ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY October 2018

| CONTENTS

4 A WORD FROM 24 ASIAN VENTURE PREQIN’S CEO CAPITAL FUND MANAGER ACTIVITY 5 AT A GLANCE 25 CAN SOUTHEAST ASIA 6 A WORD FROM VERTEX EMULATE CHINA? VENTURES’ CEO 31 IN FOCUS: ASEAN 8 CHINA: INNOVATIVE FUTURE 32 ASIAN VENTURE CAPITAL PERFORMANCE 13 IN FOCUS: GREATER CHINA 33 IN FOCUS: NORTHEAST ASIA 14 VENTURE CAPITAL FUNDRAISING IN ASIA 34 ASIAN VENTURE CAPITAL DEALS 17 INDIA: THE GROWING ENTERPRISE MARKET 42 INVESTORS 23 IN FOCUS: SOUTH ASIA

All rights reserved. The entire contents of Asia’s Venture Capital Eclipse: A Preqin and Vertex Ventures Study, October 2018 are the Copyright of Preqin Ltd. No part of this publication or any information contained in it may be copied, transmitted by any electronic means, or stored in any electronic or other data storage medium, or printed or published in any document, report or publication, without the express prior written approval of Preqin Ltd. The information presented in Asia’s Venture Capital Eclipse: A Preqin and Vertex Ventures Study, October 2018 is for information purposes only and does not constitute and should not be construed as a solicitation or other offer, or recommendation to acquire or dispose of any investment or to engage in any other transaction, or as advice of any nature whatsoever. If the reader seeks advice rather than information then he should seek an independent financial advisor and hereby agrees that he will not hold Preqin Ltd. responsible in law or equity for any decisions of whatever nature the reader makes or refrains from making following its use of Asia’s Venture Capital Eclipse: A Preqin and Vertex Ventures Study, October 2018. While reasonable efforts have been made to obtain information from sources that are believed to be accurate, and to confirm the accuracy of such information wherever possible, Preqin Ltd. does not make any representation or warranty that the information or opinions contained in Asia’s Venture Capital Eclipse: A Preqin and Vertex Ventures Study, October 2018 are accurate, reliable, up-to-date or complete. Although every reasonable effort has been made to ensure the accuracy of this publication Preqin Ltd. does not accept any responsibility for any errors or omissions within Asia’s Venture Capital Eclipse: A Preqin and Vertex Ventures Study, October 2018 or for any expense or other loss alleged to have arisen in any way with a reader’s use of this publication.

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ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY

A WORD FROM PREQIN’S CEO

elcome to our new report, “Asia’s Venture Capital Eclipse: A Preqin and Vertex Ventures Study”, that we are proud to present alongside our partners in the project, Vertex WVentures, a leading global venture capital investor, and part of Singapore’s Temasek group.

‘Eclipse’ is a strong word, but it has been chosen carefully. We are all accustomed to using superlatives when describing the scale and pace of growth in MARK O’HARE Asia-Pacific economies, and nowhere is this more CEO, Preqin evident than in the venture capital industry: Asia- focused venture capital assets under management have more than doubled since December 2014 An important aspect of venture capital in Asia is the ($88bn in 2014 vs. $221bn in 2017), highlighting extent to which investors from around the globe are the remarkable growth in the industry, which now participating in the opportunity. Asia-based investors rivals that of the US for its scale and diversity. This account for approximately 28% of the interest that investment has driven significant success: according Preqin has seen in Asian venture capital, but North to the Global Startup Ecosystem Report 2018, about America leads with 53% of all investor interest in one in three unicorns globally now come from China, Asia, while Europe accounts for a further 15%. The comparing favourably with 41% in the US. market opportunities and the portfolio companies may be Asian, but the investment opportunities are The pace of growth may have taken many by truly global, and they are benefitting all investors. surprise, but with hindsight it was entirely to be expected. The industry’s growth reflects the This connectedness runs through the entire venture confluence of several factors: rapid economic capital ecosystem, and many leading players have growth, young and well-educated populations, high positioned themselves to maximum advantage – levels of online activity (800 million internet users firms like Vertex Ventures that operate as a network in China), distinct regional and local nuances to of venture firms focused on their individual regional peoples’ habits and requirements, and an astute markets within Asia, but benefit from the network global ecosystem of investors capable of spotting the advantages of being local in many places. opportunities that this brings. It is a very exciting – and challenging! – time to be The result is a vibrant venture capital ecosystem at the forefront of venture capital investing in Asia. capable of driving innovation at pace and scale; Preqin is committed to investing in our research Preqin’s online platform now tracks over 2,600 and product to bring you the best possible data to ‘institutional-quality’ venture capital firms in Asia. help you chart your course through the exciting Although China accounts for the largest portion of opportunities ahead. Together with Vertex Ventures these firms, significant clusters of venture capital we hope that you will find this study and report to be activity also exist throughout Asia. The dynamics of a helpful guide. each sub-region differ, and the following pages delve into some of the details. Happy investing!

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AT A GLANCE

Location of Asia-Based Venture Capital Fund Managers and Institutional Investors

1,063

255 84 73 110 137

South Japan China Korea 134 74 45 42

India Hong Kong

65 36

Singapore Fund Managers Investors

Source: Preqin Pro

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A WORD FROM VERTEX VENTURES’ CEO

ertex Ventures was started with the keen sense that technologies would be a critical differentiator in an increasingly competitive world. More than ever, accelerating technological advances and innovation will Vbring even greater disruptions to economies and the world.

Focused on our mission to seek out promising disruptive, transformational leaders from around the CHUA KEE LOCK world and nurturing them into prospective global champions, Vertex today is organized as a global CEO, Vertex Holdings network of independently managed and localized Managing Partner, Vertex Ventures SEA & India VC funds. Our global VC franchise comprises four early-stage, IT-focused funds across China, Israel, the US, Southeast Asia and India, as well as a global representing an impressive array of investor- healthcare fund. Vertex also has a growth-stage- operator competencies and experience. focused fund that looks at follow-on opportunities from its portfolio of early-stage companies. We are proud to have built many great technology companies that improve people’s lives and transform At Vertex, we believe that innovation comes from all businesses. If we look to the answer as to why over the world, requiring in-depth, local knowledge we have achieved so much over the years, it was and networks to access the best investment because we unleashed the energy and individual opportunities. At the same time, markets for genius of entrepreneurs driven by the sole objective innovative products and services are global. Our of identifying, investing and supporting global global-local structure enables our professional, champions. In doing so, we have also delivered localized investment teams to be deeply connected outsized returns to our investors. with the innovation markets and ecosystems they operate in. This is important from both deal-sourcing Building on the foundations of our unique parentage or portfolio-support perspectives, while having the and support from Temasek, deep operating unique advantage of proprietary support from the experience and credible track record, Vertex is global Vertex network. Across Vertex today, we have looking ahead towards building a differentiated and a deep, global bench of over 40 VC professionals, enduring Global Venture Capital Platform.

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ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY

CHINA: INNOVATIVE FUTURE

How has China’s tech landscape evolved over the years and how do you see it developing? Over the years, China’s vast population has shown a willingness to embrace new technologies. Smartphone shipments have increased from 212 million in 2012 to 468 million in 2017. The Chinese also use online services for gaming, social media and shopping, registering online sales of $650bn, spawning a $22bn online gaming industry as well as increased social media use – as evidenced by WeChat’s monthly active users rising from 100 TAY CHOON CHONG million in 2012 to over 1 billion in early 2018. Managing Partner, Vertex Ventures China China is also one of the world’s leading players in digital payments, with mobile payments exceeding sustain that advantage – giving it a fair chance of $12tn for the first 10 months of 2017, nearly 40% surpassing the rest of the world in innovation. more than 2016. In urban areas, China has practically gone cashless. What do you think is unique about China’s innovation model? In 2000, there were less than 10 million internet China has a vibrant ecosystem with no shortage of users in China, now there are 800 million internet funding. It also has a rising middle class that is open users. The market has grown over 80x. Its market to new business models, services and products like potential is at least 5x larger than that of the US; DJI’s drones. if China has not overtaken the US, it is certainly catching up fast. As a “bicycle kingdom”, most people in China are used to commuting by cycling. We wondered if a Today, we are observing the next wave of innovation more convenient and affordable bike-sharing service in China. With a large, tech-savvy domestic market, could be made available in China. This was why we China is an ideal place to experiment with new began looking out for promising bike-sharing start- innovations (e.g. bike sharing, products/services ups and invested in Mobike in 2016. Today, Mobike is for the middle class and mobile internet). There a symbol of China’s innovative transformation which are many innovation opportunities for start-ups, can be found in more than 200 cities, offering first- particularly in retail, healthcare and transportation. and last-mile solutions to everyone. For example, Invented-in-China brands, robots and AI are fertile breeding grounds for China’s next How does China compare to other start-up unicorns. ecosystems? An area of distinction is its ascendancy as a global With local support and policies attracting talent back AI hub. In fact, China has plans to create a $150bn home, China offers a larger domestic market with the AI industry by 2030. According to CB Insights, of the latitude for innovation, sustainable growth and more $15bn invested in AI start-ups globally in 2017, about space for unicorns to grow. Chinese entrepreneurial half went to China. For the first time, China’s AI start- drive is impressive, and this will allow China to ups surpassed those in the US in terms of funding.

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The entrepreneurial culture in China has gradually shifted from “Made in China” to “Invented in China”.

While the US still has more AI start-ups than China, What are the domestic industries that are the gap is closing. particularly exciting? We spend most of our time looking for potential China is also home to some of the world’s largest investments in AI, deep tech and consumption high-tech companies like Huawei, Tencent, BYD, upgrade opportunities. Gionee, Konka, TP-Link, TCL and OnePlus. These companies are major contributors to R&D in China AI: The Chinese Government positioned AI as a and have substantially upped their budgets in recent strategic priority and laid out a development plan years. Huawei has already surpassed Apple, Oracle in 2017, aiming to become the world leader in the and Facebook in its R&D investments. field. For instance, the City of Beijing plans to build a $2.1bn AI development park in the city’s western According to the Global Startup Ecosystem Report region that will house up to 400 AI enterprises. Just 2018, only 14% of current unicorns originated in last year, local investment was soaring with 7.3% of China in 2014. Today, about one in three unicorns all local VC investment going into AI, big data and come from China, comparing favourably to 41% in analytics start-ups. the US. Beijing boasts of 40 unicorns, second only to Silicon Valley, while Shanghai is home to 21 unicorns Founded in 2012, ByteDance, a popular Beijing AI and counting. start-up famed for its personalized news aggregator app Toutiao, is now planning for an IPO. Chinese In addition to having more billion-dollar companies, citizens seem to be embracing AI with similar China has also seen an increase in patents, especially enthusiasm, using facial recognition technology for in the AI and blockchain sectors. While the US payment authentication. Machine learning requires still has more venture capital investment in these a lot of data to achieve accurate results. China has sectors, China has surpassed in terms of patent abundant data streams, with the majority of its 1.4 applications, with 4x as many AI-related patents and billion population online daily. 3x as many blockchain- and crypto-related patents as of 2017. Facial recognition technology in China is now one of the most advanced in the world because of its The entrepreneurial culture in China has gradually massive training datasets. SenseTime and Face++ are shifted from “Made in China” to “Invented in China”. the leading facial recognition technology companies Mobike is an example of China’s many innovative in China. Both started only a few years ago and design products – combining GPS, IoT chips, solar have now already received more than $1bn each panel, air-free tyres, chainless, aircraft-quality from investors. Besides facial recognition, China is aluminum and mobile payments. Millions of orange- applying AI to healthcare, self-driving cars, traffic hued dockless bikes have been deployed around the management and various smart city applications. world. Our portfolio company, Horizon Robotics, is a case China has its own factories, and now also owns in point. Horizon uses a proprietary Gaussian- technologies, talents, strong spending power and architecture and embedded AI computer vision unique consumption habits. This is expected to processors that power smart cars and smart be the flywheel driving more innovative concepts, cameras, providing a complete solution including models and technologies. algorithm, chipset and cloud. It has raised more than

