unknown for managers to establish a replicate the returns of a $100 million vehicle. it comes down to your proximity and relationship pecking order that rewards their most loyal and If a separate account is deployed on a pro to the GP,” says Morrison. “If you are able to longstanding clients. rata basis alongside the main fund-of-funds, the indicate well in advance that you will need more “We have an allocation committee in house LP is putting more capital to work but might still capacity next time around, say going from $15 that is separate from the investment team,” adds be left with a $2.5 million position in a desirable million to $25 million, managers can usually go Siguler Guff’s Jaeger. “It reviews investment fund because the allocation must be shared. some way to accommodating that. It is more of a recommendations we make to the extent that The LP may feel that the size of the commitment problem when you are already at $50 million and they fit with the agreed upon allocation policy warrants larger individual allocations with a view want to double that.” with clients that are in the co-mingled fund as to generating larger cash returns. Even though BVCF did not receive the same well as having a separate account.” “These accounts last as long as the manager level of interest as Hony, achieving allocations of Another control mechanism is simply not

8 avcj.com | May 20 2014 | Volume 27 | Number 18 COVER STORY [email protected]

taking on more separate accounts than can might involve a state pension fund awarding requests for separate accounts. reasonably be managed. MPEP’s Morrison separate account mandates to cover non-Asian Axiom Asia, another Asia-focused fund-of- suggests that relatively few industry participants private equity funds. funds but one that operates on a larger scale to have the ability to offer these products on an There can be an element of education – the likes of Jade and Emerald Hill, raised $1.15 industrial scale as opposed to a small handful of particularly among Asian groups with realistic billion for its third comingled vehicle in 2012 truly special relationships. The economics have to ambitions ultimately to handle commitments in without offering separate accounts. According to make sense for the manager – take on too many house – but Juan Delgado-Moreira, managing sources familiar with the situation, this policy is accounts, plus the extra back office work that director at Hamilton Lane, which focuses on such under review for Fund IV. comes with them, at low fees and it becomes accounts, says this is not the primary motivation Jade tries to convert would-be separate hard to sustain the business model. And then few in most cases. account clients into comingled fund LPs would welcome the prospect of being one of “There is a lot of volume in this space, commitments with an understanding that there many separate accounts sharing an allocation. outsourcing chunks of portfolios. In 90% of will be plenty of opportunities for co-investment Not every manager will be able to make it separate accounts the investor cannot and is on a zero-fee basis. The rationale is that the work and not all of them need try. not in pursuit of a seat at the table; it is true management fee and carried interest paid to “We are going to see more customization outsourcing of due diligence, investment the manager is diluted by the co-investment where the larger LPs are committing larger selection and portfolio construction,” he says. allocation to the extent that it works out cheaper amounts of money. Also, there will always be “Some investors want more understanding and than a separate account. new investors in PE and smaller investors for knowledge transfer but they are not necessarily LPs that have no choice but to operate whom fund-of-funds make perfect sense,” says the biggest accounts out there and they often through a separate account would not be Doug Coulter, a partner at LGT Capital Partners end up as advisory relationships.” suitable, and Lindblad accepts Jade is not for It points to a division in the market that is everyone. The majority of investors the firm works already apparent. At one end of the spectrum Specialized mandates with already have some exposure to Asia and the sit the several-hundred-million-dollar separate At the other end of the spectrum are smaller ability to respond to co-investment opportunities. accounts that are managed on a discretionary players that eschew separate accounts “The model works for us but if we were 10 basis, independent of any other vehicle. These completely. Jade falls into this category as does times larger and volume-driven, rather than are typically large institutions outsourcing Emerald Hill, an Asia-focused manager with a carried interest-driven, it would be more portions of their portfolios that they don’t have a strong following among US endowments. challenging,” he says. “But then the fund-of-funds the bandwidth, experience or risk appetite to Emerald Hill recently raised $400 million for its industry is becoming more fragmented. It is no manage on their own. In an Asian context, this third fund-of-funds and is said to have rejected longer one size, or one fee, fits all.”