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$100mn in Series A+ led by Intel Capital in December Yunyinggu develops new display technologies that 2017. can significantly improve the performance of flat panel displays. Its proprietary solution is the world’s In the education sector, almost 90 million Chinese best in achieving high PPI (pixel per inch) and can citizens educated themselves online in 2016. The be applied to all kinds of flat panels such as LCD, Chinese online education market is expected to grow LED, OLED and others. Smarter Micro is a fabless to some 240 million users and a total value of $64bn semiconductor company that designs, develops and by 2021. China’s leading internet giants – Baidu, provides MMIC, RF and Analog IC. The company’s Alibaba and Tencent – have all invested heavily in product portfolio currently includes Gain block, GPA, online education. AI is tested in Chinese schools. One Switch, Power Amplifier, Mixer etc. in four Chinese schools were experimenting with computer software using deep learning to evaluate Consumption Upgrade: The rise of the middle class, students’ work. It is estimated that 60,000 schools different spending habits of a younger generation are testing the technology. A beneficiary of this trend and the proliferation of social media platforms are is XueBaJun – our portfolio company specializing in expected to spur the growth of Invented-in-China the development of mobile online solutions to assist brands. K12 students in their homework using deep-learning technology. In recent years, consumers have turned to buying more quality products. Many new local brands have Deep Tech: There are also significant deep-tech well-designed products that have been elevated opportunities in China. In advanced manufacturing to leading consumer brands by multi-channel and robotics, China is a rising world-leader. The marketing like online media, WeChat, domestic country employs the highest number of industrial movies and TV shows. robots in the world and is home to two of the four unicorns in the advanced manufacturing sub-sectors: We believe there are significant opportunities for UBTECH Robotics and DJI. According to Inc, Shenzhen new brands in each consumer segment in China that is the electronics manufacturing hub of the world, meet the unique consumer needs and preferences making 90% of the world’s electronics. of a particular segment. For example, Loho is an online-to-offline spectacles brand owner and Riding this trend, we invested in Geek+, a start-up distributor. Neiwai designs comfortable and natural offering advanced robotics and AI for logistics and innerwear that promotes health and wellbeing. 73 warehouse automation solutions. Geek+ robots hours designs and sells high heels that are entry- have been deployed in DKSH, SF Express, Tmall level luxury – past the point of being basic or cheap, and Suning’s warehouses. We also invested in but within the purchasing power of China’s middle SolidEnergy which is a battery technology company class. Though it is not technology based per se, this that manufactures the world’s lightest rechargeable segment clearly has significant potential. cells. They supply these to large Li-ion cell manufacturers to be integrated with a separator and Do you think there is too much liquidity in China cathode into fuel cells which can be customized for chasing a few selected start-ups, leading to drones, consumer electronics and electric vehicles. excessive valuations? Now its products have been sold to many large Overall, valuations do not appear unreasonable. At companies in China and the US. a micro level, one should consider valuations in the context of the start-up’s potential over the longer

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We believe there are significant opportunities for new brands in each consumer segment in China that meet the unique consumer needs and preferences of a particular segment.

term. And China has start-ups with outstanding solution providers at the bottom, robotics body prospects. From a market viewpoint, there is also manufacturers at the mid-tier and the core ample liquidity and exits to support valuations. component manufacturers at the top. Based on our research, we thought that the top- and mid- As an early-stage investor, valuing a start-up takes tier components produced in China still lagged more than simply benchmarking comparable behind other countries. Therefore, we decided to companies at the same stage; it also requires a clear start from the bottom tier by investing in ioranges. understanding of the start-up’s business model, By the time 3C manufacturing robotic applications addressable market, growth potential and barriers to took off in 2017,ioranges had accumulated many entry etc. early successes, gaining recognition from leading customers and achieving significant business growth. For example, when we invested in Mobike in 2016, its valuation was in the tens of millions of US dollars China imported $227bn worth of integrated circuits – deemed relatively expensive then. However, we in 2016, more than for imports of crude oil, iron ore invested based on a conviction in its technology and and primary plastics combined. This weakness has market potential. When Meituan Dianping acquired become more apparent in the recent ban on ZTE. We Mobike recently, we exited at a valuation of $2.7bn. realized the importance of own-chip development technologies and products many years ago. Since How do you stay ahead of the herd when it 2003, we have been investing in semiconductor chip comes to investing in the next big thing? design and manufacturing companies. For example, As a VC, when it comes to investing, we need to we invested in Horizon Robotics; its core technology adopt a long-term view of the actual pain-points that is the AI algorithm and the self-designed chip that need to be addressed and their second-order effects. can maximize algorithm performance, while reducing cost and power consumption. We also invested in For instance, in 2015, most VCs in China did not pay Ancsonic, which is an active noise cancellation (ANC) attention to smart manufacturing. We observed that solution provider. Ancsonic develops their own it was getting harder for large factories like Foxconn, chipsets to ensure the security of the algorithm and Quanta and Jabil to recruit, having to increase their for cost control. recruitment budgets dramatically every year during peak season. These examples reflect our investment thinking and why it is important not to get caught up in fads. So we began focusing on smart manufacturing, Importantly, how we can stay ahead of the curve is especially industrial robotics. This industry can by investing in start-ups that are focused on solving be divided into three layers: the lowest-level real pain-points.

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Comparison of Vertex Ventures China Funds vs. Greater China-Focused Venture Capital Funds (Vintage 2007-2015)

45 41 40 35 30 25 20 Top Quartile: 20.9 20

Net IRR (%) Median: 16.7 15 10 5 0 Vertex Ventures China I (2008 Vintage) Vertex Ventures China II (2013 Vintage) Source: Preqin Pro

ABOUT THE AUTHOR

Mr. Tay Choon Chong joined Vertex in 2009. Prior to joining Vertex, he was the Senior VP of GIC based in Beijing, China, from 2007 to 2009. Prior to that, Choon Chong was the Senior VP of ST Aerospace responsible for its Component Aviation Service Division. From 2000 to 2005, he headed Fortune VC Singapore and covers VC investment in China and Singapore. Choon Chong graduated from Imperial College with BEng in Electrical Engineering and from Stanford University with MSc in Electrical Engineering.

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IN FOCUS: GREATER CHINA

China, Hong Kong, Macau and Taiwan

Fig. 1: Annual Greater China-Based Venture Capital Fundraising, 2010 - 2018 YTD (As at July 2018)

400 25 Aggregate Capital Raised ($bn) 350 20.8 20.9 20 300 18.8 250 15.0 15 13.7 200 11.6 352 150 285 10 7.8 210 7.7 No. of Funds Closed 100 152 157 173 152 5 50 129 4.0 31 0 7 8 8 6 6 10 4 6 3 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD Year of Final Close No. of Funds Closed (Rest of Greater China) No. of Funds Closed (China) Aggregate Capital Raised ($bn) Source: Preqin Pro

Fig. 2: 10 Largest Greater China-Based Venture Capital Fund Managers by Aggregate Capital Raised in the Last 10 Years (As at July 2018)

Firm Headquarters Total Funds Raised in Last 10 Years ($bn) China Reform Fund Management Beijing, China 20.2

YF Capital Shanghai, China 5.3

Shanghai Integrated Circuit Investment Fund Shanghai, China 4.4

Shanghai DOBE Cultural & Creative Industry Shanghai, China 4.2 Development

Legend Capital Beijing, China 4.1

IDG Capital Beijing, China 4.0

Qiming Venture Partners Shanghai, China 3.7

Nanjing Zijin Investment Nanjing. China 3.2

Shunwei Capital Partners Beijing, China 2.9

Baidu Capital Beijing, China 2.7

Source: Preqin Pro

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VENTURE CAPITAL FUNDRAISING IN ASIA

wo hundred and fifty-one Asia-focused capital market, but rather highlights the fact that venture capital funds reached a final close many large fund managers are now actively investing in 2017, securing $20bn in aggregate capital, their capital rather than raising it. It is perhaps down from the fundraising peak of $28bn in unsurprising that China-focused funds closed make 2016 (Fig. 3). With aggregate capital targeted up the majority of aggregate capital raised in 2017: Tstanding at a record $67bn in July 2017 (Fig. 6), 74% ($15bn) of all Asia-focused aggregate capital and 68% of all Asia-focused funds closed meeting raised by funds closed in 2017 is targeting China (Fig. or exceeding their targets in the same year (Fig. 9), and seven of the 10 largest funds closed in the 4), the decline in aggregate capital raised does not past 10 years predominantly target the country for necessarily indicate a slowdown in the Asian venture venture capital opportunities.

Fig. 3: Annual Asia-Focused Venture Capital Fundraising, 2006 - 2018 YTD (As at July 2018)

500 28.1 30 Aggregate Capital Raised ($bn) Aggregate Capital Raised ($bn) 24.1 22.7 25 400 20.4 18.8 20 300 15.9 15 12.0 11.6 460 200 10.0 11.0 7.7 374 10 6.7 5.7 290 No. of Funds Closed 234 239 262 251 100 217 67 5 104 127 131 144 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD Year of Final Close No. of Funds Closed Aggregate Capital Raised ($bn) Source: Preqin Pro

Fig. 4: Fundraising Success of Asia-Focused Venture Capital Funds, 2006 - 2018 YTD (As at July 2018)

100% 17% 17% 26% 18% 25% 36% 27% 27% 30% 31% 29% 80% 47% 38% 38% 60% 48% 33% 42% 58% 38% 30% 43% 33% 51% 40% 48% 42% 53% 44% 20% 35% 41% 35% 40% Proportion of Funds Closed 30% 30% 31% 25% 20% 20% 19% 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD Year of Final Close Below Target Met Target Exceeded Target Source: Preqin Pro

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Fig. 5: Average Time Spent in Market by Asia-Focused Venture Capital Funds Closed, 2006 - 2018 YTD Fig. 6: Asia-Focused Venture Capital Funds in Market (As at July 2018) over Time, 2013 - 2018

20 18.5 18.8 600 66.5 70 Aggregate Capital Targeted ($bn) 17.1 17.0 60.1 15.3 15.6 14.8 500 60 15 14.5 13.1 50 12.2 11.9 12.1 400 10 40 8.3 300

(Months) 517 30 5 200 19.3 13.9 20 No. of Funds Raising 9.6 Average Time Spent on Road 100 7.2 150 188 10 0 60 84 102 0 0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 2018YTD No. of Funds Raising Aggregate Capital Targeted ($bn) Year of Final Close Source: Preqin Pro Source: Preqin Pro