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To understand how AVCJ Research can help you with your data needs, please call: 852-34114956 or email [email protected] avcj.com FOCUS Customized Research Report [email protected] Accelerating Tokyo Asian Private Equity The numbers suggest that early-stage investing is in the midst of a renaissance in Japan. While the Data Made Simple emergence of incubators and angels is encouraging, the start-up community still lacks depth STARRING A YAKUZA VYING FOR CONTROL Y-Combinator. Like Y-Combinator, Incubate Fund are good at promoting their start-ups to the of Japan’s underworld or of a high-school selects a batch of start-ups and then provides media and they provide huge access to tech teacher trying to impose order on a unruly class then with seed money and mentoring over a infrastructure,” says Honma “Independents are of teenage girls, the quirky range of addictive three-month period at the end of which there is passionate about creating a business with the mobile role-playing developed by Japan Gumi a demo day where business pitch to investors. entrepreneur,” says Honma. “The person inside have built up a huge following. Seven years since A similar set up is seen at Open Network the corporate VC is more of an employee; their it was set up, Gumi controls a large chunk of Labs, a unit of internet firm Digital Garage, commitment is different and they are less AVCJ Research can provide the fast-growing mobile games market. In 2012, and at Movida Japan, both established within passionate about creating a business.” your firm with timely and it ranked at the top of a Deloitte list of Japan’s the last four years. Invariably, the success of fastest-growing tech start-ups, with revenues these accelerators relies on the strength of Local nuances accurate research support expanding 3,950%. The company’s beginnings the community of investors, entrepreneurs Due to the lack of an organic community, the are much more humble. and mentors that have grown up in Tokyo in accelerator model in Japan differs in some key to help you simplify and “When we invested in Gumi it was still just respects. Unlike YCombinator, which prefers to expedite your workflow. We three people developing games in a café,” recalls spread small amounts of money among a large Masahiko Honma, co-founder of Incubate Fund, “There are now around number of start-ups, Incubate has a smaller conduct in-depth research “Now they have grown to around 650 people six incubators in Tokyo, intake of start-ups. It then commits capital during and provide insightful and they are expecting an IPO this year.” the incubation stage and leads follow-on seed Honma singles out Gumi as one of the more and while the quality rounds for the best teams, taking a 15-30% stake analysis in a bespoke report successful investments made by Tokyo-based in each business. Incubate Fund which itself was set up 2010. and quantity of start- This is because the angel community is still that fully meets your data However, this success is part of broader growth ups is not the same as not big enough to raise that initial seed stage requirements. story involving Japanese early-stage VC. investment after demo day, Honma explains. Incubate Fund is one of a number of in Silicon Valley, they Samurai has taken a similar approach buying as accelerators to emerge in recent years. Their much as a 15% stake in follow-on investments. presence, and the number of entrepreneurs are much better than The shallow investor base is perhaps a receiving support, suggests that seed investing symptom of the fact that Japanese early-stage five years ago” – Shohei Ando AVCJ’s industry standard data is used by the world’s leading firms in their is taking off once again in Tokyo – but backing venture capital is still largely domestic facing. fundraising, investor relations communications and deal due diligence Japanese start-ups still brings with it some While many start-ups have the ambition to unique challenges. recent years, particularly around the districts of expand abroad, most prefer to stay focused activities. AVCJ Customized Data Service includes: Roppongi and Shibuya. on the Japanese market. This means they are Positive signs “There have some been some good exits less likely to capital from foreign investors with AVCJ Research seems to support to the idea these past 10 years, and from that we have overseas strategies in mind. ✔ Pan-Asian Industry Reviews/Regional Reports – timely updates of a resurgent start-up scene with early-stage been seeing the next generation of serial “I would say in our community around 5-10% ✔ Specific industry and financing stage research investments –classified as deals below $5 million entrepreneurs and angel investors,” says Takeshi of start-ups are looking to expand abroad,” says – totaling $49 million across 38 transactions Ebihara, founding general manager of seed- Samurai’s Ando. “In South Korea and Southeast ✔ Comprehensive statistics on investments and funds so far this year. This follows $76 million and 74 stage investor Redbright Partners. “There is also Asia start-ups are more willing to expand. Few transactions in 2013, the most since 2007. Many a ton of talent being produced by the likes of entrepreneurs speak English here and they are ✔ Exits strategic analysis of these companies are graduates of Tokyo CyberAgent, Gree and DeNA.” under less pressure because they know they can accelerators and incubators. These three internet companies have also survive in the Japanese market. As a result, the ✔ Market peers comparison “There are now around six incubators in been providers of early-stage capital. CyberAgent focus is very narrow.” Tokyo, and while the quality and quantity of and Gree have formed their own VC arms while However, Ando is optimistic this will not start-ups is not the same as in Silicon Valley, they DeNA recently made its first foray into venture always be the case, arguing that although are much better than five years ago,” says Shohei capital by backing Korean social network app Japanese are generally perceived as risk averse, Ando, an associate at Samurai Incubate Fund. Between. The start-up ecosystem is still very small the situation is gradually changing. He feels Comparisons with Silicon Valley in California compared to Silicon Valley, and inevitably it is Samurai’s choice of location – removed from the are inevitable, even if they might be somewhat dominated by corporate programs such KDDI’s hubs of Shibuya and Roppongi – says as much. premature. Tokyo, like other Asian cities, has Mugen Labo and Docomo’s Innovation Village. “We would like to create the next Facebook To understand how AVCJ Research can help you sought to model its venture capital industry on This has turned out to be something of a double- of Google, so we don’t look at Shibuya,” he with your data needs, please call: 852-34114956 or the US model. Incubate fund is one of several edged sword. says. “Instead we are based in Shinagawa. early-stage investors that are loosely following “The difference between independents and Why? Because it has a direct train link to the email [email protected] the approach made famous by US accelerator corporates is that the corporate accelerators international airport.” avcj.com Number 18 | Volume 27 | May 20 2014 | avcj.com 11 DEAL OF THE WEEK [email protected] / [email protected] Qihoo buys MediaV to market online

ANTIVIRUS SOFTWARE DEVELOPER posted $1.56 billion in online marketing revenue. funding from Lightspeed China Partners, GGV Qihoo360 Technology isn’t the first strategic The MediaV acquisition is intended to close and Soros Fund Management-affiliated Quantum investor to hold talks with MediaV. Several this gap. Qihoo plans to combine its high Strategic Partners since its launch in 2009. The VC Chinese internet giants, including Tencent volume user base and traffic in PC and mobile investors made a partial exit as Qihoo acquired Holdings and online retailer JD.com, had pitched internet with MediaV’s advertising technologies, 50-60% of MediaV. Foo draws similarities with the advertising and digital creating a powerful advertising travel website Qunar. When Baidu bought a marketing firm on a potential e-ecosystem, Hongyi Zhou, majority stake in the site in 2011, VC backers GSR acquisition since the end of 2013. Qihoo’s chairman, said in a Ventures, Fund, Tenaya Capital and GGV According to iResearch, statement. retained an equity interest. China’s online advertising Founded by Jiongwei Yang, “Exiting to strategic investor is like a double- industry was worth RMB110 formerly of Allyes Online Media, edged sword – it may limit our upside potential billion ($16 billion) last year, up which was acquired by Silver compared to a public market exit but it still 46% from 2012. It is an area into Lake in 2011, MediaV provides provides an alternative means of selling our which strategic investors want to MediaV: Closing the gap cloud-based big data analysis portfolio,” Foo says. spread their wings – and the fact services that enable clients to GGV’s interest has fallen from 15% to less than that Qihoo managed to close a deal for MediaV deliver advertising to targeted audiences. 10%. A full exit will come through public market suggests its motivation is stronger than most. “It’s very important for merchants to market sell-downs, with MediaV preparing for an IPO in In the last quarter of 2013, Qihoo’s online their products to the right group of consumers,” the US within two years. The company has yet to advertising revenues came to $142.4 million, says Jixun Foo, a managing partner at GGV turn profitable but revenues jumped 500% year- accounting for 64% of total income. The firm Capital, which just closed its fifth Sino-US VC fund on-year in 2013. Foo expects growth of at least was bullish about increased monetization of its at $622 million. “MediaV has built its behavior- 300% over the next two years. platform and the contribution from search and targeting system from existing online traffic to “No Chinese advertising technology company mobile advertising. However, Qihoo still trails help improve advertising efficiency.” has listed in the US. MediaV will be one of the Baidu. During the same period, the search giant The company has raised three rounds of first movers in this segment,” he adds. VCs back iYogi’s Spanish strategy