Fig. 7: Annual ASEAN-Focused Venture Capital Fig. 8: Annual India-Focused Venture Capital Fundraising, 2006 - 2018 YTD (As at July 2018) Fundraising, 2006 - 2018 YTD (As at July 2018) Aggregate Capital Raised ($bn) Aggregate Capital Raised ($mn) 12 800 30 2.5 10 700 25 600 2.0 8 20 500 1.5 6 400 15 300 1.0 4 10 200 No. of Funds Closed No. of Funds Closed 0.5 2 100 5 0 0 0 0.0 2007 2008 2010 2011 2012 2015 2016 2006 2009 2013 2014 2017 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018YTD 2018YTD Year of Final Close Year of Final Close No. of Funds Closed Aggregate Capital Raised ($mn) No. of Funds Closed Aggregate Capital Raised ($bn) Source: Preqin Pro Source: Preqin Pro

Fig. 9: Annual China-Focused Venture Capital Fundraising, 2006 - 2018 YTD (As at July 2018)

400 25 Aggregate Capital Raised ($bn) 357 23.1 350 21.2 292 20 300 18.1 14.9 250 220 15.0 15 11.6 200 166 159 177 160 134 10 150 7.9 9.0 4.2 7.6 No. of Funds Closed 100 67 80 2.2 46 4.6 5 50 32 22 2.8 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD Year of Final Close No. of Funds Closed Aggregate Capital Raised ($bn) Source: Preqin Pro

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Fig. 10: Largest Asia-Focused Venture Capital Funds Closed, 2006 - 2018 YTD (As at July 2018)

Fund Size Final Close Fund Firm Vintage (bn) Fund Type Date China Integrated Circuit Industry SINO-IC Capital 2014 138.7 CNY Growth Dec-14 Investment Fund

Shanghai Integrated Circuit Investment Shanghai Integrated Circuit Venture Capital 2016 28.5 CNY Apr-16 Fund Investment Fund (General)

Shenzhen Zhaoshang Guoxie Shenzhen Guoxie I Equity Investment I Equity Investment Fund 2017 30.0 CNY Growth Dec-16 Fund Partnership Management

Shanghai Municipal Creative (Design) Shanghai DOBE Cultural & Creative Venture Capital 2011 26.9 CNY Aug-11 Industrial Investment Fund Industry Development (General)

Hillhouse Fund III Hillhouse Capital Management 2016 4.2 USD Growth Feb-16

Beijing Zhongjiao Jianxin Equity CCCC lndustrial Fund Management 2014 20.0 CNY Growth Dec-14 Investment Fund

Nanjing Jianning Zijin Equity Investment Venture Capital Nanjing Zijin Investment 2012 3.2 USD Mar-12 Fund I (General)

Inventis Investment Holdings Inventis China Growth USD Fund V 2010 3.0 USD Growth Sep-10 (China)

Zhongjieneng Seasalt Green Development Industry Investment CECEP Huayu Fund Management 2017 3.0 USD Growth Feb-17 Center

Actis Emerging Markets 3 Actis 2007 2.9 USD Balanced Dec-08

Source: Preqin Pro

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INDIA: THE GROWING ENTERPRISE MARKET

How have market conditions in India changed over the years and how has Vertex adapted to the changing environment? There has been significant growth in the Indian startup base from around 3,000 in 2009 to over 5,000 in 2017. While the US and China are the top two geographies for number of unicorns, India has the second highest average unicorn valuation, led by Flipkart. Several prominent start-ups projecting tremendous growth stories include Paytm, OLA, Flipkart, Inmobi and Swiggy. BEN MATHIAS

Exits are also generally positive. The IPO market is Managing Partner, Vertex Ventures very robust with more than 100 IPOs in India in H1 Southeast Asia & India 2018, with NewGen Software and consumer tech firm Dixon Technologies having successful local first wave of mortalities in 2015, but you will continue IPOs. We are also seeing a lot of M&A happening to see companies fail, just as you will continue to see right now. H1 2017 included more than 50 M&A companies become wildly successful. Venture capital deals (up 25%), with corporates’ M&A share rising is a high-risk, high-return business. to about 30%. B2B acquisitions continue to rise, mostly focused on building tech capabilities (e.g. In the aftermath, many of our VC peers had to Altran Technologies bought Aricent for $2bn). B2C deal with insider funding rounds or down rounds. acquisitions are primarily for market expansion (e.g. Although we did not deal with those, we did make a Walmart’s $16bn acquisition of Flipkart). few investments during that period such as FirstCry (online store for baby products), XPressBees (last- While these are good times, there are also mile delivery) and Yatra (online travel firm) that have challenging parts of the cycle. We were fortunate turned out very well for us. FirstCry is by far the that we slowed down during 2014 and 2015, when market leader in its category and Yatra is now listed the markets were overheated. In fact, our CEO, Mr on the NASDAQ. Chua Kee Lock, told the media then “that it was easy to raise money as the [2015 Indian] market was hot,” Looking ahead, the Indian Government is aiming to but had added that “the music would soon stop, create a trillion-dollar economy through its “Digital and at that time, you should not be caught without India” campaign in the next few years. Close to a a chair.” Some VCs were upset with his stance then. billion people will come under the digital ecosystem, They asked him why we were not actively investing in making the scale and opportunity unprecedented India. But he had been speaking from experience of anywhere else in the world. Many multibillion-dollar having seen such cycles. companies can be created out of India which will ride this wave of digital innovation. To prepare for Anecdotally, for every 10 start-ups a VC fund invests next decade, a new generation of public and private in, it will typically lose money in five, make modest digital infrastructure in the form of IndiaStack, GST, returns in three and make great returns in two. So low-cost data etc. is converging in India. We raised at least half of all start-ups will go through some SEA & India Fund III to capitalize on these emerging existential challenge in their life. In India, we saw the opportunities.

| 17 ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY

It was easy to raise money as the [2015 Indian] market was hot, but the music would soon stop, and at that time, you should not be caught without a chair. – Chua Kee Lock, CEO of Vertex Holdings & Managing Partner of Vertex Ventures Southeast Asia & India

What was the rationale for setting up an SEA & You raised $210mn for your SEA & India Fund III; India fund instead of a standalone India fund? how much of this will be deployed in India and We see a lot of similar trends across Southeast over what time? Asia (SEA) and India, particularly in internet and Nothing is fixed so it will depend on the fintech businesses. For example,Validus is an SME opportunities we see. We will invest the fund over digital lending platform across SEA that we invested the next three years and expect to stay in most in. We had seen similar businesses in India and investments for a 5-7 year timeframe. Compared to were therefore able to evaluate Validus effectively. Fund I and Fund II, this fund will be much more active Moreover, SEA is generally the first port of call for in India. We now have a team on the ground in India Indian companies looking to expand overseas. So to source and support investments here. However, we are able to open a lot of doors for our Indian we made several investments from Fund I and Fund companies in SEA. The most efficient way to do this II which have scaled extremely well. For example, is from Singapore. we invested in FirstCry which has grown to be the clear market leader in its category. We invested in We also see many cross-border companies that are HouseJoy from Fund II, along with Amazon. headquartered in Singapore but have the majority of operations in India, and the founding team split Have recent policy initiatives helped with between the two countries. InstaRem is one such deal flow? Any domestic industries that are example. particularly exciting? The start-up momentum in India is so strong right We have invested about $68mn in start-ups in India now that there is not a whole lot needed from the since 2010. In the next few years, we expect our third government. I do think, however, that the state SEA & India fund to be very active in India to ride governments need to find ways to encourage these underlying trends. We are looking to invest entrepreneurs in sectors that may not attract in early-stage and mid-stage ventures in enterprise overseas venture capital but would have a high technology, consumer internet/mobile and fintech. impact domestically. For example, business in areas We like to invest in companies where we can bring like agritech and telehealth could be addressing more to the table beyond just capital. For example, a large rural Indian market but will have longer companies that are looking for an SEA expansion gestation periods than most venture capital funds where we can leverage our significant network in the would look for. region. There is no shortage of entrepreneurs in India, The fund will continue with the same investment and today, the venture capital ecosystem is well thesis across SEA and India, which primarily means established. The Indian Government should look Series A deals with follow-on, and some capital to Singapore as a model for how the government deployed first at Series B stage. In India, we will should encourage entrepreneurship without being continue to invest across three main themes: interfering. Rather than investing on its own, the a. Increasing consumer consumption over the government should sponsor venture capital funds mobile internet; that have a focus on these priority sectors and allow b. The rapid transition of financial services onto these investors to find the right entrepreneurs to the digital IndiaStack; back. c. Cutting-edge enterprise technology being built in India for the global market.

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That said, India’s government has 56 active policies With mobile broadband user growth, we expect a that target and support the start-up ecosystem. significant rise in the use of e-commerce services The “Startup India” initiative that provides funding offered by local startups. There are 1,700+ start- of $1.5bn over four years to aid start-up funding, ups, having raised $1.1bn in H1 2017.The three industry academia partnership (e.g. Atal Innovation key players are Walmart-Flipkart, Snapdeal and Mission) and policy simplification. Shopclues. Vertical aggregators (e.g. Swiggy, OYO, Coverfox) form c.70% of the deals by funding value At the same time, there are increasing corporate and number of deals. initiatives, both Indian and global, focused on nurturing the start-up ecosystem (e.g. Microsoft and Government initiatives like “Make in India” Apple have accelerators in Bangalore). have incentivized companies to build top-notch businesses in India. It is also geared towards Then there is the Digital India initiative that has improvements in the country’s infrastructure and helped grow India’s internet population to over increased domestic consumption. Logistics start- 450 million connected citizens and growing in ups gained their foothold with the advent of the the mid-teens. The low smartphone penetration e-commerce industry. Even players like Flipkart, remains a major attraction for all device vendors. PayTM and Amazon use third-party logistics services They are now making serious attempts to address in addition to in-house ones. A number of start-ups the problem of affordability in India with more have begun tapping other areas to support the affordable products, resulting in initiatives such as existing supply chain solutions or to fill the gaps in Android Oreo ‘Go edition’, telco bundling with low- the otherwise fragmented and unorganized Indian cost 4G smartphones and even the 4G feature phone logistics industry. JioPhone. Fintech is another. Foundations are already in place Since 2014, the cost of a smartphone has dropped for a digitally inclusive economy including the [1] and this caused internet growth to cross the tipping financial inclusion of non-banked individuals (Jan point, leading to a lot of capital going into consumer Dhan); [2] unique, universal digital identity for all internet. Most Indians access the internet via mobile (Aadhaar); [3] smartphone and internet connectivity devices. The rising use of mobile broadband is (Mobile). There are 736 million Aadhaar-linked bank speeding up the penetration rate. The cost of data accounts, 1.2 billion Aadhaar numbers registered has been going down. Jio began charging data fees and 450+ million internet users in India. for as little as 309 rupees ($5) for 1 GB per day for three months in April 2017. It now accounts for a India is moving towards a digital age powered by leading 39% of all broadband subscribers, covering smartphones and the nearly ‘free’ cost of internet over 80% of the country’s population. connections offered by telcos. Government efforts to promote a “cashless economy” have shown positive By 2022, the number of Indian internet users is signs; with the implementation of Universal Payment expected to double to 850 million with a 90% Interface (UPI) for fund transfers and transactions, mobile phone penetration. Most of this growth the demonetization move made millions experience in smartphone usage is from rural areas, where digital payments. companies are now finding the job of accessing previously untapped markets much easier and Combined, these moves have contributed to a extremely promising. marked shift in consumer behaviour – Indians are

| 19 ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY

There is no shortage of entrepreneurs in India, and today, the venture capital ecosystem is well established. The Indian Government should look to Singapore as a model for how the government should encourage entrepreneurship without being interfering.