BEARING IN MIND SPANISH HAS THE to serve around 2.5 million customer globally - is we want to work with and what capabilities second- largest number of native speakers in the now launching a Spanish service with a view to they have – apart from the capital – in terms of world – 410 million – after Mandarin, it is little tapping customers in both in Spain and Latin geographical spread. The partnership with Axon wonder that many businesses see the value in America. accelerates our market entry as we can leverage learning the language. India-based technology For this Axon – which has a presence in Latin their knowledge and network.” support services provider iYogi is no exception. America and Spain as well as India – was an ideal This latest investment brings the total amount The Gurgoan-headquartered company partner. The GP contributed $5 million to a $28 raised by iYogi to $85.5 million. The company provides online subscription- million round of investment that received its first round of funding in April 2007 as based technical support services also included Madison Capital Canaan and SVB put in just over $3 million. SAP offered directly to consumers India and existing investors entered at the Series B stage, worth $9.5 million and small businesses across Canaan Partners, SVB Capital in July 2008, and then DFJ joined the incumbents a wide range of computing Partners, SAP Ventures, Sequoia for the $15 million Series C in early 2010. Later and communications devices Capital and Draper Fisher that year, the same group of investors committed and software. It operates via a Jurvetson (DFJ). IYogi is still in a further $30 million. platform called Digital Service talks with other investors with the IYogi is looking to double its revenue in the Cloud, which allows customers iYogi: Tech support expansion intention of raising a full Series E next 24 months, having already launched in in different geographies to round of $55 million. Spain through a partnership with local carrier collaborate on tasks and establish automated “Our thinking was to look at how we could Telefonica and set up a delivery center in processes. expand into other geographies by going beyond the country. The eventual plan is to take the IYogi currently offers its service in English just English, so we started looking at Spanish company public. across 12 centers in India, the Philippines and language support,” says Vishal Dhar, president “We first evaluated the possibility of a public the UK, and claims to serve users in 11 countries, Marketing at iYogi, who co-founded the offering a couple of years ago,” says Dhar. “Now covering India, North America, Australia, the UK company alongside Uday Challu in 2007. we are actively looking at that the possibility of a and the Middle East. The company - which claims “We now understand the kind of companies NASDAQ IPO in the next 12-24 months.”

12 avcj.com | May 20 2014 | Volume 27 | Number 18 FUNDS [email protected] / [email protected] Small still beautiful for Riverside

THE STORY OF PRIVATE EQUITY IN ASIA go to South Korea and Hong Kong. manufacturing space, in Singapore and Malaysia is largely one of rising fund sizes and ever larger The Singapore-Malaysia axis is a new one for than in Hong Kong, where there are more big equity checks. The Riverside Company plans Riverside and investments will be run out of the corporates.” on staying small – a segment it has occupied firm’s newly-opened Singapore office. “I think that The general objective is to acquire profitable globally for over 25 years. The mid-market will be one of our strongest offices in terms of companies with valuable intellectual property player sees a huge opportunity for this niche in the numbers of deals,” says Stuart and help them institutionalize Asia, and expects the region to become the key Baxter, managing partner of and go global, doubling or driver of its growth in the next decade. Riverside’s Asia strategy. tripling in size over the course Last week, Riverside closed its second Asia- The firm is looking to buy of the investment period. Larger focused buyout fund – Asia-Pacific Fund II (RAF 11 smaller companies with PE firms make for willing buyers II) – at $235 million after about 12 months in the enterprise values of $25-150 of these expanding businesses. market, surpassing its original target by 60%. million. RAF I, which launched in Half of Riverside’s exits have been LPs from Asia and North America account 2007 made five acquisitions from secondaries, with the rest trade for the largest shares of the fund corpus, with a corpus of $28 million. The new Baxter: Mid-market strategy sales to strategic investors. smaller representation from Europe. Investors fund will follow a similar strategy The principal challenge for the include Massachusetts Mutual Life , to its predecessor, targeting family-founded private equity firm lies on the investment side, clients of Macquarie Investment Management, businesses or small corporate carve-outs across identifying the right deals and then persuading Commonwealth Superannuation Corporation, healthcare, education, software, specialty founders to sell. “In bigger deals, people have Development Bank of Japan and Munich Private manufacturing and franchise-based companies. representatives or investment bankers to Equity Partners. “It is difficult for aged owners – in their 60s help them. Therefore, those deals are more RAF II will target the mature industrial markets to 70s – who want to get liquidity from smaller transparent,” says Baxter. “But our markets is far of Asia. Around 40% of the fund will be invested companies to find the buyers,” says Baxter. less from transparent. People typically don’t use in Australia, with Japan and Singapore-Malaysia “We are able to find more of these businesses, brokers. It’s more about introductions – and this each accounting for 25%. The remaining 10% will particularly in the medical devices and makes it much more complicated.” CVC hits hard cap for Asia

THREE OF THE LAST FOUR INVESTMENTS closed this week at the hard cap of $3.5 billion, (CalPERS) – accurate as of September 2013, so in CVC Capital Partners’ third pan-Asian fund were after just under a year in the market. three months behind the others – had TPG Asia V China control deals, and two of them involved The PE firm has benefited from the swing back (2007) at 0.4% and 1.1x and Carlyle Asia Partners restaurants. The Fund IV portfolio will be more to pan-regional funds, but speed of fundraising III (2008) at 6.5% and 1.2x. diversified – encompassing retail, healthcare is tied to past performance. According to data CVC’s returns have been buoyed by deals and financial services as well as consumer – but released by Oregon State such as Matahari Department control is likely to be a consistent theme. Investment Council, CVC’s 2008 Store. It took a controlling stake “We are focusing on control and joint vintage third fund had delivered in the Indonesian retailer in 2010 control deals in our core sectors,” says Roy Kuan, an IRR of 13.8% and a net at a valuation of $892 million managing partner at CVC. “Competition generally multiple of 1.47x as of December and made a partial exit last year seems to have decreased, perhaps due to a 2013. KKR’s first Asian fund (2007) that valued the business at close slowdown in fundraising and the challenging had an IRR of 12.9% and a net to $3.3 billion. After this and a economic environment and private equity firms multiple of 1.5x, while Affinity clutch of other Southeast Asia focusing on their portfolios.” Equity Partners’ third fund (2007) CVC: $3.5 billion Asia close deals in 2010-2011, activity has Consolidation, moderating growth, rising was on 12.8% and 1.5x. tailed off somewhat due to heady competition and succession planning are seen KKR took just over a year to raise $6 billion for valuations and then macro instability. But Kuan as the main drivers of nascent Chinese buyouts. its second Asia fund, finishing last May. Affinity remains positive on the region. The two restaurant deals, Da Niang Dumpling announced a final close of $3.8 billion on Fund IV “Our Southeast Asia team believes there was Holdings and South Beauty, follow the succession in January after about 15 months in the market. a period in 2012-2013 that was more challenging planning model. The founders retain a minority and TPG Capital launched in terms of valuations in Indonesia and Malaysia, interest and board seats, but day-to-day duties their latest vehicles in the summer of 2012 but so there was a focus on other markets, such as have passed to revitalized management teams. have yet to finish, although the latter is expected the Philippines,” he says. “The economic issues This formed part of the fundraising narrative to do so imminently. Performance data from didn’t materially affect the portfolio because the for CVC Capital Partners Asia Pacific IV, which California Public Employees’ Retirement System companies are mostly defensive in nature.”