purchasing goods from e-commerce websites, enterprise, we look for companies that have a global hailing cabs via aggregators, transferring money via opportunity. The founders need to be capable of PayTM or Google Tez and using their smartphones to selling the product globally and competing against control more elements of their lives. There has also competitors outside India. Moreover, we should be been an effort to make digital payments simpler and in a position to help them with our global network. easier using Quick Response Codes, as introduced by For consumer and fintech, we look for India-oriented Bharat QR code payments. business models but they need to have good unit economics. By this we mean low customer Today, there are over 360 fintech start-ups and acquisition costs, high gross margins and high repeat this number is growing at c.31%. Key sub-verticals rates. include P2P lending, wealth management, SME lending, consumer credit, insurance tech and digital Can you give us examples of investments within payments. A case in point is Kissht, a financial these sectors? technology platform which enables instant, seamless We invested in HouseJoy a couple of years ago, along credit for consumers to make purchases at digital with Amazon. This is a home services marketplace points of sale. where the consumer is able to use the app to book services like beauty care, appliance repair, home Enterprise is another promising segment with 480+ cleaning, AC maintenance etc. They are able to get start-ups. The cloud has made software flat and gross margins of 30-40% for their services. Moreover, Indian developers are doing a great job in building the average consumer repeats 4-5 times per year products that have global relevance. Importantly, because a household constantly has a need for these a large number of Indian founders are developing service offerings. skills that enable a global sales mindset. We are seeing more and more companies that originated On the enterprise front, we invested in CloudCherry as Indian companies, but have evolved into global (SaaS for Customer Experience Management) earlier enterprise technology companies. this year. We recognized that the largest opportunity for the company was in the US. Today, the company These are in areas as diverse as AI, IOT, DevOps, has moved from an India-centric revenue model to a digital marketing and CRM. Data analytics/AI is the US- and SEA-centric revenue model. Similarly, Flutura largest segment and artificial intelligence (AI) is (Industrial IOT Analytics) has built technology where viewed as one of the most exciting and profitable it can take on GE on a deal and still win. We recently ventures in the fintech space in India. AI applications announced an investment in Hansel, a mobile- in data analytics and customer service create first personalization and reconfiguration platform opportunities for more personalized customer focusing on the user experience (UX) stack. Their experiences, significantly better insights and technology enables business teams to orchestrate automation of back-end workflows. A key reason personalized user experiences with enormous speed, why we invested in Active.AI. at scale, without disrupting tech roadmap, and they have already got the who’s who of the mobile app Which kind of tech start-ups are you looking to world in India as their customers. invest in? We are actively looking at three sectors: enterprise, In fintech, we invested inActive.AI , which builds consumer and fintech. However, our criteria AI technology for conversational banking and to evaluate each of these is very different. For Virtual Personal Assistants for financial consumers

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predominantly in the retail banking and wealth While sentiment was clearly overdone post-2015’s management spaces. Its solution is in production euphoria, India is developing rapidly and will be a with several banks in India and SEA. The three good market over the longer term (e.g. Walmart’s founders have deep domain expertise in banking $16bn acquisition of Flipkart). That said, there are and are able to impress potential customers instantly challenges for India which will be resolved over in the first meeting. time – this is not different from China over a decade ago. Many people today compare China with Silicon What similarities/differences have you seen Valley – it has so many start-ups, lots of companies between founding teams in India in the last with unique models. Perhaps the same can be said decade? of India’s start-up ecosystem evolution in the decade When I first moved to India over 10 years ago, most ahead. entrepreneurs came from business families and you had to deal with a father-son founding team. Today, Today, there are entrepreneurs doing exciting most founding teams are first-time entrepreneurs things around sectors such as digital lending, IoT typically in their thirties. Most of them have already (Internet of Things) and enterprise SaaS (software as had some work experience which they can leverage a service). New sectors will continue to emerge while for their start-ups. The founders of Flutura, for other sectors will mature. We are already seeing example, each spent 10 years at MindTree and are many successful companies come out of India that leveraging the customer relationships they built are fast becoming global leaders in their categories. there. One notable exception to this is Ashwin Globallogic, MuSigma, Zoho and Freshdesk for Ramesh from Synup who is in his mid-twenties and example. The level of technology talent in India is so started the company almost immediately out of tremendous, it is inevitable that we will eventually college. He has built an incredible SaaS business with produce world leaders. 50,000 customers in the US, with his entire team in India.

Some firms feel that quality deals are few and far between in Asia. Does Vertex share the same sentiment and can the same be said for the Indian market? With regards to quality deals, India always has huge potential given its market size. The main challenge for us in India is to figure out what companies to invest in and at sensible valuations. Most times, valuations are excessive.

| 21 ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY

Comparison of Vertex Ventures SEA & India Funds vs. *ASEAN- and *South Asia-Focused Venture Capital Funds (Vintage 2007-2015)

35 32.5 30 Top Quartile: 26.9 25 23.7 20 Median: 15.5 15 Net IRR (%) 10 Bottom Quartile: 8.2 5 0 Vertex Ventures SEA & India I (2010 Vintage) Vertex Ventures SEA & India II (2014 Vintage) Source: Preqin Pro *Funds that have a focus on either ASEAN or South Asia, mutually exclusive, excluding Vertex Ventures SEA & India I and II which focus on both ASEAN and India.

ABOUT THE AUTHOR

Mr. Ben Mathias is Managing Partner of Vertex Ventures Southeast Asia & India, having joined Vertex in 2015. While his key focus is in India, he is part of the Vertex team covering India and Southeast Asia. Prior to Vertex, Ben was a partner at New Enterprise Associates (NEA).He held senior positions at E2open and i2 Technologies. Previously, Ben spent a number of years at PwC Consulting. In his early career, he was at Open Environment Corporation. Ben received his Master of Science in Engineering Sciences from Dartmouth College and his Bachelor of Technology from the Indian Institute of Technology, Madras.

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IN FOCUS: SOUTH ASIA

Bangladesh, India, Nepal, Pakistan and Sri Lanka

Fig. 11: Annual South Asia-Based Venture Capital Fundraising, 2010 - 2018 YTD (As at July 2018)

25 1.6 Aggregate Capital Raised ($bn) 1.3 1.4 20 1.2 1.0 1.0 15 0.8 0.7 0.7 0.7 0.8 0.6 10 0.6 0.4 0.3 14 14 16 No. of Funds Closed 23 0.4 5 13 8 10 9 9 0.2 0 0.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD

No. of Funds Closed Aggregate Capital Raised ($bn) Source: Preqin Pro

Fig. 12: 10 Largest South Asia-Based Venture Capital Fund Managers by Aggregate Capital Raised in the Last 10 Years (As at July 2018)

Firm Headquarters Total Funds Raised in Last 10 Years ($bn) Nexus Venture Partners Mumbai, India 1.2

Kalaari Capital Bangalore, India 0.6

IDG Ventures India Bangalore, India 0.5

SIDBI Venture Capital Mumbai, India 0.4

Matrix Partners India Bangalore, India 0.4

Vertex Ventures Southeast Asia & India Singapore 0.4

Duke Industries New Delhi, India 0.3

Aavishkaar Venture Management Services Mumbai, India 0.3

Eight Roads Ventures India Mumbai, India 0.3

Ventureast Hyderabad, India 0.2

Source: Preqin Pro

| 23 ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY

ASIAN VENTURE CAPITAL FUND MANAGER ACTIVITY

sia-focused venture capital assets under Fig. 13: Number of Asia-Based Venture Capital Fund management have increased eight-fold Managers by Sub-Region in 10 years, reaching a record $221bn in December 2017 (Fig. 14), highlighting the 1,134 sheer impact of technological advancement Aand innovation in Asia. Venture capital managers based in China make up 67% of all Asia-based fund 140 109 194 managers (Fig. 13). Greater China South Asia ASEAN Northeast Asia Source: Preqin Pro

Fig. 14: Asia-Focused Venture Capital Assets under Management, 2005 - 2017

250

200

150 149.8 100 109.6 82.4 50 51.8 64.4 33.1 29.8 38.6 71.1 6.0 8.2 12.5 13.5 17.0 44.3 Assets under Management ($bn) 29.4 0 5.7 9.1 15.1 17.6 16.3 17.3 24.1 25.3 23.6 23.7 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17

Dry Powder ($bn) Unrealized Value ($bn) Source: Preqin Pro

Fig. 15: Venture Capital Fund Managers by Number of Funds Raised Previously and Location

100% 9% 5% 11% 9% 10% 80% 8% 6 or More Funds Raised Previously 26% 32% 34% 60% 4-5 Funds Raised Previously

40% 2-3 Funds Raised Previously

Proportion of Firms 54% 49% 52% 20% 1 Fund Raised Previously

0% Asia North America Europe Fund Manager Location Source: Preqin Pro

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Fig. 16: 10 Largest Asia-Based Venture Capital Fund Managers by Aggregate Capital Raised in the Last 10 Years (As at August 2018)

Firm Headquarters Total Funds Raised in Last 10 Years ($bn) SINO-IC Capital Beijing, China 22.6

China Reform Fund Management Beijing, China 20.2

CCT Fund Management Beijing, China 19.6

Inventis Investment Holdings (China) Hong Kong, Hong Kong 12.2

China Merchants Capital Shenzhen, China 12.0

YF Capital Shanghai, China 10.0

CCCC lndustrial Fund Management Beijing, China 9.3

CMB International Capital Management Hong Kong, Hong Kong 8.6

CITIC Private Equity Funds Management Beijing, China 8.5

CDH Investments Beijing, China 7.9

Source: Preqin Pro

Fig. 17: 10 Largest Asia-Based Venture Capital Fund Managers by Estimated Dry Powder (As at August 2018)

Firm Headquarters Estimated Dry Powder ($bn) CCT Fund Management Beijing, China 10.6

China Reform Fund Management Beijing, China 9.2

China Merchants Capital Shenzhen, China 8.2

CMB International Capital Management Hong Kong, Hong Kong 5.7

SINO-IC Capital Beijing, China 5.1

YF Capital Shanghai, China 4.8

Inventis Investment Holdings (China) Hong Kong, Hong Kong 4.3

CCCC lndustrial Fund Management Beijing, China 4.0

Shandong Hi-speed Investment Fund Management Shandong, China 3.4

China Ministry of Finance Beijing, China 3.3

Source: Preqin Pro

| 25 ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY

CAN SOUTHEAST ASIA EMULATE CHINA?

How have market conditions in Southeast Asia changed over the years and how has Vertex adapted to this changing environment? Over the past decade, there have been three buzzwords rocking the world: start-up, disruption and innovation. Everyone wants to be Silicon Valley. Southeast Asia has also become a hipster – but to think we want to be like the Bay Area is misguided. There is another model ecosystem closer to home.