Number 18 | Volume 27 | May 20 2014 | avcj.com 13 27th Annual AVCJ PRIVATE EQUITY & VENTURE FORUM 2014 11-13 November 2014 Four Seasons Hotel, Hong Kong

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VC summit sponsor VC summit legal PE leaders’ summit sponsor Awards sponsors Exhibitor sponsor CHAD OVEL | INDUSTRY Q&A [email protected] 27th Annual AVCJ Searching for scalability PRIVATE EQUITY & Chad Ovel turned around a portfolio company for Mekong Capital and then joined the PE firm as a partner. With the VENTURE FORUM Vietnam-focused GP targeting $150 million for its third fund, he offers insights into a changing market

Q: How has Vietnam evolved as consistent returns of 2-3x. They slimming down the portfolio and high level of discipline in terms 2014 an addressable PE market? say the private sector is still focusing on the winners. of accepting when things are A: The market has matured relatively young, the maturity wrong. We have seen this with considerably. Ten years ago of management teams isn’t Q: Why the exclusive consumer all our retail businesses. You go 11-13 November 2014 there were very few companies there yet, and a fund like ours focus in Mekong Enterprise through a period of rapid growth Four Seasons Hotel, Hong Kong in Vietnam with revenues over may face some difficulties Fund III? and you have to be disciplined $20-30 million; today there are generating returns across the A: We are only going to do around locations that are non- 30 companies with revenues of portfolio. Our response to that is consumer because it has worked performing. We steer clear of more than $1 billion. In the 10 because of the huge opportunity best for us in the past and it is autocratic leadership styles. years previous to 2004, there also bullet proof if there is any These are people who say they SUPER SAVER were less than 50 PE or VC macroeconomic instability. can’t apply any best practices transactions, but in the past 10 Vietnam has the highest retail from other countries because it’s DISCOUNT years there have been in excess growth rate yet the lowest different here. With Golden Gate, Early Bird of 300 transactions. By most penetration of organized retail there are four founding partners, SAVE measures $150 million is still a of any country in Asia. It makes each bringing a different skill small fund, but there is enough it by far the outlier in terms set to the table. They all lived in Expires US$1,100 depth in the market to be doing of future scalability potential. Russia for many years. They are deals of $7.5-15 million. Golden Gate, our casual dining extremely good at execution and US$2,995 business, started with four open-minded, with an inbuilt *Standard price is Q: The country has been best by hotpot locations and is now up culture for discussion of ideas. on 2 June US$4,095 macroeconomic problems. Is to 57, with another 15 opening the worst now passed? this year. It is the same with Q: In terms of exits, what kind of A: We had a lot of macroeconomic “We steer clear Mobile World and with Phu interest do you see from trade instability, with inflation hitting Nhuan Jewelry. There are few buyers? almost 30% a few years back, and of autocratic companies large enough for A: Five of our 15 exits have been Meet 1,000+ Network with Register online at then the public markets lacked leadership a minority growth transaction trade sales, five were IPO and global PE professionals 280+ LPs liquidity. It took a while for the in excess of $25-30 million. In five were sales to other PE www.avcjforum.com central bank of Vietnam to get its styles. These our pipeline we have 2-3 deals firms or back to the owner. We Email [email protected] head around how important it in which we do our typical $10 are getting approaches all the was to control inflation and get are people who million and a co-investor brings time – Japanese, Korean, Thai, Hear from 170+ Join attendees with booking reference code: interests rate down, which they say they can’t in another $10-20 million. But Singaporean, Indian. We are expert speakers from 35+ countries AVCJ_HK_2014_PUB2 have down. We’ve had a period there are very few deals at $50 not seeing big interest from of very stable inflation, we’ve had apply any best million plus unless it’s a buyout. America or Europe. When we a trade surplus for the first time talk about strategic trade sales, Customer Enquiries: Registration Enquiries: Sponsorship Enquiries: in 18 years, and we have one of practices from Q: What do you look for a in it is likely to be buyout, so the Email us at CALL Carolyn Law on Darryl Mag T: +852 3411 4919 the most stable currencies in other countries a prospective portfolio owners have to be aligned E: [email protected] all of Asia. There were 2-3 funds company? with the PE sponsor on exiting [email protected] +852 3411 4837 that liquidated far below their because it’s A: When we are doing our top- together. It tends to be people invested capital, and they are down pipeline development, who have a track record as serial Lead sponsors Asia series sponsor now gone. There has been a different here” we are never looking for the entrepreneurs and have started huge humbling of egos among largest by market share or the and sold companies before. It is entrepreneurs in Vietnam, we of scalability in the consumer company with the best locations also those people who were in are starting to see really good sector it is possible to have and brands. We want the best the first wave of entrepreneurs entry valuations and there is little 2-3 runaway successes. In our management teams, because it’s in the early 1990s. They are Co-sponsors Legal sponsor LP breakfast sponsor competition for deals because second fund we’ve got a 22x all about execution, about being getting on, their children don’t no one has dry powder. and an 8x. Those can offset any able to open one store a week want to run the business, and mistakes you might have in 1-2 in different locations. We are they haven’t put meaningful Q: What are investors’ concerns? companies that come in below looking for management teams management in place to make A: There are concerns as to whether cost. We have become much are younger, have previous their companies attractive to you can have a portfolio of more aggressive in cutting losses working experience with trade buyers. A lot of these folks VC summit sponsor VC summit legal PE leaders’ summit sponsor Awards sponsors Exhibitor 10 investments and generate early to the benefit of the IRR, multinationals and have a very are reaching out to us. sponsor