In California’s shadow, China has slowly risen thanks CHUA JOO HOCK to the grand powers of Baidu, Alibaba and Tencent, with the fledgling powers of Xiaomi, Didi, Ctrip and Managing Partner, Vertex Ventures more in tow. And in China’s shadow is Southeast Southeast Asia & India Asia. With this juxtaposition, it is no wonder the founders and investors of the region are hoping young investors are chasing after deals rooted in Southeast Asia will be the next China. overwatched trends and founders are inflating their prices because there are too many hot investors. Although everyone knows we operate in a complex region – with multiple political and cultural issues In tandem with this is the rise of accelerators, co- along with economies that are oceans apart – working spaces and corporate innovation programs everyone is holding out hoping that Southeast Asia that underline a fervour and desperation around will be the next China. Everyone wants us to produce phraseology like start-up, disruption and innovation. an Alibaba. And indeed, that is how investors and founders are subconsciously behaving. Southeast ‘Start-up’ is overheating and it is creating hot air Asia certainly has potential, but does it have the balloons across the ecosystem. Of course, some of explosive multibillion-dollar juggernauts incoming the chasing is warranted. Some deals are just so that justify the inflated valuations? hot and the companies have such strong potential that it is irresistible. But it is important to stick to the We are seeing similar exuberance in the start-up fundamentals and be disciplined about investment. market that we saw 6-7 years ago. Back then, there was a spike in interest and excitement for start-ups. But these are the basic boom-and-bust cycles of As a result, valuations grew and promises were venture capital. In every cycle we see the same made. But Southeast Asia does not operate like pattern repeating – investors rush to invest at high Silicon Valley, where ballooning valuations lead to valuations, then they get burnt because the market further ballooning. becomes overheated and valuations plunge. The younger and less experienced investors have a hard Inflation inevitably leads to down rounds when start- time staying ‘sane’ when money is pouring into ups are unable to produce the exits their exuberant deals at inflated valuations and they miss the signs investors wanted. Once in a while, a resilient start-up pointing to an oncoming bubble. appears and can make an impressive exit or IPO. The pattern is repeating itself today. Southeast Asia Unfortunately, it appears that being part of a high is again going through another hype-cycle in which profile deal (albeit at a potentially inflated valuation)

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Venture Capital Investments as a % of GDP

0.40%

Southeast Asia 0.30%

0.18% 0.18%

0.04%

SEA (2014) SEA (2016) India (2016) China (2016) US (2016)

Source: e-Conomy SEA Spotlight 2017 by Google and Temasek brings lots of media attention. And some investors of China and India. Imagine Silicon Valley companies crave the visibility amid all the media frenzy. We read that missed out on China and India looking at where in the media about which firm has completed the the last big markets are left. And that is right here. most deals and who are the most active investors. It This is an interesting moment in time for Southeast is the wrong focus. Asia – essentially because investors are now realizing that it is the only large market left to grow. Ultimately, a good VC is able to give real returns in not one but several investments. Venture capitalism That said, Southeast Asia needs to be looked at in is not about doing many deals in the quickest conjunction with India. This is central to Vertex SEA possible time; it is about investing and building great & India Fund’s strategy because there are many companies that can produce outstanding exits and cross-border collaboration opportunities (e.g. Flutura returns. offering IoT analytics solution to leading industrial companies in Southeast Asia). There are also many Currently, Southeast Asia is around 10 years behind Indian entrepreneurs starting their business in China. It is facing similar issues China faced a decade Southeast Asia (e.g. Socash – a mobile-first cash ago like difficulties in finding talent and money, circulation platform in Asia, leveraging an offline with few players, exits and unicorns. But China is merchant network. Active.AI, Validus and Instarem advancing quickly and Southeast Asia is now an are other notable Singapore-based fintech start-ups emerging market at an inflexion point. The region with Indian founders). Today, other VCs are imitating has raked in cumulative funding of almost $9.5bn the Vertex model (i.e. India-specific VC funds from 2010 to 2017. For VC investments, Southeast adopting Southeast Asia as part of their strategy or Asia’s $3bn in 2017 looks similar to China’s in 2006. Southeast Asia & India-focused funds). The corresponding sum for the US then was $30bn. Today, China’s investment stands at $40bn vs. $70bn Southeast Asian start-ups, especially those based in for the US. Singapore, now have the most unicorns in Asia after China. The region is rising and currently home to Overall, VC investments in Southeast Asian seven unicorns: Grab, Go-Jek, Lazada, Razer, Sea Ltd. companies signal a strong confidence in the potential (f.k.a. Garena), Traveloka and Tokopedia. Southeast of Southeast Asia’s digital economy by global and Asia’s decacorn, Grab, raised the region’s largest regional investors. These investments stood at 0.18% round in 2017 with a $2bn Series G from SoftBank of Southeast Asia GDP in 2016, up from 0.04% in Group, Didi Chuxing and Toyota, followed by another 2014. Southeast Asia is now on par with India (0.18% $2bn from Toyota, OppenheimerFunds, Ping An of GDP in 2016) and narrowing the gap with China Capital and other investors in 2018. (0.30% of GDP in 2016). Within Southeast Asia, Singapore and Indonesia In the next decade, Southeast Asia is going to be one continue to figure prominently on investors’ radar, of the most exciting regions to invest in. If you think with fintech ($3.2bn) and e-commerce ($2.9bn) about it, it is kind of situated between the two giants attracting the most investments.

| 27 ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY

Venture Capital Investments in Key SEA Countries (2010-2017)

3% 0.2% 1% 2% 5% Singapore Vietnam

Total Invested Indonesia Thailand 22% $14.9bn Malaysia Others (Cumulative) Philippines 67%

Source: Preqin and Vertex database Note: VC investments exclude start-ups with undisclosed funding information; Deal stages include Angel, Grant, Growth Capital/Expansion, Seed, Series A-E

From 2010 to 2017, of all countries in the Southeast Southeast Asia needs funding from VCs with a global Asia region, Singapore has attracted the most perspective and scale, deep local experience and funding from investors. More than half of the total networks, as well as a robust track record to help investments have reached Singapore-based tech them succeed. start-ups. On this front, we are seeing more funds being Singapore will continue to be a key Southeast Asian established. But the key question for investors is country, attractive to many companies. It has a clear the quality of long-term returns. As a global network rule of law, with robust IP protection and significant of VC funds with four funds focusing on early stage government support. The Singapore Government is opportunities, Vertex has over 40 investment also willing to find ways to help start-ups. professionals plugged into the key innovation hubs of Southeast Asia/India, China, Israel and the The larger VC funds are focused on the two big US. This unique network architecture enables our markets: China and India. That trend will not Southeast Asia team to be better positioned to spot stop and is expected to persist. In Singapore, the the impactful trends, disruptive technologies and government has done a good job for incubation and promising entrepreneurs to support. start-up funding – these are well funded. But funding is not just giving companies a one-off payment. What are some of the emerging trends in Several rounds of funding are required – maybe Southeast Asia? Any industries that are three, four or even five rounds before companies can particularly exciting? be successful. When it comes to additional funding While Southeast Asia often gets classified as a or subsequent rounds of funding, be it in Singapore single, homogenous region, it is really a collection or Southeast Asia, it is not as easy when compared of different countries. The dynamics in each with India and China. More government support may country within the region are extremely varied. be needed here. Singapore is one of the world’s wealthiest country- states. Indonesia, despite having the highest GDP Compared to the US or even broader Asia in general, of countries in Southeast Asia, is home to a large Southeast Asia still lacks right-sized VC funds with the unbanked population, with many people still relying experience and track record to invest in promising heavily on cash. There is a need to recognize the start-ups with growth opportunities. The region’s uniqueness of each country and adopt a customized diversity (market, linguistic, cultural, religious) can strategy. be a deterrent to some foreign investors but an opportunity for home-grown companies able to There are many factors contributing to the surge deftly manoeuvre in the region. There is a dearth of of interest in start-ups outside the established experienced investors that know and understand hotbeds for technology and innovation. Southeast how to build “champions”. As a result, valuations Asia’s growing digital connectivity for one has made have been hyped up by over-zealous investors the population addressable, with over 300 million and big money being thrown into young start-ups. smartphone users in the region, compared to 225

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Venture Capital Funding Landscape in Southeast Asia

Active Fund Size Larger SoftBank

Hillhouse

Sequoia India

B Capital

Jungle SBI Capital Ventures Openspace GSR Ventures Ventures Monk's Hill

Golden Gate Axiata GGV Capital 500 Ventures Startups TNF Venture Gobi Ventures Smaller

Seed & Micro (Pre-A) Early Stage (Series A & B) Expansion (Series C+)

Sources: TechCrunch, TechInAsia, E27, VentureBeat, Preqin, Vertex

million in the US. This translates to greater consumer Indonesia has an attractive digital economy. Some demand and purchasing power. fintech start-ups are also serving the underbanked population, e.g. PayFazz enables the “unreached” One of the key success factors in China is population in Indonesia to transact, pay and urbanization. This is not unique to China, the same purchase through its network of banking agents. trend is happening in Southeast Asia and India. Other factors include consumerism with rising Artificial Intelligence: With deregulation, enterprises incomes, deregulation and young demographics. are adopting technology, e.g. Active.AI provides Most importantly, the market in Southeast Asia has a technology for conversational banking and Virtual lower competition intensity for start-up founders and Personal Assistants for financial consumers investors alike that provide a rational entry valuation. predominantly in the retail banking and wealth Interesting sectors to investors include: management spaces. Marketplace lenders like Validus use AI and machine-learning to provide Social Media: With a massive boom in smartphone supply-chain financing to SMEs while offering higher usage, social media in Southeast Asia is a major risk-adjusted returns to investors. trend, with Indonesia leading the way. In 2017, M17 (Paktor’s merger with Taiwanese start-up 17Media) Some firms feel that quality deals are few and added live-streaming and content production to its far between in Asia. Does Vertex share the same list of offerings. sentiment and can the same be said for the Southeast Asian market? Fintech: StoreHub offers a revolutionary iPad POS Southeast Asia is a relatively newer market and has system that changes how retailers manage their opportunities abound. However, unlike China, there businesses and connect with their customers. are occasional challenges like the political upheavals Turnkey Lender upgrades traditional lending in Thailand. business with its cloud-based online lending management and credit assessment platform. Investors were keen to put money into early-stage InstaRem enables lower-cost remittances compared start-ups in recent years, and those businesses that to traditional services like Western Union and banks. managed to survive are now looking for growth

| 29 ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY

capital. As those companies get to the next stage, But there is also a view that many start-ups here you start seeing the B and C rounds getting done. It are kept alive due to government funding beyond does not necessarily mean that funding for the early their normal lifespan. In the traditional sense, like in stages has dried up. Silicon Valley, if their business model was suspect, they would have folded up quickly, as the market The last few years have witnessed a “funding would have determined they cannot continue. barbell”, with money gravitating towards early- stage deals or late, big-ticket rounds, giving the That is always a concern – when you have too critical Series B and C phases a miss. Yet there is no much money chasing too few companies, even the shortage of companies to invest in; the issue is lack bad companies get funded. This is something that of institutional funding. That is why growth-stage we cannot help. In a market like this, it is bound funding will be crucial. to happen. It is not good to have either too much money chasing start-ups or too little money. A right balance is needed.