Number 18 | Volume 27 | May 20 2014 | avcj.com 15 9th Annual Private Equity & Venture Forum USA 2014 8 July • Harvard Club of New York City

GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY avcjusa.com

Register Online: Why Asia still matters avcjusa.com Email [email protected] with Some of the confirmed speakers include: booking ref. code:USA_AVCJ_PUB2 to receive exclusive H. Chin Chou Jonathan A. English Chief Executive Officer Managing Director US$ MORGAN STANLEY PRIVATE PORTFOLIO ADVISORS 200 DISCOUNT EQUITY ASIA (HONG KONG) LTD

Meredith Jenkins Peter Keehn Jay Park Co-Chief Investment Officer Global Head of Private Equity Managing Director CARNEGIE CORPORATION ALLSTATE INVESTMENTS, LLC BLACKROCK PRIVATE EQUITY PARTNERS

Scott Voss Stephen Wesson Jim Hildebrandt Managing Director Managing Director Managing Director HARBOURVEST PARTNERS, AUDA BAIN CAPITAL ASIA LLC

Sanjiv Kapur Daniel R. Mintz Robert Petty Managing Director Founding Managing Director Managing Partner and Co- WOLFENSOHN FUND OLYMPUS CAPITAL ASIA Founder MANAGEMENT CLEARWATER CAPITAL PARTNERS Euan Rellie Igor Rozenblit Taisuke Sasanuma Senior Managing Director Co-Head Private Funds Representative Partner BDA Unit, Office of Compliance ADVANTAGE PARTNERS, LLP Inspections and Examinations SEC Stuart Schonberger Robert W. van Zwieten Managing Director, Head of President & Chief Executive Investor Relations Officer CDH INVESTMENTS EMPEA … and many others!

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