Comparison of Vertex Ventures SEA & India Funds vs. *ASEAN- and *South Asia-Focused Venture Capital Funds (Vintage 2007-2015)

35 32.5 30 Top Quartile: 26.9 25 23.7 20 Median: 15.5 15 Net IRR (%) 10 Bottom Quartile: 8.2 Bottom Quartile: 7.8 5 0 Vertex Ventures SEA & India I (2010 Vintage) Vertex Ventures SEA & India II (2014 Vintage) Source: Preqin Pro *Funds that have a focus on either ASEAN or South Asia, mutually exclusive, excluding Vertex Ventures SEA & India I and II which focus on both ASEAN and India. ABOUT THE AUTHOR

Mr. Chua Joo Hock is based in Singapore and heads the investment activities in Southeast Asia and India. Mr. Joo Hock joined the former Singapore Technologies Group in 1987 where he was involved in the early phase of Singapore Technologies’ venture capital investments which later became Vertex in 1988. Throughout his career in Vertex, he has been involved in VC investments globally particularly in the US, Singapore, Taiwan, India, China and Israel. He spent several years in the US from 1989 to 1992 and later from 1998 to 2004 where he was responsible for Vertex US investments and operation. Mr. Joo Hock graduated from the University of Singapore in 1979 with a Bachelor of Engineering (Mechanical). He also has a MBA from National University of Singapore.

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IN FOCUS: ASEAN

Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam

Fig. 18: Annual ASEAN-Based Venture Capital Fundraising, 2012 - 2018 YTD (As at July 2018)

16 1,000 Aggregate Capital Raised ($mn) 14 2 5 800 12 3 10 1 600 8 2 6 1 13 400 10 10 10 1 No. of Funds Closed 4 6 6 200 2 4 0 0 2012 2013 2014 2015 2016 2017 2018 YTD Year of Final Close No. of Funds Closed (Singapore) No. of Funds Closed (Rest of ASEAN) Aggregate Capital Raised ($mn) Source: Preqin Pro

Fig. 19: 10 Largest ASEAN-Based Venture Capital Fund Managers by Aggregate Capital Raised in the Last 10 Years (As at July 2018)

Firm Headquarters Total Funds Raised in Last 10 Years ($mn) UOB Venture Management Singapore 509

Vertex Ventures Southeast Asia & India Singapore 390

Vickers Venture Partners Singapore 367

Abundance Venture Capital Petaling Jaya, Malaysia 250

Venstar Investments Singapore 178

F&H Fund Management Singapore 174

Openspace Ventures Singapore 165

East Ventures Singapore 163

Venturra Capital Jakarta, Indonesia 150

Xeraya Capital Kuala Lumpur, Malaysia 150

Source: Preqin Pro

| 31 ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY

ASIAN VENTURE CAPITAL PERFORMANCE

et cash flow has been falling in the Asian formation. Asia-focused funds with vintage years venture capital industry since 2014, between 2005 and 2015 have a higher associated with a sharp decline between 2016 and risk when compared to Europe- and North America- 2017, and stands at -$21bn at the end focused funds, but also higher returns in terms of of 2017 (Fig. 20). A reason behind this median net IRR (Fig. 21). With Asia still considered isN the plethora of new funds that have emerged a developing region overall, the associated risk of in Asia, and more capital will have been called investment is logical compared to more developed than distributed in this period of heightened fund parts of the world.

Fig. 20: Asia-Focused Venture Capital Funds: Annual Capital Called up, Distributed and Net Cash Flow, 2005 - 2017

50 40 30 20 10 0 -10 -20 -30 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Capital Called up ($bn) Capital Distributed ($bn) Net Cash Flow ($bn) Source: Preqin Pro

Fig. 21: Venture Capital: Risk/Return by Geographic Focus (Vintages 2005-2015)

30%

25% Asia 20%

15% North America

10% Europe 5% Risk - Standard Deviation of Net IRR 0% 6% 8% 10% 12% 14% 16% ReturnReturn - Median - Median Net Net IRR IRR Source: Preqin Pro

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IN FOCUS: NORTHEAST ASIA

Japan and South Korea

Fig. 22: Annual Northeast Asia-Based Venture Capital Fundraising, 2010 - 2018 YTD (As at July 2018)

70 2.4 2.5 Aggregate Capital Raised ($bn) 2.2 2.2 2.1 60 1.9 1.7 1.8 2.0 50 37 1.3 1.5 40 1.2 36 41 47 30 24 26 30 40 1.0 20 No. of Funds Closed 28 0.5 10 18 20 22 20 8 11 11 17 0 5 0.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD Year of Final Close No. of Funds Closed (Japan) No. of Funds Closed (South Korea) Aggregate Capital Raised ($bn) Source: Preqin Pro

Fig. 23: 10 Largest Northeast Asia-Based Venture Capital Fund Managers by Aggregate Capital Raised in the Last 10 Years (As at July 2018)

Firm Headquarters Total Funds Raised in Last 10 Years ($bn) Samsung Venture Investment Corporation Seoul, South Korea 1.4

Korea Investment Partners Seoul, South Korea 1.1

JAFCO (Japan) Tokyo, Japan 1.0

SBI Investment Tokyo, Japan 0.8

SV Investment Seoul, South Korea 0.8

Atinum Investment Seoul, South Korea 0.8

InterVest Seoul, South Korea 0.5

UTEC Tokyo, Japan 0.5

KTB Network Seoul, South Korea 0.4

AJU IB Investment Seoul, South Korea 0.4

Source: Preqin Pro

| 33 ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY

ASIAN VENTURE CAPITAL DEALS

Fig. 24: 10 Largest Venture Capital Deals* in Asia, 2016 - 2018 YTD (As at July 2018)

Investment Deal Size Portfolio Company Deal Date Stage (mn) Investor(s) Industry Location Baillie Gifford, Carlyle Group, CPP Investment Board, Discovery Capital Management, General Atlantic, GIC**, Ant Financial Services Series C/ Jun-18 14,000 USD Janchor Partners, Khazanah Nasional, Internet China Group Round 3 Primavera Capital, Sequoia Capital, Silver Lake, T Rowe Price, Temasek Holdings**, Warburg Pincus

Unspecified Bank of Communications, China Didi Chuxing Apr-17 5,500 USD Telecoms China Round Merchants Bank, Silver Lake, SoftBank

CCB Trust Co., Ltd.** , China Development Bank Capital, China Ant Financial Services Series B/ Apr-16 4,500 USD Investment Corporation**, China Internet China Group Round 2 Life Insurance Company, China Post Capital, Primavera Capital

Unspecified Didi Chuxing Dec-17 4,000 USD Mubadala Capital, SoftBank Telecoms China Round

Didi Chuxing**, SoftBank**, Toyota, Series G/ Grab Holdings Jul-17 4,000 USD OppenheimerFunds, Ping An Capital Telecoms Singapore Round 7 and others

Coatue Management, CPP Investment Board, GIC, IDG Capital, Mubadala Series C/ Meituan-Dianping Oct-17 4,000 USD Capital, Sequoia Capital, Tencent**, Internet China Round 3 The Priceline Group, Tiger Global Management, Trustbridge Partners

Baillie Gifford, Capital Today, China Development Bank Capital, CPP Unspecified Investment Board, DST Global**, Meituan-Dianping Jan-16 3,300 USD Internet China Round Hillhouse Capital Management, Sequoia Capital, Temasek Holdings, Tencent**, Trustbridge Partners**

Unspecified Pinduoduo Apr-18 3,000 USD Sequoia Capital, Tencent** Telecoms China Round

Alibaba Group, Ant Financial Service Unspecified Group, BlackRock, Oppenheimer Didi Chuxing Jun-16 2,800 USD Telecoms China Round Alternative Investment Management, SoftBank, Tencent

Unspecified Toutiao Aug-17 2,000 USD General Atlantic** Telecoms China Round

Source: Preqin Pro *Figures exclude add-ons, grants, mergers, venture debt and secondary stock purchases. **Denotes lead investor(s).

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Fig. 25: 10 Largest Venture Capital Deals* in Asia, 2018 YTD (As at July 2018)

Investment Deal Size Portfolio Company Deal Date Stage (mn) Investor(s) Industry Location Baillie Gifford, Carlyle Group, CPP Investment Board, Discovery Capital Management, General Atlantic, GIC**, Ant Financial Services Series C/ Jun-18 14,000 USD Janchor Partners, Khazanah Nasional, Internet China Group Round 3 Primavera Capital, Sequoia Capital, Silver Lake, T Rowe Price, Temasek Holdings**, Warburg Pincus

Unspecified Pinduoduo Apr-18 3,000 USD Sequoia Capital, Tencent** Telecoms China Round

Bank of China Group Investment, Series B/ China International Capital JD Finance*** Jul-18 13,000 CNY Internet China Round 2 Corporation Private Equity, China Securities International, CITIC Capital

Baillie Gifford, CapitalG, China Reform Fund Management**, Unspecified Farallon Capital Management, Manbang Group Apr-18 1,900 USD Internet China Round Hillhouse Capital Management, IDG Capital, SB Investment Advisers**, Sequoia Capital, Tencent

Alibaba Group**, China Vanke Co. Series A/ China Media Capital Inc. Jul-18 10,000 CNY Ltd.**, CMB International Capital Telecoms China Round 1 Management, Tencent**

Astra International, BlackRock, Google Inc., JD.com, KKR, Meituan-Dianping, Series E/ Go-Jek Indonesia Feb-18 1,500 USD Samsung Venture Investment Telecoms Indonesia Round 5 Corporation, Temasek Holdings, Tencent**, Warburg Pincus

Ping An Healthcare Series A/ IDG Capital, SB Investment Advisers, Software Feb-18 1,150 USD China Administration Co., Ltd. Round 1 SBI Holdings & Related

Unspecified Grab Holdings Jun-18 1,000 USD Toyota Motor Corporation** Telecoms Singapore Round

Unspecified Mobike Ltd. Jan-18 1,000 USD - Telecoms China Round

Alibaba Group**, Ant Financial Service Series E/ Ofo Bicycle Mar-18 866 USD Group, Haofeng Group, Junli Capital, Telecoms China Round 5 Tianhe Capital

Source: Preqin Pro

*Figures exclude add-ons, grants, mergers, venture debt and secondary stock purchases. **Denotes lead investor(s). ***Financing round is set to be completed in Q3 2018.

| 35 ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY

Fig. 26: 10 Largest Venture Capital Exits in Asia, 2016 - 2018 YTD (As at July 2018)

Date of First Total Known Portfolio Company Investment Investor(s) Funding (mn) Exit Type Exit Date Acquiror (Exit) Exit Value (mn) Industry Location Accel, Axis Bank, Baillie Gifford, Dragoneer Investment Group, DST Global, eBay Inc., GIC, Greenoaks Capital, HDFC Bank, Helion Venture Partners, Iconiq Capital, IDG Ventures India, Kalaari Capital, Microsoft, Morgan Stanley, Morgan Stanley Alternative Investment Flipkart Internet Private Limited* Oct-09 6,454 USD Trade Sale May-18 Walmart 16,000 USD Internet India Partners, Naspers, Qatar Investment Authority, SB Investment Advisers, Schroder Adveq, Sofina, Steadview Capital Management, T Rowe Price, Tencent, Tiger Global Management, TR Capital, Vulcan Capital

All-Stars Investment, Bank of China (Hong Kong), Deutsche Bank, DST Global, GIC, Hopu Investment Management, IDG Capital, Morgan Stanley, Morningside Venture Capital, Xiaomi Inc.* Jun-09 2,457 USD IPO Jun-18 - 4,720 USD Retail China Qiming Venture Partners, Qualcomm Ventures, Shunwei Capital Partners, Temasek Holdings, Wing Lung Bank, YF Capital

Alibaba Group, Ant Financial Service Group, Atomico, Beijing Dongfang Hongdao, CITIC Private Equity Funds Management, Coatue Management, Didi Chuxing, DST Global, GSR Ofo Bicycle* Mar-15 Ventures, Haofeng Group, Hony Capital, Junli Capital, Macrolink Group, Matrix Partners 2,433 USD Trade Sale Jan-18 Alibaba Group 3,000 USD Telecoms China China, Shunwei Capital Partners, Tianhe Capital, Vision+, Will Hunting Capital, Xiaomi Inc., ZhenFund

BAI Fund, BOCOM International Asset Management, Ctrip/Qunar, Farallon Capital Management, Foxconn Technology Group, Hanting Hotels, Hillhouse Capital Management, Mobike Ltd. Oct-15 ICBC International, Joy Capital, Line Corporation, Panda Capital, Qiming Venture Partners, 1,980 USD Trade Sale Apr-18 Meituan-Dianping 2,700 USD Telecoms China Qualcomm, Sequoia Capital, Sinovation Ventures, Temasek Holdings, Tencent, TPG, Vertex Ventures China, Warburg Pincus, Yung Park Capital

YTO Express* May-15 Alibaba Group, YF Capital - Merger Mar-16 Dayang Group 17,500 CNY Business Services China

Baidu, Boyu Capital, Hillhouse Capital Management, IDG Capital, Providence Equity iQiyi.com Inc.* Feb-10 1,890 USD IPO Mar-18 - 2,250 USD Telecoms China Partners, Sequoia Capital, Shunwei Capital Partners, Xiaomi Ventures

ZhongAn Online P & C Insurance CDH Investments, China International Capital Corporation, Keywise Capital Management, Jun-15 934 USD IPO Sep-17 - 11,898 HKD Internet China Co., Ltd* Morgan Stanley, SAIF Partners

CITIC Private Equity Funds Management, Happigo, Hony Capital, New Alliance Capital, Mango TV Jun-15 390 USD Trade Sale Sep-17 Happigo 9,500 CNY Telecoms China Sequoia Capital, Shanghai Guohe Capital, Xiamen C&D Corporation

Development Bank of Japan, East Ventures, Global Brain Corporation, Globis Capital Mercari, Inc.* Jul-13 Partners, GMO VenturePartners, ITOCHU Technology Ventures, Mitsui & Co., Sumitomo 113 USD IPO Jun-18 - 130,500 JPY Telecoms Japan Mitsui Trust Bank, United, Inc., World Innovation Lab (WiL)

Ping An Health Cloud Co., Ltd.* May-16 IDG Capital, SB Investment Advisers, SBI Holdings 900 USD IPO Apr-18 - 8,770 HKD Telecoms China

Source: Preqin Pro

*Denotes a partial exit.

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Fig. 26: 10 Largest Venture Capital Exits in Asia, 2016 - 2018 YTD (As at July 2018)

Date of First Total Known Portfolio Company Investment Investor(s) Funding (mn) Exit Type Exit Date Acquiror (Exit) Exit Value (mn) Industry Location Accel, Axis Bank, Baillie Gifford, Dragoneer Investment Group, DST Global, eBay Inc., GIC, Greenoaks Capital, HDFC Bank, Helion Venture Partners, Iconiq Capital, IDG Ventures India, Kalaari Capital, Microsoft, Morgan Stanley, Morgan Stanley Alternative Investment Flipkart Internet Private Limited* Oct-09 6,454 USD Trade Sale May-18 Walmart 16,000 USD Internet India Partners, Naspers, Qatar Investment Authority, SB Investment Advisers, Schroder Adveq, Sofina, Steadview Capital Management, T Rowe Price, Tencent, Tiger Global Management, TR Capital, Vulcan Capital

All-Stars Investment, Bank of China (Hong Kong), Deutsche Bank, DST Global, GIC, Hopu Investment Management, IDG Capital, Morgan Stanley, Morningside Venture Capital, Xiaomi Inc.* Jun-09 2,457 USD IPO Jun-18 - 4,720 USD Retail China Qiming Venture Partners, Qualcomm Ventures, Shunwei Capital Partners, Temasek Holdings, Wing Lung Bank, YF Capital

Alibaba Group, Ant Financial Service Group, Atomico, Beijing Dongfang Hongdao, CITIC Private Equity Funds Management, Coatue Management, Didi Chuxing, DST Global, GSR Ofo Bicycle* Mar-15 Ventures, Haofeng Group, Hony Capital, Junli Capital, Macrolink Group, Matrix Partners 2,433 USD Trade Sale Jan-18 Alibaba Group 3,000 USD Telecoms China China, Shunwei Capital Partners, Tianhe Capital, Vision+, Will Hunting Capital, Xiaomi Inc., ZhenFund

BAI Fund, BOCOM International Asset Management, Ctrip/Qunar, Farallon Capital Management, Foxconn Technology Group, Hanting Hotels, Hillhouse Capital Management, Mobike Ltd. Oct-15 ICBC International, Joy Capital, Line Corporation, Panda Capital, Qiming Venture Partners, 1,980 USD Trade Sale Apr-18 Meituan-Dianping 2,700 USD Telecoms China Qualcomm, Sequoia Capital, Sinovation Ventures, Temasek Holdings, Tencent, TPG, Vertex Ventures China, Warburg Pincus, Yung Park Capital

YTO Express* May-15 Alibaba Group, YF Capital - Merger Mar-16 Dayang Group 17,500 CNY Business Services China

Baidu, Boyu Capital, Hillhouse Capital Management, IDG Capital, Providence Equity iQiyi.com Inc.* Feb-10 1,890 USD IPO Mar-18 - 2,250 USD Telecoms China Partners, Sequoia Capital, Shunwei Capital Partners, Xiaomi Ventures

ZhongAn Online P & C Insurance CDH Investments, China International Capital Corporation, Keywise Capital Management, Jun-15 934 USD IPO Sep-17 - 11,898 HKD Internet China Co., Ltd* Morgan Stanley, SAIF Partners

CITIC Private Equity Funds Management, Happigo, Hony Capital, New Alliance Capital, Mango TV Jun-15 390 USD Trade Sale Sep-17 Happigo 9,500 CNY Telecoms China Sequoia Capital, Shanghai Guohe Capital, Xiamen C&D Corporation

Development Bank of Japan, East Ventures, Global Brain Corporation, Globis Capital Mercari, Inc.* Jul-13 Partners, GMO VenturePartners, ITOCHU Technology Ventures, Mitsui & Co., Sumitomo 113 USD IPO Jun-18 - 130,500 JPY Telecoms Japan Mitsui Trust Bank, United, Inc., World Innovation Lab (WiL)

Ping An Health Cloud Co., Ltd.* May-16 IDG Capital, SB Investment Advisers, SBI Holdings 900 USD IPO Apr-18 - 8,770 HKD Telecoms China

Source: Preqin Pro

| 37 ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY

Fig. 27: 10 Largest Venture Capital Exits in Asia, 2018 YTD (As at July 2018)

Date of First Total Known Portfolio Company Investment Investor(s) Funding (mn) Exit Type Exit Date Acquiror (Exit) Exit Value (mn) Industry Location Accel, Axis Bank, Baillie Gifford, Dragoneer Investment Group, DST Global, eBay Inc., GIC, Greenoaks Capital, HDFC Bank, Helion Venture Partners, Iconiq Capital, IDG Ventures India, Kalaari Capital, Microsoft, Morgan Stanley, Morgan Stanley Alternative Investment Flipkart Internet Private Limited* Oct-09 6,454 USD Trade Sale May-18 Walmart 16,000 USD Internet India Partners, Naspers, Qatar Investment Authority, SB Investment Advisers, Schroder Adveq, Sofina, Steadview Capital Management, T Rowe Price, Tencent, Tiger Global Management, TR Capital, Vulcan Capital

All-Stars Investment, Bank of China (Hong Kong), Deutsche Bank, DST Global, GIC, Hopu Investment Management, IDG Capital, Morgan Stanley, Morningside Venture Capital, Xiaomi Inc.* Jun-09 2,457 USD IPO Jun-18 - 4,720 USD Retail China Qiming Venture Partners, Qualcomm Ventures, Shunwei Capital Partners, Temasek Holdings, Wing Lung Bank, YF Capital

Alibaba Group, Ant Financial Service Group, Atomico, Beijing Dongfang Hongdao, CITIC Private Equity Funds Management, Coatue Management, Didi Chuxing, DST Global, GSR Ofo Bicycle* Mar-15 Ventures, Haofeng Group, Hony Capital, Junli Capital, Macrolink Group, Matrix Partners 2,433 USD Trade Sale Jan-18 Alibaba Group 3,000 USD Telecoms China China, Shunwei Capital Partners, Tianhe Capital, Vision+, Will Hunting Capital, Xiaomi Inc., ZhenFund

BAI Fund, BOCOM International Asset Management, Ctrip/Qunar, Farallon Capital Management, Foxconn Technology Group, Hanting Hotels, Hillhouse Capital Management, Mobike Ltd. Oct-15 ICBC International, Joy Capital, Line Corporation, Panda Capital, Qiming Venture Partners, 1,980 USD Trade Sale Apr-18 Meituan-Dianping 2,700 USD Telecoms China Qualcomm, Sequoia Capital, Sinovation Ventures, Temasek Holdings, Tencent, TPG, Vertex Ventures China, Warburg Pincus, Yung Park Capital

Baidu, Boyu Capital, Hillhouse Capital Management, IDG Capital, Providence Equity iQiyi.com Inc.* Feb-10 1,890 USD IPO Mar-18 - 2,250 USD Telecoms China Partners, Sequoia Capital, Shunwei Capital Partners, Xiaomi Ventures

Development Bank of Japan, East Ventures, Global Brain Corporation, Globis Capital Mercari, Inc.* Jul-13 Partners, GMO VenturePartners, ITOCHU Technology Ventures, Mitsui & Co., Sumitomo 113 USD IPO Jun-18 - 130,500 JPY Telecoms Japan Mitsui Trust Bank, United, Inc., World Innovation Lab (WiL)

Ping An Health Cloud Co., Ltd.* May-16 IDG Capital, SB Investment Advisers, SBI Holdings 900 USD IPO Apr-18 - 8,770 HKD Telecoms China

CDH Investments, China CITIC Bank, China Development Bank Capital, China Merchants Bank, CTBC Bank, Ctrip.com International, Ltd., DCM, Deutsche Bank, East West Bank, Baring Private Equity Asia, eHi Auto Services Limited Mar-08 Enterprise Holdings, Goldman Sachs Merchant Banking Division, Ignition Venture 487 USD Sale to GP Apr-18 Crawford Capital, MBK 938 USD Industrials China Partners, JAFCO Investment (Asia Pacific), New Access Capital, Qiming Venture Partners, Partners, Redstone Capital Shanghai Pudong Development Bank

58.com, Alibaba Group, BAI Fund, DCM, DST Global, Genesis Capital, Gothic Corporation, Tantan Culture Development GX Capital, Kleiner Perkins Caufield & Byers, LB Investment, Matrix Partners China, Momo Jan-15 120 USD Trade Sale Feb-18 Momo Inc. 601 USD Telecoms China (Beijing) Co., Ltd. Inc., SAIF Partners, Sequoia Capital, Tenzing, Tiger Global Management, Vision Plus Capital, YF Capital, YY, Zhongwei Capital

Bilibili Group* May-14 Ourpalm Games, Qiming Venture Partners 22 USD IPO Mar-18 - 483 USD Internet China

Source: Preqin Pro

*Denotes a partial exit.

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Fig. 27: 10 Largest Venture Capital Exits in Asia, 2018 YTD (As at July 2018)

Date of First Total Known Portfolio Company Investment Investor(s) Funding (mn) Exit Type Exit Date Acquiror (Exit) Exit Value (mn) Industry Location Accel, Axis Bank, Baillie Gifford, Dragoneer Investment Group, DST Global, eBay Inc., GIC, Greenoaks Capital, HDFC Bank, Helion Venture Partners, Iconiq Capital, IDG Ventures India, Kalaari Capital, Microsoft, Morgan Stanley, Morgan Stanley Alternative Investment Flipkart Internet Private Limited* Oct-09 6,454 USD Trade Sale May-18 Walmart 16,000 USD Internet India Partners, Naspers, Qatar Investment Authority, SB Investment Advisers, Schroder Adveq, Sofina, Steadview Capital Management, T Rowe Price, Tencent, Tiger Global Management, TR Capital, Vulcan Capital

All-Stars Investment, Bank of China (Hong Kong), Deutsche Bank, DST Global, GIC, Hopu Investment Management, IDG Capital, Morgan Stanley, Morningside Venture Capital, Xiaomi Inc.* Jun-09 2,457 USD IPO Jun-18 - 4,720 USD Retail China Qiming Venture Partners, Qualcomm Ventures, Shunwei Capital Partners, Temasek Holdings, Wing Lung Bank, YF Capital

Alibaba Group, Ant Financial Service Group, Atomico, Beijing Dongfang Hongdao, CITIC Private Equity Funds Management, Coatue Management, Didi Chuxing, DST Global, GSR Ofo Bicycle* Mar-15 Ventures, Haofeng Group, Hony Capital, Junli Capital, Macrolink Group, Matrix Partners 2,433 USD Trade Sale Jan-18 Alibaba Group 3,000 USD Telecoms China China, Shunwei Capital Partners, Tianhe Capital, Vision+, Will Hunting Capital, Xiaomi Inc., ZhenFund

BAI Fund, BOCOM International Asset Management, Ctrip/Qunar, Farallon Capital Management, Foxconn Technology Group, Hanting Hotels, Hillhouse Capital Management, Mobike Ltd. Oct-15 ICBC International, Joy Capital, Line Corporation, Panda Capital, Qiming Venture Partners, 1,980 USD Trade Sale Apr-18 Meituan-Dianping 2,700 USD Telecoms China Qualcomm, Sequoia Capital, Sinovation Ventures, Temasek Holdings, Tencent, TPG, Vertex Ventures China, Warburg Pincus, Yung Park Capital

Baidu, Boyu Capital, Hillhouse Capital Management, IDG Capital, Providence Equity iQiyi.com Inc.* Feb-10 1,890 USD IPO Mar-18 - 2,250 USD Telecoms China Partners, Sequoia Capital, Shunwei Capital Partners, Xiaomi Ventures

Development Bank of Japan, East Ventures, Global Brain Corporation, Globis Capital Mercari, Inc.* Jul-13 Partners, GMO VenturePartners, ITOCHU Technology Ventures, Mitsui & Co., Sumitomo 113 USD IPO Jun-18 - 130,500 JPY Telecoms Japan Mitsui Trust Bank, United, Inc., World Innovation Lab (WiL)

Ping An Health Cloud Co., Ltd.* May-16 IDG Capital, SB Investment Advisers, SBI Holdings 900 USD IPO Apr-18 - 8,770 HKD Telecoms China

CDH Investments, China CITIC Bank, China Development Bank Capital, China Merchants Bank, CTBC Bank, Ctrip.com International, Ltd., DCM, Deutsche Bank, East West Bank, Baring Private Equity Asia, eHi Auto Services Limited Mar-08 Enterprise Holdings, Goldman Sachs Merchant Banking Division, Ignition Venture 487 USD Sale to GP Apr-18 Crawford Capital, MBK 938 USD Industrials China Partners, JAFCO Investment (Asia Pacific), New Access Capital, Qiming Venture Partners, Partners, Redstone Capital Shanghai Pudong Development Bank

58.com, Alibaba Group, BAI Fund, DCM, DST Global, Genesis Capital, Gothic Corporation, Tantan Culture Development GX Capital, Kleiner Perkins Caufield & Byers, LB Investment, Matrix Partners China, Momo Jan-15 120 USD Trade Sale Feb-18 Momo Inc. 601 USD Telecoms China (Beijing) Co., Ltd. Inc., SAIF Partners, Sequoia Capital, Tenzing, Tiger Global Management, Vision Plus Capital, YF Capital, YY, Zhongwei Capital

Bilibili Group* May-14 Ourpalm Games, Qiming Venture Partners 22 USD IPO Mar-18 - 483 USD Internet China

Source: Preqin Pro

| 39 ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY

Fig. 28: Venture Capital Deals* in Asia, 2007 - 2018 YTD (As at July 2018)

6,000 100 Aggregate Deal Value ($bn) 5,000 80 4,000 60 3,000 40 No. of Deals 2,000 1,000 20 0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD Greater China Northeast Asia ASEAN South Asia Aggregate Deal Value ($bn) Source: Preqin Pro Fig. 29: Venture Capital Deals* in Greater China, Fig. 30: Venture Capital Deals* in Northeast Asia, 2007 - 2018 YTD (As at July 2018) 2007 - 2018 YTD (As at July 2018)

4,000 70 400 2.5 Aggregate Deal Value ($bn) Aggregate Deal Value ($bn) 3,500 60 350 2.0 3,000 50 300 2,500 250 40 1.5 2,000 200 30 1,500 150 1.0 No. of Deals No. of Deals 20 100 1,000 0.5 500 10 50 0 0 0 0.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018YTD 2018YTD No. of Deals Aggregate Deal Value ($bn) No. of Deals Aggregate Deal Value ($bn) Source: Preqin Pro Source: Preqin Pro Fig. 31: Venture Capital Deals* in ASEAN, Fig. 32: Venture Capital Deals* in South Asia, 2007 - 2018 YTD (As at July 2018) 2007 - 2018 YTD (As at July 2018)

500 7 1,200 12 Aggregate Deal Value ($bn) Aggregate Deal Value ($bn) 6 400 1,000 10 5 800 8 300 4 600 6 200 3 No. of Deals No. of Deals 400 4 2 100 1 200 2 0 0 0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018YTD 2018YTD No. of Deals Aggregate Deal Value ($bn) No. of Deals Aggregate Deal Value ($bn) Source: Preqin Pro Source: Preqin Pro *Figures exclude add-ons, grants, mergers, venture debt and secondary stock purchases.

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Fig. 33: Venture Capital Exits in Asia, 2007 - 2018 YTD (As at July 2018)

350 50

300 Aggregate Exit Value ($bn) 40 250 200 30

150 20 No. of Exits 100 10 50 0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD Greater China Northeast Asia ASEAN South Asia Aggregate Exit Value ($bn) Source: Preqin Pro Fig. 34: Venture Capital Exits in Greater China, Fig. 35: Venture Capital Exits in Northeast Asia, 2007 - 2018 YTD (As at July 2018) 2007 - 2018 YTD (As at July 2018)

200 50 35 1.6 Aggregate Exit Value ($bn) Aggregate Exit Value ($bn) 30 1.4 40 150 25 1.2 1.0 30 20 100 0.8 20 15

No. of Exits No. of Exits 0.6 50 10 10 0.4 5 0.2 0 0 0 0.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018YTD 2018YTD No. of Exits Aggregate Exit Value ($bn) No. of Exits Aggregate Exit Value ($bn) Source: Preqin Pro Source: Preqin Pro Fig. 36: Venture Capital Exits in ASEAN, 2007 - 2018 YTD Fig. 37: Venture Capital Exits in South Asia, (As at July 2018) 2007 - 2018 YTD (As at July 2018)

30 1.2 120 20 Aggregate Exit Value ($bn) Aggregate Exit Value ($bn) 25 1.0 100 15 20 0.8 80 15 0.6 60 10 No. of Exits No. of Exits 10 0.4 40 5 5 0.2 20 0 0.0 0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018YTD 2018YTD No. of Exits Aggregate Exit Value ($bn) No. of Exits Aggregate Exit Value ($bn) Source: Preqin Pro Source: Preqin Pro

| 41 ASIA’S VENTURE CAPITAL ECLIPSE: A PREQIN AND VERTEX VENTURES STUDY

INVESTORS

Fig. 38: Global Investors Seeking Asia-Focused Venture Capital Funds in the Next 12 Months by Investor Location

Europe North America Asia 15% 53% 28% Rest of World 5%

Source: Preqin Pro

Fig. 40: ASEAN-, China- and India-Based Venture Capital Fig. 39: Asia-Based Venture Capital Investors by Type Investors by Type

Corporate Investor Corporate Investor 2% Investment Company 4% 4% Investment Company 3% Bank/Investment Bank 8% 4% Government Agency Family Office 6% 4% 31% Government Agency 30% Insurance Company 5% Insurance Company 6% Bank Private Equity Fund of 7% Funds Manager 6% Wealth Manager Asset Manager Private Equity Fund of 7% Wealth Manager 6% Funds Manager 12% 8% Public Pension Fund 7% 17% Asset Manager 12% Private Sector Pension 10% Fund Family Office Other Other Source: Preqin Pro Source: Preqin Pro Fig. 41: Global Venture Capital Investors by Location

60% 52% 50%

40%

30%

20%

Proportion of Investors 11% 10% 5% 4% 4% 3% 2% 2% 2% 2% 0% US China Japan South Korea UK India Australia Switzerland Germany Canada Investor Location Source: Preqin Pro

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Fig. 42: Number of Asia-Based Venture Capital Investors over Time, 2013 - 2018

803 638 553 576 368 403

Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Jun-18

Source: Preqin Pro

Fig. 43: Asia- vs. North America & Europe-Based Venture Fig. 44: Asia- vs. China & India-Based Venture Capital Capital Investors by AUM Investors by AUM

100% 4% 100% 12% 3% 12% 7% 13% $100bn or More 6% $100bn or More 80% 10% 10% $50-99bn 80% 18% 20% $50-99bn 35% 20% 60% $10-49bn 60% $10-49bn 37% 40% 32% 12% $1-9.9bn 40% 32% $1-9.9bn $500-999mn Proportion of Investors 20% 10% 34% 13% $500-999mn 16% Less than $500mn Proportion of Investors 20% 10% Less than $500mn 0% 16% 19% Asia North America & 0% Europe Asia China & India Investor Location Investor Location Source: Preqin Pro Source: Preqin Pro

ABOUT VERTEX VENTURES

Vertex Ventures is a global network of operator-investors who manage portfolios in the U.S., China, Israel, India and Southeast Asia.

Vertex teams combine firsthand experience in transformational technologies; on-the-ground knowledge in the world’s major innovation centers; and global context, connections and customers.

For more information on Vertex and our publications, please feel free to contact us at [email protected].

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